BEACON EQUITY RESEARCH

Analyst: Victor Sula, PhD

Initial Report
August 13th, 2008

SPNG daily 08/12/08

0.6

0.5

0.4

SpongeTech® Delivery Systems Inc. 0.3

43 West 33rd Street (between
5th-6th Avenue) Suite 600,
New York, NY 10001 0.2
volume
Tel: 877-776-6438 30

Fax: 212-695-9342

Millions
20
Investor Inquiries: Bill Young,
1-877-776-6438 10
[email protected] or
[email protected] 0
www.spongetech.com Jun Jul Aug

Market Data
FY FY
Market Data 28-Jul-08 2007E 2008E 2009E 2010E

Symbol SPNG Revenue, $ Mn 0.06 5.50 28.22 28.22

Exchange OTC BB EPS, $ (0.020) 0.005 0.016 0.016
Current Price $0.04
Price Target $0.19 Gross margin 29.4% 84.7% 83.2% 83.2%
Rating Speculative Buy Net Margin -1483% 18% 24% 24%
Outstanding Shares 409.9M
Market Cap $16.4M P/E n/m 8.69 2.50 2.50
Average 3M Volume 6,747,430 P/S 297.58 2.98 0.58 0.58

Company Introduction
SpongeTech® Delivery Systems Inc. (OTCBB: SPNG) designs, produces, markets
and distributes cleaning products for vehicular use. The Company has a patented tech-
nology based on sponges that contain hydrophilic (liquid absorbing) foam polyure-
thane matrices. SPNG’s sponges are specially configured with an outer contact layer
and an inner matrix, which is loaded with custom formulated soaps and waxes that are
released when the sponge is applied to a surface.

At present, the Company’s product line focuses on vehicular cleaning uses. However,
SPNG is applying its patented technology to the development of sponges for additional
applications, including sponges with anti-bacterial, bath and kitchen soaps for house-
hold uses, as well as a children’s bath foam sponge.

Please carefully read the risks and disclaimer section at the end of this report.
 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

During FY 2008, SPNG reported robust growth with revenues approaching $5.5 million. The sales gain is attributable to an ex-
panded marketing campaign, including sales from the Web site. Going forward, the Company continues to experience strong
demand in the United States and abroad, and is entering FY 2009 with order backlog in a $27 million range.

Investment Highlights

A business model capitalizing on innovative product offering

SPNG manufactures and distributes specially configured sponges containing an outer contact layer and an inner matrix,
which is loaded with formulated soaps or soap and wax. When the sponge is applied to a surface with minimal pressure, the
soap is applied to the surface. When the sponge is not in use, the hydrophilic matrix contains the soap and prevents leeching.

Product characteristics drive rapid adoption

SPNG’s technology offers significant cost savings to consumers since the wash and wax are built into the sponge; the consum-
er doesn’t need to purchase these products separately. In addition, the Company’s sponges are biodegradable, gentle enough
for all surfaces, yet tough enough to remove stubborn dirt. SPNG’s automotive/vehicle sponge was named one of the seven
best new products at the Automotive Aftermarket Product Expo in Las Vegas this year.

Robust revenue growth evidences strong product demand

During FY 2008, SPNG reported robust sales growth with revenue ap-
proaching $5.5 million, up from $0.06 million in FY 2007. An expanded
marketing campaign, development of sales from the Web site and ex-
tended distribution channels fueled FY 2008 sales growth. The Company
continues to report strong interest from U.S. and international buyers and
enters FY 2009 with confirmed order backlog in a $27 million range.

Product line extension broaden revenue potential

The Company’s primary product line has been designed for automotive/
vehicle applications, including boats, airplanes, ATVs, jet skis and motor-
cycles. SPNG also markets Uncle Norman’s™ Pet Sponge, designed for
use with dogs, cats and other pets. Additional applications are in develop-
ment. These include anti-bacterial, kitchen and bath cleaners and a unique
foaming bath sponge for children.

Effective marketing campaign accelerates growth pace

During FY 2008, SPNG significantly expanded its sales and marketing, be-
gan airing a TV commercial for its auto wash & wax system, and produced
a new commercial for the Pet Sponge Care Kit. The commercials are ex-
pected to run through February 2010 in all 50 U.S. states. SPNG’s

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 2

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

commercials will air on LOGO, Inspiration, Hallmark Movie Channel, Discovery Science, NBATV, ESPN University, CBS Col-
lege Sports, Sports New England, Sports Mid-Atlantic, Sports South, Fox Sports Pittsburgh, Fox Sports Southwest, and other
cable and satellite TV channels.

The Company has also signed advertising agreements with several magazines and retailer catalogs, including Eastwood Co
Automotive, JC Whitney, Mid-America Motorworks, Publisher’s Clearinghouse, Quadratec Essentials for Jeep, Speedgear,
Doubleday Military Book Club, Handyman Club of America, Carol Wright, Heartland America, Overstock.com, Reiman
Country Store, Seventh Avenue, Fingerhut and Cabela’s Catalog. This campaign complements SPNG’s ongoing radio and TV
advertising on WFAN-AM Radio, SportsNet New York, BusinessTalkRadio and LifestyleTalkRadio.

Other promotional agreements include sponsorship by the New York Yankees and New York Mets and promotions on QVC’s
“Keep It Clean” broadcast and on The Price is Right Game Show Prime Time Specials.

Large purchase orders from major U.S. and Latin America retailers

The Company is in discussions with several major retailers who are evaluating and test marketing its products. SPNG is also
negotiating with a major supplier of brand name household cleaning products.

The Company has secured several orders, which together exceed $11 million, from well-known chain stores. SPNG received
initial orders totaling $4.95 million from Winn Dixie, Ollie’s, and Price Chopper, as well as Wal-Mart Mexico and Wal-Mart
South America. The second order from Wal-Mart South America totaled $2.25 million and is scheduled for December 2008
delivery. A third order totaled $4.16 million and will ship to South America in January 2009.

Company Business Strategy

Background

SPNG designs, produces, markets and distributes cleaning products. The Company owns a patented technology based on
sponges containing hydrophilic, which are liquid absorbing, foam polyurethane matrices. These products can be pre-loaded
with detergents and waxes, which are absorbed in the core of the sponge, then gradually released during use.

SPNG also began marketing products based on hydrophilic sponge technology for bath, pet and home use in 2008. Other
opportunities for broadening SPNG’s product lines and distribution channels are being explored.

The Company plans to operate through five business segments:

1) Car Care Products

2) Pet Care Products

3) Child Care Products

4) Home Care Products

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 3

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

5) Pharma and Beauty Products

Its products are produced in the United States by independent subcontractors using SPNG’s patented technology and brand
names. The Company believes these sub-contractors have adequate manufacturing capacity to meet anticipated future de-
mand.

Products

The Company markets specially configured sponges containing an outer contact layer and an inner matrix. SPNG’s manufac-
turer, H.H. Brown Shoe Technologies, loads the inner matrix of the sponge with custom formulated soaps and, in the case of
the automotive cleaning and polishing product, soap and wax. When the sponge is applied to a surface with minimal pres-
sure, the soap and wax are released. When the sponge is not in use, the hydrophilic matrix holds the soap and wax in so that
these products don’t leech.

Automotive/vehicle product line

The Company’s primary product line is designed for automotive/vehicle applications. It can be used to clean and polish boats,
airplanes, ATVs, jet skis, motorcycles and other vehicles. SPNG’s patented Super Absorbent Polymer technology locks the
car soap and wax into the sponge when it is formed. Sufficient cleanser is loaded for eight or more washes and waxes. The
technology also holds the soap and wax safely inside the sponge until it is activated by a combination of water and squeezing
pressure. As a result, the soap and wax doesn’t leech or dry up between uses.

With this technology, SPNG offers significant savings and convenience to consumers since the wash and wax are already built
into the sponge. In addition, the Company’s sponge system is biodegradable, gentle enough for all surfaces, yet tough enough
to remove most dirt.

SPNG’s automotive/vehicle sponge was named one of the seven best products at the recent Automotive Aftermarket Product
Expo in Las Vegas.

Pets product line

The Company also markets Uncle Norman’s™ Pet Sponge for
shampooing dogs, cats and other pets. Embedded in the Pet
Sponge are 1) shampoo, 2) coat conditioner, 3) odor inhibitor and
4) massage bumps. These items are embedded using hydrophilic
foam that inhibits bacterial growth and provides a thorough gen-
tle cleaning. In addition, 42 embedded massage

bumps on the pet sponge’s surface increase the effectiveness of

the bath and provide a massage effect that helps relax the pet.

This earth-friendly product eliminates the need to purchase sepa-

rate bottles of shampoo, conditioner, and odor neutralizers. Each
pet sponge is good for multiple applications. The shampoo and
other ingredients are activated when the sponge is squeezed after
being soaked in water.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 4

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

Other applications

The Company is exploring additional applications for its technology including an anti-bacterial, kitchen and bath cleaner, and
a unique foaming bath sponge for children.

SPNG has developed a children’s bath foam sponge (Puddle Pals), which features a “safe mesh” coating that prevents tearing.
The sponge comes in various animal shapes and colors and is infused with a gentle no-tear, non-irritating anti-bacterial soap.
The bath foam sponge does not leech soap when it is floating in the bathtub as the inner hydrophilic matrix retains the soap
until the sponge is squeezed for use. SPNG may pursue retail distribution for this product through pharmacies and depart-
ment stores.

The Company has also developed prototype household cleaning sponges infused with anti-bacterial bath and kitchen soaps.
These products are being testing by a national detergent manufacturer for possible use under its logo and brand.

SPNG can use a wide variety of cleansers, including anti-bacterial and abrasive soaps, in its sponges. Products can be tailored
to the cleaning needs of different kinds of vehicles. New vehicles or those being prepared for classic car shows, for example,
require a gentle cleaner while older cars with faded paint may require a cleanser containing a compounding substance or
gentle abrasive.

Sales and marketing

During FY 2008, SPNG’s quarterly sales rose from $64,000 in the first quarter to $1.3 million in the third quarter. Fourth-quarter
sales are estimated to exceed $3.8 million. The strong sales gains reflect an expanded marketing campaign that included sales
from the Web site.

Quarterly Revenue, $ thousands

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
Q3 FY2007 Q4 FY2007 Q1 FY2008 Q2 FY2008 Q3 FY2008 Q4 FY2008E

Source: SEC Filings

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 5

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

In the past, the Company sold its products through a network of representatives including TurtleWax, Lidel Fitzmaurice,
Bill Perry & Associates, Creative Marketing and others. During FY 2008, SPNG significantly expanded its sales and mar-
keting effort and began airing TV commercials for the auto wash & wax system. The commercial is currently appearing on
a variety of cable and satellite channels and is scheduled to run through February 2010. While SPNG’s advertising began
on a modest scale, it has since expanded to all 50 U.S. states. The Company’s commercials will air on LOGO, Inspiration,
Hallmark Movie Channel, Discovery Science, NBATV, ESPN University, CBS College Sports, Sports New England, Sports
Mid-Atlantic, Sports South, Fox Sports Pittsburgh, Fox Sports Southwest and other cable and satellite channels.

SPNG is also producing a new commercial for the Pet Sponge Care Kit. When completed, the commercial will air on a
variety of cable and satellite channels through June 2010.

During 2008, SPNG entered into numerous arrangements, which help to promote its product offerings:

• The Company has committed to donating a percentage of sales from its children’s bath sponge to The Darryl Strawberry
Foundation, an organization dedicated to raising global awareness of autism and other developmental disorders.

• SPNG signed an agreement with the New York Yankees, giving it the right to display advertising in Yankee Stadium and
make certain other commercial arrangements for the 2008 baseball season. The Company held a promotional day at Yankee
Stadium on July 28 and distributed key chains to the first 18,000 fans. Before the game, SPNG’s products were advertised
through radio and television spots. In addition, the Company’s name was spotlighted in the ten games played prior to the
promotional day. The term of the agreement extend through November 1, 2008.

• In March, SPNG entered into a one-year consulting agreement with Straw Marketing and Darryl Strawberry. Per the terms
of the agreement, Darryl Strawberry will make promotional appearances for the Company, coordinate promotional appear-
ances with the New York Yankees and New York Mets, and introduce the Company to promotional opportunities with Major
League Baseball

• In April, SPNG’s auto care products, including “Smart Sponge,” with wash and wax imbedded inside, and the Detail
Sponge and Chamois, were featured on QVC’s “Keep It Clean” broadcast.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 6

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

• Also in April, the Company signed an agreement with the New York Mets for certain advertising rights during the 2008
baseball season. Per the terms of the agreement, SPNG has the right to post signage in left and right fields during three full
innings of each game. The Company had a promotional day on May 13 and distributed T-shirts to the first 12,000 children
in attendance.

• SPNG was featured on The Price is Right Game Show during May TV Sweeps. The feature included two product place-
ments on games. Airdates are tentatively scheduled for April 30 or May 7, May 14 or May 21.

• In May, SPNG began offering coupon inserts for its auto wash & wax system. The Company will be advertising in a variety
of magazines and catalogs, including Eastwood Co Automotive, JC Whitney, Mid-America Motorworks, Publisher’s Clear-
inghouse, Quadratec Essentials for Jeep, Speedgear, Doubleday Military Book Club, Handyman Club of America, Carol
Wright, Heartland America, Overstock.com, Reiman Country Store, Seventh Avenue, Fingerhut, and Cabela’s Catalog. This
campaign will complement SpongeTech® ‘s ongoing radio and TV advertising on WFAN-AM Radio, SportsNet New York,
BusinessTalkRadio and LifestyleTalkRadio.

In addition, the Company has updated its corporate Web site to include product information, an updated online ordering sec-
tion for placing product orders and a new investor relations section with recent Company news, stock quotes and IR contact
information.

SPNG is also promoting its products at trade shows. During 2008, SPNG attended or plans to attend the Los Angeles Auto
Show, the North American International Auto Show, the South Carolina International Auto Show, the West Virginia Auto
Show, the Pennsylvania Auto and Boat Show, the Northeast Auto Show, the Motor Trend International Auto Show, the Chi-
cago Auto Show, the Virginia International Auto Show, the New York International Auto Show, the Tampa Bay International
Auto Show, the Charlotte International Auto Show and the National Hardware Show.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 7

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

Industry Outlook

According to Freedonia Group, U.S. demand for industrial and institutional cleaning chemicals is projected to increase 3.8%
annually to $10 billion by 2010. Increased spending reflects the growing popularity of multifunctional cleaning chemicals
offering sanitizing and other benefits, as well as reduced labor costs for janitorial and other cleaning operations.

Demand for industrial and institutional cleaning chemicals, $ billions

12

9.6 10.0
10
8.9 9.2
8.3 8.6
8

2000 2005 2006 2007 2008 2009 2010

Source: http://www.allbusiness.com/marketing/market-research/3948060-1.html

Commercial applications lead the industrial and institutional cleaning chemical segment, accounting for about 65% of over-
all demand. While it will remain the largest segment, the commercial segment is expected to report growth slightly below
the market average. The same is true for the manufacturing segment. The smaller institutional segment is poised for stronger
growth mainly due to growing demand from the health care sector.

Industrial and institutional cleaning industry segments, $ billions

2000 2005 2010 2000 2005 2010

I&I Cleaning Chemical Demand 7.1 8.3 10.0 100% 100% 100%
Commercial: 4.7 5.4 6.4 66.2% 65.4% 64.4%
Foodservice 1.7 2.0 2.5 23.7% 24.5% 25.1%
Other 3.0 3.4 3.9 42.5% 40.9% 39.3%
Manufacturing 1.6 1.8 2.1 22.3% 21.5% 21.1%
Institutional & Government 0.8 1.1 1.4 11.5% 13.1% 14.5%

Source: http://www.allbusiness.com/marketing/market-research/3948060-1.html

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 8

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

Foodservice is the largest commercial market, and food and beverage processing is by far the largest manufacturing market.
Food-related operations are fairly intensive users of cleaning chemicals due to the need to ensure customer safety and com-
ply with numerous regulatory requirements. Unlike many other markets, however, foodservice cleanser choices are limited.
Foodservice and food processing customers can’t simply use the most effective product since their cleansers must also be
safe for workers and consumers.

Freedonia Group anticipates that disinfectants and sanitizers will record the fastest growth among industrial and institutional
cleaning chemicals through 2010. Gains will be driven by heightened safety and health concerns regarding the spread of
infectious diseases and risks associated with food-borne pathogens and other contaminants.

Given Freedonia Group forecasts, we believe SPNG is addressing a huge, growing market. Considering the strong demand
for cleaning solutions, we expect SPNG to garner a meaningful share of this growing segment of the cleaning market over
the next three to five years.

Financial Review

In FY 2008, the Company reported significant revenue growth with sales approaching $1.3 million in the third quarter and
estimated to reach $3.8 million in the fourth quarter. SPNG also recorded a $0.9 million increase in operating expenses dur-
ing the third quarter due to higher general and administrative expenses and advertising expenses totaling $0.7 million. Gross
margins were 86.4% and SPNG turned profitable in the third quarter, reporting net income of approximately $0.2 million.

Income statement, $

Q1 FY 2008 Q2 FY 2008 Q3 FY2008

Sales 64,076 278,976 1,281,704

Cost of goods sold 13,566 35,110 174,022
Gross profit 50,510 243,866 1,107,682
General and Administrative expenses 56,786 230,862 914,864
Depreciation and amortization expense 3,985 4,336 4,336
Net income (10,261) 8,668 188,482
Diluted EPS (0.000) 0.000 0.002

Gross margin 78.8% 87.4% 86.4%

Net margin -16.0% 3.1% 14.7%

Source: SEC Filings, FY ending May 31.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 9

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

At the end of February 2008, SPNG had cash and equivalents of $19,774 and a working capital surplus of $1.8 million.
SPNG’s management anticipates that the Company will need to raise at least $100,000 in external funding to implement its
FY 2009 business plan.

Balance sheet, $

31-May-07 30-Nov-07 29-Feb-08

Cash and equivalents 387 21,064 19,774

Current Assets 387 779,773 2,131,880
Property and equipment 19,979 17,486 14,993
Intangible assets 90,000 297,443 305,443
Total assets 110,366 1,094,702 2,452,816

Current liabilities 268,885 273,280 289,947

Equity, including (158,519) 821,422 2,162,869
Accumulated deficit (3,652,718) (3,654,311) (3,455,568)

Source: SEC Filings

From January through June 2008, the Company issued an aggregate of 267 million shares of common stock to RM Enter-
prises International Inc., a company that is controlled by SPNG’s officers and directors. SPNG received proceeds of $4.9
million from this issuance. The average per share price was $0.0184.

As a result of the forgoing transactions, the Company now has approximately 400 million shares of common stock and 10
million shares of Class B stock issued and outstanding.

Outlook and Valuation

The Company is negotiating with major retailers who are evaluating its products. SPNG is also involved in discussions with
a major supplier of brand name household cleaning products regarding the use of its patented technology to produce various
household cleaning products under the supplier’s well-known brand name.

SPNG has also announced multi-million dollar orders from well-known chain stores. The Company received nearly $5.0
million in initial orders from Winn Dixie, Ollie’s, Price Chopper, Wal-Mart Mexico and Wal-Mart South America. The
second order from Wal-Mart South America totaled $2.25 million and is scheduled for Christmas delivery. A third order for
$4.2 million will ship to South America in January 2009.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 10

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

SPNG expects to report fourth-quarter revenues approaching $3.9 million and enters FY 2009 with confirmed order backlog
exceeding $27 million.

We estimate revenues will reach $5.5 million in FY 2008 and $28.2 million in FY 2009. Going forward, we expect SPNG
to maintain 30% average annual longer-term growth as it introduces new products through major U.S. retailers and rapid
penetrates key international markets.

EPS forecast, $
FY2008E FY 2009E FY 2010E

Sales 5,499,753 28,219,867 37,908,783

Cost of goods sold 841,821 4,736,884 6,692,134
Gross profit 4,657,931 23,482,983 31,216,649
General and Administrative expenses 3,658,436 16,629,925 20,601,624
Depreciation and amortization expense 17,157 18,363 18,958
Total operating expenses 3,675,593 16,648,288 20,620,582

Net income 982,339 6,834,695 10,596,067

Diluted EPS 0.005 0.016 0.023

Source: Analyst estimates

The Company turned profitable in the third quarter of FY 2008 and reported better balance sheet and cash positions. As a
result, we don’t anticipate the need for significant external financing, which would result in share dilution.

Comparative analysis

For valuation purposes, we compared SPNG to manufacturers and distributors of soaps, detergents, waxes, sponges, cloths
and other automotive, household and bath products. The peer companies are trading at 17 times forward Price/Earnings
multiples and 1.4 times forward Price/Sales multiples. We think SPNG should trade at the lower end of the peer group P/E
range due to the greater risk associated with its smaller size and earlier development stage.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 11

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

Peer group comparison

Company Name Ticker Share Mrkt. Cap P/E P/S
28-Jul-08 symbol Price, $ $ Mn 2008 2009 2008 2009

Ecolab Inc. ECL 44.79 11070 23.82 20.83 1.79 1.67

Clorox Co. CLX 54.51 7510 16.88 14.65 1.43 1.34
Church & Dwight Co. Inc. CHD 54.95 3,650 19.56 17.23 1.51 1.42
Stepan Co. SCL 57.39 542 25.17 21.90 n/a n/a
Procter and Gamble PG 64.80 197,8 18.51 16.83 2.40 2.24
Unilever plc UL 27.90 37,53 12.98 12.13 0.62 0.60
Median 19.03 17.03 1.51 1.42

SpongeTech® Delivery Systems SPNG 0.04 14.96 7.93 2.28 2.72 0.53

Source: Yahoo Finance, Analyst estimates

Applying our 2009 EPS forecast of $0.016 to the Unilever Pls forward P/E multiple of 12.13x, we derive a $0.19 target price
for SPNG’s shares. We are initiating coverage of Spongetech Delivery Systems Inc. with a Speculative Buy rating and a
$0.19 price target. However, we strongly advise investors to consider the risk factors cited below before investing.

Investment Risks

Inherent business risks

SPNG is pursuing an aggressive growth strategy in the cleaning chemicals market. While the Company has pro-
vided optimistic sales forecasts, there is no assurance that it will be able to maintain this growth pace or success-
fully introduce new products. Opportunities will be limited if its expansion is not made on economically favorable
terms.

Intense competition

SPNG competes with many cleaning product companies, which have greater financial resources, brand visibility
and distribution channels. The Company’s strong product offerings may make it an attractive acquisition candi-
date.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 12

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

Dilution to existing shareholders

From January of 2008 through June 2008, the Company issued an aggregate of 267 million shares of common stock to RM
Enterprises International Inc., a company controlled by SPNG’s officers and directors. In addition, SPNG issued shares to
officers. These transactions have increased the fully diluted share count to nearly 400 million common shares and 10 million
Class B shares.

RM Enterprises International has given SPNG the right, at any time on or prior to February 28, 2010, to repurchase all or
any portion of the 267 million shares that RM Enterprises International owns at the original price. However, there is no as-
surance that this right will be exercised.

Management

Michael Metter Michael Metter has served as president of RM Enterprises International,

President, CEO and Director SPNG’s majority stockholder, since April 2001 and as its CEO since March
2, 2004. He has also been a director of Western Power and Equipment Corp.
since February 2003. Mr. Metter has served as president and CEO of Busi-
nessTalkRadio.net, a syndicated radio network based in Greenwich, Conn.
Since June 2003, he has been chairman of the board of Tiburon Capital
Group and DL Investments Inc., both of which are privately held investment
companies. Since May 2000 he has served as vice president of ERC Corp.,
a privately held marketing consultant. He served as compliance director for
Security Capital Trading Inc., a securities broker-dealer, from October 1998
to February 2001. Mr Metter was also a principal at Madison Capital from
September 1997 to October 1998. On April 19, 2001, Mr. Metter filed a peti-
tion in personal bankruptcy in the District of Connecticut, Bridgeport Divi-
sion, and was discharged on December 14, 2001. Mr. Metter received an
MBA in finance and a Bachelor of Arts in marketing and accounting from
Adelphi University.

Steven Moskowitz Steven Moskowitz has served as a director of RM Enterprises Interna-

Chief Financial Officer, tional Inc. since April 2001 and as its secretary since March 2, 2004.
Treasurer and Director He has been a director of Western Power and Equipment Corp. since
February 11, 2003. He also served as a director of Tiburon Capital
Group, a privately held investment corporation, and vice president of
ERC Corp., a privately held marketing consultant. He served as vice
president, marketing and business development for H. W. Carter &
Sons, a distributor of children’s clothing, from 1987 to 2002. He was
president of the H. W. Carter & Sons division of Evolutions Inc. from
1996 to 1997. Mr. Moskowitz served in various capacities at Smart
Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 13

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

Style Industries, a manufacturer and distributor of children’s apparel,

from 1986 to 1987, eventually reaching the position of vice president
of sales and marketing. Mr. Moskowitz has also served as a director of
publicly traded National Stem Cell Inc. since January 2007. He holds a
Bachelor of Science degree in management from Touro College.

Frank Lazauskas Mr. Lazauskas is the founder and president of FJL Enterprises Inc. and
Consultant and Director TNJ Enterprises Inc. These businesses, formed in 1999 and 1997, re-
spectively, own and operate eight Dominos Pizza Stores. He became a
director of RM Enterprises International Inc. in March 2004. He holds
a Bachelor of Arts degree in mathematics from Central Connecticut
State University.

Please carefully read the risks and disclaimer section at the end of this report.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 14

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

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All direct and third party compensation received has been disclosed within each individual profile in accordance with section 17(b) of the
Securities Act of 1933. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication re-
garding the profiled companies. BlueWave Advisors, LLC, and/or its affiliated will hold, buy, and sell securities in the companies profiled.
This constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. Bea-
conEquity.com is a website wholly-owned by BlueWave Advisors, LLC. BlueWave Advisors, LLC has been compensated fifty-thousand
dollars from Pine Mountain Ventures, a shareholder of SPNG, as a marketing budget to manage a comprehensive investor awareness
program including the creation and distribution of this report as well as other investor relations efforts.. BlueWave Advisors, LLC or its
principals hold positions in the company profiled and may buy or sell securities at any time without notice. This compensation consti-
tutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933
and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward look-
ing statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our
control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance
include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements
filed with the SEC.

We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as
to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to
effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot
comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts,
and market size data was provided by the subject company and related sources which we believe to be reliable.

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We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and
FINRA at http://www.finra.org.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 15

 Analyst: Victor Sula, PhD
Initial Report
August 13th, 2008

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regard-
ing the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compen-
sation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own
and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004,
Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assis-
tance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization
and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D.
degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level
III candidate in the CFA program.

SpongeTech Delivery Systems, Inc. (OTC BB: SPNG) 16