As expected, IICP is deflating...Phil & crew piled in, knowing that the fabricated revenues in the 8k filing would artificially inflate the price....now they are exiting.
Here's my complaint to the SEC
Newmarket Technology (NMKT) recently completed a reverse-merger sale of it’s a subsidiary, Newmarket China, to a publically listed shell company, Intercell International (IICP).
I believe two different securities crimes have been committed:
Crime I. Insider dealing:
1. IICP’s stock ran up in the weeks prior to the deal announcement. When the deal was announced, inexplicably, NMKT shareholders were awarded only 60% of the company. I believe NMKT insiders were in on the IICP stock, and have benefited from this deal structure.
2. Another 20% of the company (in the form of convertible preferred stock) has been given to another firm. NMKT management has refused to disclose the terms or the reasons for the give away, explaining only that the party is “a previous lender”. I believe that this party, Asia Pacific Ltd’, is controlled by NMKT insiders, and have inappropriately profited from this transaction. I also believe that NMKT and IICP are in violation of SEC 8-k requirements, for their refusal to disclose the terms of the 20% give-away.
Crime II: Revenue Fraud.
In order to boost the stock of IICP, I believe that NMKT and IICP (same management team) has engaged in the fraudulent representation of revenues. In it’s IICP 8k filing of pro-forma financial statements, NMTK represents that NMKT China started up in January 2005. During that year, they represent that the company generated $23million in revenue, and are on course to generate $23million in 2006.
1. The company (NMKT China) recorded a cost of sales of 97%. I believe the high COS was designed to minimize reported profit, which would required a reported increase in cash (which is harder to fraudulent represent).
2. The company has only $400k in cash
3. The company has only $18,000 in fixed assets. (However, the consolidated financials came up with a mysterious fixed asset addition of $400k, although IICP was a non-operating shell company)
4. The company has not made any product announcements. It’s few contract announcements have lacked details or descriptions, and involved related companies (Huali)
5. The company reports to have 100 employees, although the known lack of fixed assets makes even that number questionable.
6. The company is reporting AR of only $600,000, or about 10 days worth of sales (7 days, counting only business days)
7. Although the company was formed in Jan 2005, it was able to generate $9.2million in by June 30, 2005…a revenue rate which has not changed over subsequent periods. The lack of fluctuation, considering it covers a start up period, is dubious.
8. The company only as an SG&A expense of 2% of sales, suggesting that there are few or no employees, and no investment in sales or other overhead activities.
9. The NMKT (parent company) Dec 31, 2005 10k said that it’s subsidiary "Clipper" (NMKT China) had revenues of $13million in 2005 ....but now NMKT management is reporting that the company had $23million.
10. Despite being a start up, with 97% COS, the company has never reported a loss, or a significant profit (suggesting that the company is reporting it’s P&L in such as way as to avoid having to show an increase in cash, while still avoiding reporting a loss)
It should be noted that the management team of NMKT has a history of insider dealings. The same management team has not filed an SEC form 4,5,6 or 144 for the past 4 years, thus hiding their insider dealings.
Management has conducted a similar fraud with Defense Technology Systems (DFTS), by grossly mispresenting the business, while profiting from insider transactions.
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