Thursday, March 22, 2007 10:00:53 AM
NewMarket Technology, Inc. Grows to $70 Million in Profitable Revenue Ahead of Recent Growth Oriented Technology IPO Resurgence Featured in Wall Street Journal
Thursday March 22, 9:47 am ET
NewMarket CEO Presents Alternative Technology Investment Strategy That NewMarket Is Pursuing to Replace the High Tech IPO
DALLAS, TX--(MARKET WIRE)--Mar 22, 2007 -- NewMarket Technology, Inc. (OTC BB:NMKT.OB - News) today released an update on the Company's progress toward establishing a recognized new approach for continuously developing and introducing new technologies to new markets. NewMarket has boldly set out to update the technology industry's approach to research and development. The NewMarket business model brings the development of next generation technology closer to the ongoing management of current technology solutions. NewMarket also systematically taps into the global garage and basement inventor market by integrating an investment function into the business model rather than outsourcing the investment process to Wall Street.
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In the letter to shareholders today, Philip Verges, CEO of NewMarket Technology, explains the key components of the Company's business model in light of an article published on the front page of the March 13, 2007 issue of The Wall Street Journal. The article "Tech Companies Bleeding Red Ink Pursue IPO Gold," highlights the recent increase of technology company IPOs. The article compares the current market's appetite for buying stock in unprofitable technology companies to the dotcom market that "helped fuel the NASDAQ stock-market meltdown in 2000." The CEO letter to shareholders is included in its entirety below.
Dear Fellow Shareholders and Interested Technology Investors:
I believe the best way to understand NewMarket, is to understand where NewMarket has come from. I believe NewMarket's history and evolution are more valuable than ever. Last week The Wall Street Journal featured a front page article highlighting a recent resurgence in unprofitable technology IPOs similar to the dotcom days (March 13, 2007 -- Tech Companies Bleeding Red Ink Pursue IPO Gold). While Wall Street is apparently courting a repeat of history, NewMarket is alternatively presenting an altogether new approach. NewMarket is a business that has resulted from the aftermath of the dotcom market demise to introduce a more robust, resilient and realistic approach to continuously introducing new technologies to market.
The History of NewMarket's Two Principle Business Strategy Components
In 1997, I joined a small group of partners to found a company to market and install what at the time appeared to be a virtual cornucopia of new technologies. At that time, the media was rich with stories of new technologies and Wall Street was turning out a seemingly never ending line of technology company IPOs. The niche we set out to fill in 1997 had two components: first, to consistently package the business value of any new technology in a concise proposition and second, to build a scaleable engineering organization equipped to handle the dynamics of installing and maintaining component new technology solutions that had to fit into an otherwise legacy technology environment.
1) Building a Value Proposition for any New Technology
Our approach to developing a value proposition for any new technology is relatively simple, though the development of the approach was time intensive and painstaking. We analyze any new technology on the basis of its ability to 1) enhance market differentiation in any applicable industry and 2) its ability to create new revenue streams complementary to existing revenue streams.
To illustrate our value proposition approach, here is a simplified example: How can this new Radio Frequency Identification (RFID) technology enhance our prospective shoe store client's ability to differentiate their shoe store from competing shoe stores? How might we help the shoe store establish new revenues selling different shoes, or products other than shoes, or by selling shoes outside its existing stores or altogether outside brick and mortar?
2) Scaleable Engineering to Install New Technologies
Building the scaleable engineering organization was the easier of the two. Among the 1997 founders were a number of graduates from the Electronic Data Systems Corp. Engineering Development Program. Our experience in the EDS development program provided us with the blue print for a scaleable engineering organization.
The Catalyst to Add a Third Business Strategy Component -- Financing
The company we founded in 1997 only marketed, installed and maintained new technology solutions. We did not own any technology intellectual property ourselves. We depended on the then dotcom market to continue producing new technologies in need of marketing and engineering assistance. The venture capital community in combination with Wall Street's appetite for technology IPOs provided, for a time, an adequate pipeline of new technologies for us to sell and install.
By 2001 we had no products to sell. All companies that made the products that we sold went out of business or stopped supporting the products. With the meltdown of the IPO market, financing for new technology products similarly dried up. With no new products to sell, our own business was on the verge of failure.
We stepped back and assessed our situation. We had been quite successful at introducing new technologies to new markets and we had been quite successful at managing a scaleable engineering solution to install and maintain new technologies. What we didn't have anymore were any new technologies.
Upon further analysis, we realized there was no shortage of technology innovation, only a shortage of financing to turn innovation into production ready solutions and in turn market those production ready solutions. Inventors are working around the world in garages and basements regardless of available financing. Invention is independent of market available financing. Producing and marketing innovation requires financing. We recognized we needed to include the ability to continuously provide production and marketing finance in our business strategy.
The Thinking Behind the Third Business Strategy Component -- Financing
Venture capitalists seek companies with initial public offering (IPO) potential. Venture capitalists cash out in the IPO. Without an IPO market, venture capital was not readily available to finance new technologies. Furthermore, the venture capital and IPO financing process relegated control of new technology financing to third parties and we wanted to integrate control into our business model.
Furthermore, the size of the IPO (the number of shares offered in exchange for a target number of dollars) ends up being driven by Wall Street rather than by a logical, phased business strategy to introduce a new technology. IPOs require investment banking underwriters that charge fees for their services -- the bigger the IPO, the bigger the fee.
Regardless of the size of an IPO, introducing anything new is inherently risky. The proposed customer base may or may not like the product. They may like it this way, but not that way. A pilot test enables a company to reduce investment risk by limiting the investment amount to only that required for a pilot. Subsequently, the pilot can be expanded into production in similar limited market expansion steps with correspondingly limited investments.
The challenge here is to either find an incentive for investment bankers to raise smaller amounts of money in stages consistent with a pilot and phased market rollout or to eliminate the investment banker from the fund raising process.
In summary, we needed continuous access to marketable financial securities to raise intermittent small amounts of money in a renewable process that motivated investment banker participation or eliminated it.
The Micro-Cap Market and the Third Business Strategy Component -- Financing
The micro-cap public market provided us with tools to build an ongoing and renewable financing strategy into our overall business model to continuously introduce new technologies to new markets. The micro-cap market in the United States today is mostly made up of those companies listed on the Over the Counter (OTC) exchange and the Over the Counter Bulletin Board (OTCBB) exchange. However, the NASDAQ Small-Cap market has many micro-cap listings itself, and Neil Wolcoff, the Chairman of the America Stock Exchange, has gone on record with his intentions to take business from the OTCBB. Several foreign exchanges are scrambling to participate in the growing micro-cap market as well.
NewMarket was essentially launched in 2002 when our 1997 founding partners decided to move into the micro-cap markets through a reverse merger strategy. In June of 2002, we sold the assets of our company to a company then named IPVoice Communications, Inc. We subsequently changed the name to NewMarket Technology, Inc. We continued to market, install and support new technologies and then began to acquire and finance technology innovation.
Building and Financing a Technology Portfolio
Since 2002, NewMarket has been constantly on the lookout to acquire innovative new technologies. Where the 1997 founders used to market new technologies owned by other technology companies, NewMarket now continuously expands its own portfolio of innovative technologies through acquisition.
Through 2006, NewMarket has concentrated on the acquisition of production ready technologies. We did not want to overextend our new financing strategy with both funding the production of new technology as well as the marketing of new technology. We have even mitigated the expense of marketing production ready new technology by concentrating on new technologies that are complimentary to existing brand name technologies such as Microsoft, Cisco Systems and Sun Microsystems. We maintain reseller relationships with brand name technology companies to optimize the marketing benefit of selling new technologies that compliment brand name technologies. We have recently initiated efforts to expand our new technology acquisition strategy to include pre-production innovations.
NewMarket has issued stock in conjunction with raising money and acquiring new technologies. The issue of stock to raise money and acquire new technologies is essentially a collective investment made by all NewMarket shareholders. As shareholders we are opening our collective billfold and together making an investment in the Company's future.
A collective return on investment can be realized through enhanced fundamental financial performance. For instance, improved earnings per share or increased shareholder equity. A collective return on investment is most readily recognized through an increased share price. NewMarket is delivering fundamental financial performance enhancements. While micro-cap stock prices are notoriously volatile, NewMarket is making progress toward reducing that volatility and optimizing the opportunity for shareholders to realize an increased share price. Specifically, NewMarket is moving away from any further issue of NewMarket stock. In other words, NewMarket is moving away from opening the shareholders collective billfold to make any further investment and otherwise concentrating on collecting on returns from previous investments through share price appreciation.
Subsidiary Listings, Equity Income and Shareholder Dividends
When NewMarket acquires a new technology company we maintain the integrity of that company as a subsidiary. NewMarket makes cash and in-kind investments into the subsidiary company. When the subsidiary achieves set milestones, it is NewMarket's intention to publicly list the subsidiary while still maintaining a majority interest in the independently listed subsidiary.
As an independently listed subsidiary, the subsidiary has a currency (its own public stock) it can use to repay NewMarket's investment. NewMarket can sell public stock in a subsidiary company (equity income) to repatriate previous cash investment and realize a return on that investment. The cash can be used to buy back NewMarket stock previously used to access cash to make the original subsidiary investment. Alternatively, the repatriated cash can be used to invest in another NewMarket subsidiary.
The public listing of subsidiaries and the enabled ability to repatriate previous investment and realize a return on investment creates a renewable investment cycle managed by the company. The parent company uses its stock to access capital to invest in a subsidiary company. The subsidiary company grows and achieves and independent listing. The stock of the subsidiary company is used to repay the investment of the parent company. The parent company can go on to make investments in new subsidiary companies.
NewMarket's intention is to enhance the collective return on investment benefits that can be realized through the independent listing of subsidiaries by further creating a return on investment opportunity direct to each individual shareholder. In addition to NewMarket receiving stock collectively on behalf of all shareholders, NewMarket intends to distribute subsidiary stock to NewMarket shareholders in recurring shareholder dividend issues.
Independently Listed China, Latin America and Broad Band Wireless Subsidiaries
NewMarket now has three independently listed subsidiaries. NewMarket recently announced the completion of a transaction with Diamond I, Inc. to effectively list NewMarket's Broadband wireless operations with a 2007 forecast of $10 million. NewMarket also recently announced the completion of a transaction with Paragon Financial Corp. to effectively list NewMarket's Latin America operations, which are expected to report over $20 million in 2006 profitable revenue. In the fourth quarter of last year, NewMarket completed the independent listing of its operations in China. The operations name has recently been changed to NewMarket China, Inc. (OTC BB:NMCH.OB - News). The operations consolidated into NewMarket China are anticipated to report 2006 revenue substantially exceeding $20 million with a 2007 forecast of $40 million in revenue. The Diamond I and Paragon names will similarly be changed shortly to reflect each company's new direction within the NewMarket fold.
NewMarket intends to issue stock in each of these three subsidiaries to NewMarket shareholders through dividend distributions over the next 12 to 18 months. Each newly listed independent subsidiary is currently undergoing additional restructuring following the initial transaction that achieved the independent public listing. Following the conclusion of the various restructuring initiatives, dividend distributions will be promptly executed.
Three Additional Independent Listings in the Works
NewMarket is currently working on several additional public listings of subsidiary operations. Efforts are underway to promptly list the Company's regional operations in Southeast Asia in addition to listing NewMarket's VoIP subsidiary. After nearly five years of successful growth, NewMarket is also extending its investment focus from production ready new technologies to include pre-production new technologies. NewMarket has recently announced two letter of intent agreements to purchase multiple patent and patent-pending technologies yet to be produced. NewMarket plans to consolidate acquired pre-production technology intellectual properties into a single subsidiary which will also be independently listed.
NewMarket shareholders can similarly anticipate dividend distributions to follow the finalization of these three additional independent listings of NewMarket subsidiaries.
Shareholder Equity and Balance Sheet Liquidity
Since 2002, NewMarket shareholder equity has grown form virtually zero to over $40 million. The majority of the shareholder equity increase has resulted from the booking of acquisitions. Accordingly, a good deal of the shareholder equity falls into the category of goodwill. Investors frequently discount the value of goodwill, largely due to the difficulty anticipated in the event the company ever wanted to access the actual liquid or cash value of the booked goodwill. Investors anticipate that to access cash from goodwill would require the sale of a subsidiary and that the sale price would be at a discount to the booked goodwill value.
Goodwill is not the only category of balance sheet assets that might be discounted in the event assets were to be converted into cash. For instance, a company that carries expensive equipment on its balance sheet might also have to sell that equipment at a discount in the event the company decided to access cash from the value of the equipment.
As NewMarket publicly lists its subsidiaries, the company's balance sheet liquidity will improve. NewMarket's ability to access cash from the value of its balance sheet assets will improve. Independently listed subsidiaries will have a public market where the stock of the subsidiary can be bought and sold. That public market will ultimately determine a market value for NewMarket's subsidiaries based on what price investors are willing to buy and sell stock in the NewMarket subsidiaries on the public market. The market value may be consistent with what NewMarket has previously booked on its balance sheet or it may be greater than what NewMarket has booked on its balance sheet. It could also be less than what NewMarket has previously booked on its balance sheet. Management anticipates that the public listing of NewMarket subsidiaries will both improve balance sheet liquidity and enhance shareholder equity.
Wall Street Revisits Dotcom Market at Risk of Repeating History
Investment is an essential component of the overall ongoing technology lifecycle. The life of any technology is relatively short and getting shorter. Constant investment must at all times be going into future functions and features. Investment can come from the corporate profits achieved from selling current technologies to be invested back into the development of future technologies through corporate research and development. Technology investment may come from various third party investment sources such as the venture capital community. Both corporate profits and third party investment sources have been lean over the last several years since the collapse of the dotcom market.
Last week however, The Wall Street Journal reported 27 technology company IPOs occurred in 2006 with three so far in 2007 and 26 more in the pipeline for 2007. The alarming aspect of The Wall Street Journal report was that ten of the 27 companies that conducted IPOs in 2006 were unprofitable and all three IPOs this year are unprofitable thus far. Furthermore, 62% of the 26 pending IPOs are also unprofitable.
The good news is that investment is interested in coming back into the technology market after a five year hiatus. The concerning news is that the investment model that failed in the dotcom market seems to be the same model being executed now.
The IPOs create an exit for the pre-IPO venture capital investment. The IPO also generates a fee for the underwriter. The retail investors and institutional investors buying IPO stock are at risk. I do not anticipate the results of this recent resurgence in Technology IPOs will be any different than the late '90s dot com market run. I do not think post-IPO share price increases will be as extreme. I do not think as many companies will be listed annually through IPOs. I do not think the market will permit the IPO listing of unprofitable companies to go on for as long.
I otherwise believe NewMarket's renewable investment model will continue to grow and gain market attention. A handful of other companies have already followed NewMarket's lead by compartmentalizing business operations into separate subsidiaries and listing those subsidiaries. I am encouraged by the technology investment interest reflected in the recent resurgence of technology company IPOs. I am confident with further NewMarket success that the technology IPO investment interest will discover the value of NewMarket's renewable investment model.
Press and the Micro-Cap Market
NewMarket releases what might be considered an extraordinary amount of press for a small company. I do receive a number of shareholder communications inquiring as to the logic behind our frequent releases. Traditional advice to corporate management has been to concentrate on building a business and let the market follow the success of the business. Such advice for instance can be found in "The Intelligent Investor," a book often considered a handbook for public investing. The book has a forward from Warren Buffet and was originally written in 1949. The OTCBB did not exist until the mid 1990s and I would be surprised to find that Warren Buffet invests in any OTCBB listed companies. My point is that the dynamics of the OTCBB market and micro-cap stocks in general vary greatly from the markets around which most time tested market expertise has been derived.
Micro-cap stocks have notoriously volatile share prices which frequently have little correlation to the fundamental financial performance of the company. Most micro-cap companies are small, high growth companies and inherently high-risk investments. Very few institutional investors make investments in micro-cap companies, particularly OTCBB listed companies. Given the statistical likelihood that most small, high growth companies fail, the micro-cap markets are rich with short sale profiteers, anticipating, if not cheering for failure. Retail investors are the heart and soul of the micro-cap market. They are optimistic against the statistical odds of small high growth companies and have little access to institutional analyst coverage since institutions do very little investing in micro-cap stocks. Retail investors compete against professional short sale profiteers and have to sort through what are genuine business concerns and otherwise illegitimate get rich quick pump and dump scams.
NewMarket's approach to the dynamics of the micro-cap market is to ere on the side of over communication. We recognize the risk of being categorized as one of many pump and dump scams, which are frequently earmarked by over communication. We count on our consistent fundamental financial performance to differentiate the nature of our extensive communications from that of a pump and dump. We recognize that a largely retail investment community does not always have the stock market knowledge of the institutional investment community. Our extensive communications are intended to bridge that gaps through frequent communications that might sometimes include content considered tutorial. We know some sophisticated investors are offended by our tutorial content and we know some of our less sophisticated investors are appreciative. We do not intend for every communication we publish to be for the same target audience. NewMarket's audience is diverse. While one investor may appreciate a particular piece of information, another investor may send an email to ask me why I published that information. NewMarket's approach regarding the dynamics of the micro-cap market is to ere on the side of over communication.
This will be an exciting year for NewMarket. The public listing of subsidiaries and the subsequent issue of dividends is core to our differentiated business plan for continuously introducing new technologies to new markets. After five years, we have just listed our first subsidiaries with our first dividends in the works. 2007 will be the year NewMarket begins to demonstrate the value of its renewable investment strategy to continuously introduce new technologies to new markets.
Thank you,
Philip Verges
CEO & Chairman
About NewMarket Technology Inc. (www.newmarkettechnology.com)
NewMarket assists clients maintain the delicate balance between maintaining legacy systems and gaining a competitive edge from the latest technology innovations. NewMarket provides certified integration and maintenance services to support the prevailing industry standard solutions to include Microsoft, Cisco Systems, SAP, Siebel, Oracle and Sun Microsystems. Concurrently, NewMarket continuously seeks to acquire undiscovered emerging technology assets to incorporate into an overall product portfolio carefully packaged to complement the prevailing industry standard solutions. NewMarket delivers its portfolio of products and services through its global network of Solution Integration subsidiaries in North America, Latin America, China and Singapore. NewMarket maximizes shareholder return on investment by independent listing of consolidated regional and emerging technology subsidiaries in order to issue subsidiary stock in shareholder dividends.
"SAFE HARBOR STATEMENT" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This press release contains forward-looking statements that involve risks and uncertainties. The statements in this release are forward-looking statements that are made pursuant to safe harbor provision of the Private Securities Litigation Reform Act of 1995. Actual results, events and performance could vary materially from those contemplated by these forward-looking statements. These statements involve known and unknown risks and uncertainties, which may cause NewMarket's actual results in future periods to differ materially from results expressed or implied by forward-looking statements. These risks and uncertainties include, among other things, product demand and market competition. You should independently investigate and fully understand all risks before making investment decisions.
Contact:
Contact:
NewMarket Technology, Inc.
Rick Lutz
Investor Relations
404-261-1196
ir@newmarkettechnology.com
http://www.newmarkettechnology.com
--------------------------------------------------------------------------------
Source: NewMarket Technology Inc
Thursday March 22, 9:47 am ET
NewMarket CEO Presents Alternative Technology Investment Strategy That NewMarket Is Pursuing to Replace the High Tech IPO
DALLAS, TX--(MARKET WIRE)--Mar 22, 2007 -- NewMarket Technology, Inc. (OTC BB:NMKT.OB - News) today released an update on the Company's progress toward establishing a recognized new approach for continuously developing and introducing new technologies to new markets. NewMarket has boldly set out to update the technology industry's approach to research and development. The NewMarket business model brings the development of next generation technology closer to the ongoing management of current technology solutions. NewMarket also systematically taps into the global garage and basement inventor market by integrating an investment function into the business model rather than outsourcing the investment process to Wall Street.
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In the letter to shareholders today, Philip Verges, CEO of NewMarket Technology, explains the key components of the Company's business model in light of an article published on the front page of the March 13, 2007 issue of The Wall Street Journal. The article "Tech Companies Bleeding Red Ink Pursue IPO Gold," highlights the recent increase of technology company IPOs. The article compares the current market's appetite for buying stock in unprofitable technology companies to the dotcom market that "helped fuel the NASDAQ stock-market meltdown in 2000." The CEO letter to shareholders is included in its entirety below.
Dear Fellow Shareholders and Interested Technology Investors:
I believe the best way to understand NewMarket, is to understand where NewMarket has come from. I believe NewMarket's history and evolution are more valuable than ever. Last week The Wall Street Journal featured a front page article highlighting a recent resurgence in unprofitable technology IPOs similar to the dotcom days (March 13, 2007 -- Tech Companies Bleeding Red Ink Pursue IPO Gold). While Wall Street is apparently courting a repeat of history, NewMarket is alternatively presenting an altogether new approach. NewMarket is a business that has resulted from the aftermath of the dotcom market demise to introduce a more robust, resilient and realistic approach to continuously introducing new technologies to market.
The History of NewMarket's Two Principle Business Strategy Components
In 1997, I joined a small group of partners to found a company to market and install what at the time appeared to be a virtual cornucopia of new technologies. At that time, the media was rich with stories of new technologies and Wall Street was turning out a seemingly never ending line of technology company IPOs. The niche we set out to fill in 1997 had two components: first, to consistently package the business value of any new technology in a concise proposition and second, to build a scaleable engineering organization equipped to handle the dynamics of installing and maintaining component new technology solutions that had to fit into an otherwise legacy technology environment.
1) Building a Value Proposition for any New Technology
Our approach to developing a value proposition for any new technology is relatively simple, though the development of the approach was time intensive and painstaking. We analyze any new technology on the basis of its ability to 1) enhance market differentiation in any applicable industry and 2) its ability to create new revenue streams complementary to existing revenue streams.
To illustrate our value proposition approach, here is a simplified example: How can this new Radio Frequency Identification (RFID) technology enhance our prospective shoe store client's ability to differentiate their shoe store from competing shoe stores? How might we help the shoe store establish new revenues selling different shoes, or products other than shoes, or by selling shoes outside its existing stores or altogether outside brick and mortar?
2) Scaleable Engineering to Install New Technologies
Building the scaleable engineering organization was the easier of the two. Among the 1997 founders were a number of graduates from the Electronic Data Systems Corp. Engineering Development Program. Our experience in the EDS development program provided us with the blue print for a scaleable engineering organization.
The Catalyst to Add a Third Business Strategy Component -- Financing
The company we founded in 1997 only marketed, installed and maintained new technology solutions. We did not own any technology intellectual property ourselves. We depended on the then dotcom market to continue producing new technologies in need of marketing and engineering assistance. The venture capital community in combination with Wall Street's appetite for technology IPOs provided, for a time, an adequate pipeline of new technologies for us to sell and install.
By 2001 we had no products to sell. All companies that made the products that we sold went out of business or stopped supporting the products. With the meltdown of the IPO market, financing for new technology products similarly dried up. With no new products to sell, our own business was on the verge of failure.
We stepped back and assessed our situation. We had been quite successful at introducing new technologies to new markets and we had been quite successful at managing a scaleable engineering solution to install and maintain new technologies. What we didn't have anymore were any new technologies.
Upon further analysis, we realized there was no shortage of technology innovation, only a shortage of financing to turn innovation into production ready solutions and in turn market those production ready solutions. Inventors are working around the world in garages and basements regardless of available financing. Invention is independent of market available financing. Producing and marketing innovation requires financing. We recognized we needed to include the ability to continuously provide production and marketing finance in our business strategy.
The Thinking Behind the Third Business Strategy Component -- Financing
Venture capitalists seek companies with initial public offering (IPO) potential. Venture capitalists cash out in the IPO. Without an IPO market, venture capital was not readily available to finance new technologies. Furthermore, the venture capital and IPO financing process relegated control of new technology financing to third parties and we wanted to integrate control into our business model.
Furthermore, the size of the IPO (the number of shares offered in exchange for a target number of dollars) ends up being driven by Wall Street rather than by a logical, phased business strategy to introduce a new technology. IPOs require investment banking underwriters that charge fees for their services -- the bigger the IPO, the bigger the fee.
Regardless of the size of an IPO, introducing anything new is inherently risky. The proposed customer base may or may not like the product. They may like it this way, but not that way. A pilot test enables a company to reduce investment risk by limiting the investment amount to only that required for a pilot. Subsequently, the pilot can be expanded into production in similar limited market expansion steps with correspondingly limited investments.
The challenge here is to either find an incentive for investment bankers to raise smaller amounts of money in stages consistent with a pilot and phased market rollout or to eliminate the investment banker from the fund raising process.
In summary, we needed continuous access to marketable financial securities to raise intermittent small amounts of money in a renewable process that motivated investment banker participation or eliminated it.
The Micro-Cap Market and the Third Business Strategy Component -- Financing
The micro-cap public market provided us with tools to build an ongoing and renewable financing strategy into our overall business model to continuously introduce new technologies to new markets. The micro-cap market in the United States today is mostly made up of those companies listed on the Over the Counter (OTC) exchange and the Over the Counter Bulletin Board (OTCBB) exchange. However, the NASDAQ Small-Cap market has many micro-cap listings itself, and Neil Wolcoff, the Chairman of the America Stock Exchange, has gone on record with his intentions to take business from the OTCBB. Several foreign exchanges are scrambling to participate in the growing micro-cap market as well.
NewMarket was essentially launched in 2002 when our 1997 founding partners decided to move into the micro-cap markets through a reverse merger strategy. In June of 2002, we sold the assets of our company to a company then named IPVoice Communications, Inc. We subsequently changed the name to NewMarket Technology, Inc. We continued to market, install and support new technologies and then began to acquire and finance technology innovation.
Building and Financing a Technology Portfolio
Since 2002, NewMarket has been constantly on the lookout to acquire innovative new technologies. Where the 1997 founders used to market new technologies owned by other technology companies, NewMarket now continuously expands its own portfolio of innovative technologies through acquisition.
Through 2006, NewMarket has concentrated on the acquisition of production ready technologies. We did not want to overextend our new financing strategy with both funding the production of new technology as well as the marketing of new technology. We have even mitigated the expense of marketing production ready new technology by concentrating on new technologies that are complimentary to existing brand name technologies such as Microsoft, Cisco Systems and Sun Microsystems. We maintain reseller relationships with brand name technology companies to optimize the marketing benefit of selling new technologies that compliment brand name technologies. We have recently initiated efforts to expand our new technology acquisition strategy to include pre-production innovations.
NewMarket has issued stock in conjunction with raising money and acquiring new technologies. The issue of stock to raise money and acquire new technologies is essentially a collective investment made by all NewMarket shareholders. As shareholders we are opening our collective billfold and together making an investment in the Company's future.
A collective return on investment can be realized through enhanced fundamental financial performance. For instance, improved earnings per share or increased shareholder equity. A collective return on investment is most readily recognized through an increased share price. NewMarket is delivering fundamental financial performance enhancements. While micro-cap stock prices are notoriously volatile, NewMarket is making progress toward reducing that volatility and optimizing the opportunity for shareholders to realize an increased share price. Specifically, NewMarket is moving away from any further issue of NewMarket stock. In other words, NewMarket is moving away from opening the shareholders collective billfold to make any further investment and otherwise concentrating on collecting on returns from previous investments through share price appreciation.
Subsidiary Listings, Equity Income and Shareholder Dividends
When NewMarket acquires a new technology company we maintain the integrity of that company as a subsidiary. NewMarket makes cash and in-kind investments into the subsidiary company. When the subsidiary achieves set milestones, it is NewMarket's intention to publicly list the subsidiary while still maintaining a majority interest in the independently listed subsidiary.
As an independently listed subsidiary, the subsidiary has a currency (its own public stock) it can use to repay NewMarket's investment. NewMarket can sell public stock in a subsidiary company (equity income) to repatriate previous cash investment and realize a return on that investment. The cash can be used to buy back NewMarket stock previously used to access cash to make the original subsidiary investment. Alternatively, the repatriated cash can be used to invest in another NewMarket subsidiary.
The public listing of subsidiaries and the enabled ability to repatriate previous investment and realize a return on investment creates a renewable investment cycle managed by the company. The parent company uses its stock to access capital to invest in a subsidiary company. The subsidiary company grows and achieves and independent listing. The stock of the subsidiary company is used to repay the investment of the parent company. The parent company can go on to make investments in new subsidiary companies.
NewMarket's intention is to enhance the collective return on investment benefits that can be realized through the independent listing of subsidiaries by further creating a return on investment opportunity direct to each individual shareholder. In addition to NewMarket receiving stock collectively on behalf of all shareholders, NewMarket intends to distribute subsidiary stock to NewMarket shareholders in recurring shareholder dividend issues.
Independently Listed China, Latin America and Broad Band Wireless Subsidiaries
NewMarket now has three independently listed subsidiaries. NewMarket recently announced the completion of a transaction with Diamond I, Inc. to effectively list NewMarket's Broadband wireless operations with a 2007 forecast of $10 million. NewMarket also recently announced the completion of a transaction with Paragon Financial Corp. to effectively list NewMarket's Latin America operations, which are expected to report over $20 million in 2006 profitable revenue. In the fourth quarter of last year, NewMarket completed the independent listing of its operations in China. The operations name has recently been changed to NewMarket China, Inc. (OTC BB:NMCH.OB - News). The operations consolidated into NewMarket China are anticipated to report 2006 revenue substantially exceeding $20 million with a 2007 forecast of $40 million in revenue. The Diamond I and Paragon names will similarly be changed shortly to reflect each company's new direction within the NewMarket fold.
NewMarket intends to issue stock in each of these three subsidiaries to NewMarket shareholders through dividend distributions over the next 12 to 18 months. Each newly listed independent subsidiary is currently undergoing additional restructuring following the initial transaction that achieved the independent public listing. Following the conclusion of the various restructuring initiatives, dividend distributions will be promptly executed.
Three Additional Independent Listings in the Works
NewMarket is currently working on several additional public listings of subsidiary operations. Efforts are underway to promptly list the Company's regional operations in Southeast Asia in addition to listing NewMarket's VoIP subsidiary. After nearly five years of successful growth, NewMarket is also extending its investment focus from production ready new technologies to include pre-production new technologies. NewMarket has recently announced two letter of intent agreements to purchase multiple patent and patent-pending technologies yet to be produced. NewMarket plans to consolidate acquired pre-production technology intellectual properties into a single subsidiary which will also be independently listed.
NewMarket shareholders can similarly anticipate dividend distributions to follow the finalization of these three additional independent listings of NewMarket subsidiaries.
Shareholder Equity and Balance Sheet Liquidity
Since 2002, NewMarket shareholder equity has grown form virtually zero to over $40 million. The majority of the shareholder equity increase has resulted from the booking of acquisitions. Accordingly, a good deal of the shareholder equity falls into the category of goodwill. Investors frequently discount the value of goodwill, largely due to the difficulty anticipated in the event the company ever wanted to access the actual liquid or cash value of the booked goodwill. Investors anticipate that to access cash from goodwill would require the sale of a subsidiary and that the sale price would be at a discount to the booked goodwill value.
Goodwill is not the only category of balance sheet assets that might be discounted in the event assets were to be converted into cash. For instance, a company that carries expensive equipment on its balance sheet might also have to sell that equipment at a discount in the event the company decided to access cash from the value of the equipment.
As NewMarket publicly lists its subsidiaries, the company's balance sheet liquidity will improve. NewMarket's ability to access cash from the value of its balance sheet assets will improve. Independently listed subsidiaries will have a public market where the stock of the subsidiary can be bought and sold. That public market will ultimately determine a market value for NewMarket's subsidiaries based on what price investors are willing to buy and sell stock in the NewMarket subsidiaries on the public market. The market value may be consistent with what NewMarket has previously booked on its balance sheet or it may be greater than what NewMarket has booked on its balance sheet. It could also be less than what NewMarket has previously booked on its balance sheet. Management anticipates that the public listing of NewMarket subsidiaries will both improve balance sheet liquidity and enhance shareholder equity.
Wall Street Revisits Dotcom Market at Risk of Repeating History
Investment is an essential component of the overall ongoing technology lifecycle. The life of any technology is relatively short and getting shorter. Constant investment must at all times be going into future functions and features. Investment can come from the corporate profits achieved from selling current technologies to be invested back into the development of future technologies through corporate research and development. Technology investment may come from various third party investment sources such as the venture capital community. Both corporate profits and third party investment sources have been lean over the last several years since the collapse of the dotcom market.
Last week however, The Wall Street Journal reported 27 technology company IPOs occurred in 2006 with three so far in 2007 and 26 more in the pipeline for 2007. The alarming aspect of The Wall Street Journal report was that ten of the 27 companies that conducted IPOs in 2006 were unprofitable and all three IPOs this year are unprofitable thus far. Furthermore, 62% of the 26 pending IPOs are also unprofitable.
The good news is that investment is interested in coming back into the technology market after a five year hiatus. The concerning news is that the investment model that failed in the dotcom market seems to be the same model being executed now.
The IPOs create an exit for the pre-IPO venture capital investment. The IPO also generates a fee for the underwriter. The retail investors and institutional investors buying IPO stock are at risk. I do not anticipate the results of this recent resurgence in Technology IPOs will be any different than the late '90s dot com market run. I do not think post-IPO share price increases will be as extreme. I do not think as many companies will be listed annually through IPOs. I do not think the market will permit the IPO listing of unprofitable companies to go on for as long.
I otherwise believe NewMarket's renewable investment model will continue to grow and gain market attention. A handful of other companies have already followed NewMarket's lead by compartmentalizing business operations into separate subsidiaries and listing those subsidiaries. I am encouraged by the technology investment interest reflected in the recent resurgence of technology company IPOs. I am confident with further NewMarket success that the technology IPO investment interest will discover the value of NewMarket's renewable investment model.
Press and the Micro-Cap Market
NewMarket releases what might be considered an extraordinary amount of press for a small company. I do receive a number of shareholder communications inquiring as to the logic behind our frequent releases. Traditional advice to corporate management has been to concentrate on building a business and let the market follow the success of the business. Such advice for instance can be found in "The Intelligent Investor," a book often considered a handbook for public investing. The book has a forward from Warren Buffet and was originally written in 1949. The OTCBB did not exist until the mid 1990s and I would be surprised to find that Warren Buffet invests in any OTCBB listed companies. My point is that the dynamics of the OTCBB market and micro-cap stocks in general vary greatly from the markets around which most time tested market expertise has been derived.
Micro-cap stocks have notoriously volatile share prices which frequently have little correlation to the fundamental financial performance of the company. Most micro-cap companies are small, high growth companies and inherently high-risk investments. Very few institutional investors make investments in micro-cap companies, particularly OTCBB listed companies. Given the statistical likelihood that most small, high growth companies fail, the micro-cap markets are rich with short sale profiteers, anticipating, if not cheering for failure. Retail investors are the heart and soul of the micro-cap market. They are optimistic against the statistical odds of small high growth companies and have little access to institutional analyst coverage since institutions do very little investing in micro-cap stocks. Retail investors compete against professional short sale profiteers and have to sort through what are genuine business concerns and otherwise illegitimate get rich quick pump and dump scams.
NewMarket's approach to the dynamics of the micro-cap market is to ere on the side of over communication. We recognize the risk of being categorized as one of many pump and dump scams, which are frequently earmarked by over communication. We count on our consistent fundamental financial performance to differentiate the nature of our extensive communications from that of a pump and dump. We recognize that a largely retail investment community does not always have the stock market knowledge of the institutional investment community. Our extensive communications are intended to bridge that gaps through frequent communications that might sometimes include content considered tutorial. We know some sophisticated investors are offended by our tutorial content and we know some of our less sophisticated investors are appreciative. We do not intend for every communication we publish to be for the same target audience. NewMarket's audience is diverse. While one investor may appreciate a particular piece of information, another investor may send an email to ask me why I published that information. NewMarket's approach regarding the dynamics of the micro-cap market is to ere on the side of over communication.
This will be an exciting year for NewMarket. The public listing of subsidiaries and the subsequent issue of dividends is core to our differentiated business plan for continuously introducing new technologies to new markets. After five years, we have just listed our first subsidiaries with our first dividends in the works. 2007 will be the year NewMarket begins to demonstrate the value of its renewable investment strategy to continuously introduce new technologies to new markets.
Thank you,
Philip Verges
CEO & Chairman
About NewMarket Technology Inc. (www.newmarkettechnology.com)
NewMarket assists clients maintain the delicate balance between maintaining legacy systems and gaining a competitive edge from the latest technology innovations. NewMarket provides certified integration and maintenance services to support the prevailing industry standard solutions to include Microsoft, Cisco Systems, SAP, Siebel, Oracle and Sun Microsystems. Concurrently, NewMarket continuously seeks to acquire undiscovered emerging technology assets to incorporate into an overall product portfolio carefully packaged to complement the prevailing industry standard solutions. NewMarket delivers its portfolio of products and services through its global network of Solution Integration subsidiaries in North America, Latin America, China and Singapore. NewMarket maximizes shareholder return on investment by independent listing of consolidated regional and emerging technology subsidiaries in order to issue subsidiary stock in shareholder dividends.
"SAFE HARBOR STATEMENT" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This press release contains forward-looking statements that involve risks and uncertainties. The statements in this release are forward-looking statements that are made pursuant to safe harbor provision of the Private Securities Litigation Reform Act of 1995. Actual results, events and performance could vary materially from those contemplated by these forward-looking statements. These statements involve known and unknown risks and uncertainties, which may cause NewMarket's actual results in future periods to differ materially from results expressed or implied by forward-looking statements. These risks and uncertainties include, among other things, product demand and market competition. You should independently investigate and fully understand all risks before making investment decisions.
Contact:
Contact:
NewMarket Technology, Inc.
Rick Lutz
Investor Relations
404-261-1196
ir@newmarkettechnology.com
http://www.newmarkettechnology.com
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Source: NewMarket Technology Inc
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