NewMarket Technology, Inc. Releases Special Update
The Trials and Tribulations of Fulfilling a Vision
Diamond I, Inc. as a Case Study of the Trials and Tribulations Experienced in Fulfilling a Vision
Dear Fellow Shareholders:
NewMarket is a company striving toward an extraordinary vision – to completely change the current landscape of technology research and development. Achieving this vision will empower inventors and pioneers still in the proverbial “garage” to benefit financially from their own inventions more than ever before. Achieving this vision will also provide small investors the opportunity to reap greater financial benefits from their successful inventions.
Of course, extraordinary visions are not achieved overnight and are only possible through passion and commitment. Extraordinary visions are also not achieved without significant trials and tribulations.
Trials and Tribulations Along the Journey to Extraordinary
While NewMarket has made tremendous strides toward its pioneering vision over the past five years, we have also faced notable trials and tribulations and continue to face hurdles even today. But we are also a company that is growing and doing far more than most companies of our size. However, the current trials facing the Company do not compare in magnitude to far more challenging trials faced in the past. Moreover, the Company’s current resources far exceed the resources available to the company when faced with past trials.
Shareholder and Share Price Reaction to Trials and Tribulations
In the wake of an unexpected event (or trial), some shareholders will believe management should have better anticipated the event. Others will be concerned that management can’t overcome the possible challenges or setbacks of the unexpected event. In the aftermath of management scandals such as those at Enron and Tyco, some shareholders will doubt management’s integrity. All of these reactions are likely to result in the sale of stock and some degree of downward share price pressure. Others will believe in management’s integrity and ability to overcome possible challenges or setbacks. To them, downward share price pressure will most likely be viewed as an opportunity to purchase shares they believe to be discounted, in turn, creating share price support. Differences in investment opinions are what makes a market.
NewMarket Frustration, Exploitation and Opportunity
NewMarket shareholders are understandably and justifiably frustrated by the recent trials faced by the Company which has resulted in some shareholders selling stock and negatively impacting the current price per share. Additionally, there are some investors that try to profit from reduced share prices, attempting to exploit the frustrations of shareholders by turning frustration into doubt in management’s integrity. Yet some shareholders, still optimistic about the Company’s ability to realize its vision, are taking advantage of the opportunity to purchase more shares.
Management Resolve and Commitment
I am confident in the available resources of the Company to overcome the current disappointments. I am confident in management’s passion and commitment as well as management’s ability to work through the current trials. I am most confident management’s integrity will prove itself through an ongoing and steadfast commitment to achieving the Company’s vision as we resolve each hurdle encountered along our un-chartered course.
Pioneers in an Unexplored Micro-Cap Territory
NewMarket’s vision of a future research and development landscape incorporates the current and potential strengths of the public micro-cap market while overcoming the weaknesses and challenges of the public micro-cap market. The Over the Counter Bulletin Board Exchange (OTCBB), founded in 1997 with the approval of the SEC, is arguably the leading public micro-cap market in the world. The New York Stock Exchange, on the other hand, has 200 years of history. OTCBB-listed companies are pioneers in the public micro-cap market. As has been the case throughout history, pioneers often find themselves under attack and the targets of skepticism and cynicism.
Hostile Micro-Cap Business Environment
The micro-cap market is a hostile environment. Small companies with small budgets still have expensive regulatory compliance requirements. Companies often find themselves victims of involuntary foreign listings and, subsequently, subject to questionable arbitrage short sales – among other questionable short sale practices. Managers inexperienced with the terms and practices of private investment in public entities (PIPE) frequently do not survive first round investments. The average issued and outstanding of the top 100 most actively traded OTCBB companies borders on one billion shares with an average share price of less than $0.03 while companies with issued and outstanding balances of less than 50 million frequently experience sudden share price spikes in the range of 100 to 1000 percent -- if not more. In all, the hostile environment can be characterized by volatile and erratic share prices and, far too frequently, the short life expectancy of the OTCBB listed operation, even though the listing may survive.
A New Day, A New Way for the Micro-Cap Market
While NewMarket intends to pursue a listing on an upgraded exchange, the micro-cap market will always be an instrumental component of the NewMarket business model. The Company has recently begun to list subsidiary operations on public micro-cap exchanges and will continue to do so. The lessons learned through NewMarket’s experience as a micro-cap listed company will be leveraged, to the benefit of current and future subsidiary operations and the shareholders of those subsidiary operations.
A Sustainable Micro-Cap Business Model
NewMarket is undertaking the construction of a sustainable micro-cap business model. The single issue (one listed stock), triple and quadruple digit return opportunities that sporadically occur on the micro-cap exchanges continue to attract small investors looking for “lottery ticket” returns which are attainable on the OTCBB. Most investors would agree that this is not a prudent or sustainable investment approach. At NewMarket we believe the potential for sustainable and predictable returns on a micro-cap exchange exists through a conglomerate (multiple listed stocks) of micro-cap listed companies that issue stock dividends. A sustainable micro-cap business model is central to NewMarket’s vision.
Shareholder Whiplash in the Search to Understand Volatility
In the hostile micro-cap market, small investors are victimized by insincere issuers and institutional investors far too frequently. As expensive as regulatory compliance has become, the requirements fall short of consistently protecting shareholders. Micro cap investors often experience whiplash in a search for the “real” story behind erratic share price performance. Is it stock shorting? Is it management?
Where is the Independent Research?
Institutional investors, other than PIPE investors, are far and few between in the micro-cap markets. Few pension funds or mutual funds are taking positions today in micro-cap listed companies. Accordingly, little independent research exists to provide small, independent micro-cap investors insight into the micro-cap market let alone any particular micro-cap issue. Several internet micro-cap news agencies are surfacing and beginning to provide coverage of the micro-cap markets. This is a promising evolutionary aspect of the micro-cap markets, but still is in its infancy and is not yet providing adequate coverage to assist in abating shareholder whiplash.
“Radical Transparency” – A New Standard for Issuers
NewMarket is attempting to do its part to keep shareholders informed through extensive communication. Many of you are familiar with NewMarket’s practice of publishing shareholder letters such as the one you are reading now. We also make a practice of presenting regularly in public forums to provide shareholders the opportunity to meet and judge us in person. Wired Magazine recently dedicated an entire issue to what they referred to as “radical transparency” or the increasing tendency of companies, particularly small companies, to communicate more information than what is required by disclosure regulations. “Radical transparency” includes insight into management’s actions, the considerations leading up to those actions and even how some of those actions produced less than optimal results. Some of you appreciate our candor. Others have indicated they wish we would keep more information to ourselves. Unfortunately, those that attempt to profit from declining share prices abuse the candor in an attempt to discredit management and influence shareholders to sell.
“Radical Transparency” Version 2.0
We believe in extensive communications that include the good, the bad and the ugly and as much insight into the considerations leading up to all three. We don’t believe NewMarket has yet found the just right “radical transparency” chord around which to balance shareholder confidence in management’s integrity and capability, with a fair depiction of the risks and opportunities associated with the ongoing pursuit of NewMarket’s vision. We will continue to evolve our communication strategy from the feedback we receive from our shareholders. And we thank you for that feedback.
DMOI – A Case Study in the Un-Chartered Course to Extraordinary
Diamond I, Inc.’s announcement last week that the acquisition agreement with NewMarket had expired was a surprise to both NewMarket shareholders and NewMarket management.
A Sudden Change as the Closing Date Approached
The week before NewMarket had taken action to initiate a Diamond I name change and set a record date for Diamond I shareholders to receive a stock dividend in Diamond’s gaming subsidiary, NewMarket received two official letters from Diamond legal counsel informing us we had no authority to take such action. Our only intent was to assist Diamond in meeting the obligations of the purchase agreement, since Diamond operations are, for all intents and purposes, non-existent. Since executing the purchase agreement, NewMarket has paid Diamond I CEO’s salary and all financial reporting expenses. Diamond I has no income from investment or operations other than the approximately $50,000. NewMarket has advanced since the execution of the agreement. Until the receipt of the two official letters, we were under the impression that all was proceeding forward under mutual agreement.
An Organized Reaction to the Official Letter Rebuke
After several telephone calls on June 1 to discern the nature of the issue behind Diamond’s official letters, a meeting was finally arranged for June 4, with a representative of Diamond I, Inc...Access to David Loflin, the CEO of DMOI, had been very limited for several weeks due to reported personal issues. At the June 4 meeting, Mr. Loflin’s concern regarding the yet undetermined terms of a $1.75 million investment was expressed and a working agreement was discussed and memorialized in a subsequent written communication. On June 7, an extension of the purchase agreement was suggested by Diamond I and NewMarket responded with a written communication to memorialize the extension to include a draft joint press release. Diamond I’s Friday unilateral announcement to the contrary was a total surprise to NewMarket management.
Getting to the Bottom of What Went Wrong
In hindsight, several events were of concern in the six month process to acquire Diamond I in an overall strategy to list NewMarket’s broadband wireless assets publicly. In the six months prior to signing a letter of intent with NewMarket, Diamond’s operations were nearly dormant and the company traded approximately $1.2 million in stock. In the six months since signing the letter of intent with NewMarket, Diamond was able to maintain its OTCBB listing as a result of NewMarket’s $50,000 investment and the company traded approximately $2.5 million in stock, signifying an increase in liquidity. After the letter of intent and during the final negotiations to agree on the acquisition agreement, Diamond I filed an S-8 registration to issue 30 million free trading shares. Even though Diamond was under a letter of intent and in final negotiations with NewMarket on an acquisition agreement, Diamond did not consult or even inform NewMarket of its intention to file the S-8 registration. Days before Diamond’s unilateral announcement of the expiration of the agreement, a Diamond board member filed his intention to sell stock. NewMarket is currently maintaining a “benefit of the doubt” position in light of Diamond’s actions, but has not yet received an explanation. NewMarket intends to continue to follow up on the breakdown in negotiations with Diamond I in the interest of those NewMarket shareholders that may have purchased Diamond I stock.
Giving Diamond I the Benefit of the Doubt
From shareholder feedback the Company has received, there appears to be some degree of misinformation and miscommunication regarding the breakdown in the transaction between NewMarket and Diamond I. For instance, one shareholder asked why Newmarket backed away from putting a cash investment into Diamond I, and instead offered a convertible security. The question is difficult to answer because it is not clear. It either represents that the individual asking the question does not understand convertible securities (and convertibles can be confusing) or he was told something incorrect. NewMarket never backed off from the cash investment commitment into Diamond I. The breakdown was in finding an agreeable security for Diamond I to give NewMarket and its shareholders in return for the cash investment. NewMarket suggested a convertible security in exchange for the invested cash. NewMarket also suggested several other possible securities. In addition, NewMarket was contributing its wireless broadband assets producing revenue into the transaction with DMOI, further enhancing the future prospects for DMOI and its shareholders. Ultimately, Diamond I rejected or ignored every suggestion.
Communication during the negotiation of the investment was poor, as mentioned above. NewMarket believes, but cannot say for sure, that Diamond expected NMKT to put the investment in for no additional consideration. Explained another way, NewMarket was to purchase control in Diamond in exchange for a “note” – an I.O.U., if you will. This note was referred to as the “dividend note” in the purchase agreement. Additionally, NewMarket committed to invest $2 million dollars in cash above and beyond the note. However, NewMarket expected to receive additional security from Diamond in exchange for the investment – a convertible, more stock or some other form of I.O.U. Again, NewMarket can only guess at Diamond’s expectations and how NewMarket failed to meet those expectations. The CEO of Diamond has so far refused to return any telephone calls to NewMarket over the past week.
NewMarket Broadband Moving on Without Diamond I
While we have not completely ruled out an opportunity with Diamond I, we think at this time it is unlikely. Although it is abundantly clear that the market saw a combination with NewMarket Technology was very beneficial to DMOI and its shareholders, based on the increased market capitalization and liquidity after the initial LOI announcement, our primary objective is to recoup our tangible and intangible investment to date in Diamond I. The only assets proven by customer contracts with revenue were coming from NewMarket. Since the transaction did not come together, NewMarket maintains all those assets. NewMarket remains committed to establishing a publicly listed broadband technology subsidiary. We have in our business development pipeline a number of alternative opportunities through which to achieve a public listing of our broadband assets. We do not anticipate a significant impact to the timing of a dividend of NewMarket Broadband stock to the shareholders of NewMarket.
We at NewMarket appreciate all of our shareholders’ support and patience. We look forward to continuing to build NewMarket and its subsidiaries in both revenues and profitability while minimizing the frustrations that have occurred in our recent past.
Sincerely,
Philip Verges
