Saturday, April 30, 2005 8:44:28 AM
Augie
Here is the e-mail in question. When you have it on your monitor click on tools then add sender to list and see where the message originated from.
Hi Telephonics –
It was good to here from you. Thank you for all your support. I am aware of the issues on Raging Bull. I have been emailing concerned shareholders for the last tow days.
I have received a number of emails like yours with concerns emanating from false and misleading claims on Raging Bull. Unfortunately, I do not feel simply answering the questions is enough. The intent of the negative Raging Bull posts is to damage my integrity. Most of the questions are about wild prevarications twisted from one random statement or another. Some of the questions I can not even think of where they come from. They are complete fabrications. I have done my best to provide not only responses to the questions, but enough background to demonstrate the nefarious intent of the original Raging Bull post. I have written an extraordinarily long and comprehensive response to the sum of the accusations on Raging Bull. Below is the response in its entirety. I am re-using the text below across multiple emails so I can reach out to as many shareholders today and in the next few days as possible. Please do not be offended if you talk with other shareholders and discover they have received a similar letter in part or in whole.
As committed as we are here at NewMarket to genuinely building a new business model for continuously introducing new technologies to market, it is always gravely disappointing to loose shareholders as a result of on ongoing nefarious misinformation campaign. We are truly committed to building an exceptional opportunity for shareholders. We believe our plans to regularly issue ownership in our subsidiaries to shareholders in the form of marketable securities through dividend declarations will revolutionize the publicly listed micro-cap market place. When we loose a shareholder before our opportunity to prove our commitment through the realization of the first dividend declaration, we experience a sense of failure and regret. We regret that the shareholder believed in our commitment enough to give NewMarket a chance, but that we failed to maintain that shareholder’s confidence long enough for them to realize the sincerity of our commitment through the actual delivery of a dividend. Everyone looses. We realize the shareholder may likely have taken a loss on their investment and in turn we know our shareholder confidence has been tarnished. Shareholder confidence is the key to NewMarket succeeding in the full realization of our new business model.
The micro-cap market and particularly the OTCBB can be a very trying experience for genuine secondary income investors. It can also be a very rewarding experience. The larger cap markets and national exchanges are dominated by institutional investors – large investment banks, mutual funds, and insurance companies. Institutional investors buy large blocks of stock and hold their positions for long periods to achieve single and low double digit returns. Single and low double digit returns on large sums of money results in relatively large returns. The OTCBB does not attract institutional investors. In fact, most institutional investors are prohibited from investing on the OTCBB by their own mandates. The OTCBB attracts investors seeking larger than single and low double digit returns. They are generally investors with less than institutional cash reserves to invest looking for dramatic returns -- and the OTCBB can deliver lottery ticket like returns. The OTCBB consistently but with great irregularity sees stocks go from pennies to dimes and dimes to dollars. However, the inverse occurs as well. With out the stabilizing influence of institutional investment buying and holding large blocks of stock, the OTCBB is an exceptionally volatile environment.
The genuine secondary income investor is the lifeblood of the OTCBB. I talk with investors from all walks of life and it is not unusual for me to encounter investors that are buying $100 or $200 dollars of stock that consider that level of investment a substantial investment. For such an investor, loosing that $100 or $200 dollars can be more devastating then the loss of $100,000 for a more sophisticated investor. The range from $100 to $100,000 dollars defines the core of the OTCBB investment community. The companies these core investors put their money into have chosen to be publicly listed primarily to raise capital for their businesses. However, the core OTCBB investors’ $100 to $100,000 investment only indirectly benefits the publicly listed company. The publicly listed company generally raises money form Organizational Investors that can invest $500,000 to $5,000,000 dollars. In exchange for that level of investment, the company gives the Organizational Investor stock that the Organizational Investor in turn sells to the $100 to $100,000 investor through the open market. At NewMarket we genuinely work very hard to balance the interests of all participants in the entire investment lifecycle – the Company, the Organizational Investor and most importantly the $100 to $100,000 investor and lifeblood to the OTCBB.
The volatility of the OTCBB creates a lucrative opportunity for less then genuine market participants. Organizational Investors entice companies looking for capital with the promise of large investments. The Organizational Investor asks for a security that will convert into common stock at a discount of whatever the common stock price is at the time of conversion. The Organizational Investor also only provides the cash in increments over time provided the stock trading dynamics can support the cash promised. In reality, the Organizational Investor never makes a bono-fide investment. The Organizational Investor sells stock short covered by the security agreement that allows them to convert into common stock at a discount. The effects of this type of agreement can be devastating to a company’s share price. In my opinion, Cornell is such an organization but certainly not the only one. Companies that have entered into agreements with Cornell have more often then not seen their share prices plummet. Cornell approached NewMarket and I asked them to supply me a list of financing agreements they had completely financed. In other words, I asked them to demonstrate where they had ever provided all the financing promised in the original security agreement. They never provided me with this list let alone a single example of where they had completely funded. I have to believe no company has ever survived an agreement with Cornell due to the detrimental impact on share price or the company figured out a way to exit the agreement in order to get out from under the negative impact of the agreement. The $100 to $100,000 dollar lifeblood investor gives there money to the Cornell’s in these types of arrangements and are left with underwater stock.
The OTCBB volatility also attracts naked short selling. Naked short selling is a high profile issue at the moment. Until the SEC implementation of Regulation SHO many claimed naked short selling was only a paranoid delusion. While Regulation SHO has not yet done much to limit naked short selling, it has at least validated the reality of the issue. For a naked short selling strategy to succeed, the price of the shorted stock must go down for the short seller to buy and cover at a lower price or the company must go out of business so that no entity is left to pursue the litigation against the naked short seller. The sale of counterfeit shares (naked shorting) creates an artificial supply of stock which in turn can have a negative impact on share price. In this manner, naked shorting can create a self-fulfilling prophecy. Naked short sellers also employ a strategy of creating fear uncertainty and doubt in the minds of genuine shareholders buy attacking the integrity of a Company’s management team. This is generally achieved through the posting on web site stock bulletin boards. Naked short sellers so far have eluded prosecution by keeping their short sales off shore and by posting on web site stock bulletin boards anonymously.
In addition to our genuine efforts to balance the interest of all participants in the entire investment lifecycle – the Company, the Organizational Investor and the $100 to $100,000 investor, we are also working diligently to mitigate the potentially negative impact of the less then genuine market participants. We mitigate this potential negative impact through both tactical and strategic initiatives. Tactically we mitigate the negative impact by communicating with shareholders and market participants. We do our best to keep shareholders apprised of our efforts to genuinely build a company in order to try and maintain there confidence. We also keep an eye on irregular trading activity, such as a market maker that is selling but not buying stock, and we notify them in writing immediately of the issue and ask them to provide documentation to prove that all sales are legitimate. So far, none of them have provided documentation, but they all usually stop selling once they receive our notice. More strategically we are pursuing a listing on a more regulated national exchange. Also, now that we have been listed on the Regulation SHO threshold security list we intend on a more strategic level to send a demand letters to all market makers to provide the identity of the individuals or firms holding the naked short positions. As naked short selling is illegal, no market maker can legitimately claim any type of exemption in regard to providing documentation of an illegal activity. We also intend to pursue the defaming stock posters through the legislative branch of government. The judicial branch of government has been ineffective in overcoming the privacy defense that defaming stock posters hide behind. However, the defaming stock posters are damaging the constituents of elected legislators by abusing constitutional privacy. Elected federal legislators take an oath of office that includes protecting the constitution against all enemies foreign and domestic. We believe the strategic solution to illegal stock shorting will come through legislation updating the professional investor’s disclosure requirements. For example, if a poster has been hired by a professional investor, then their posts should include a disclosure similar to the disclosure a publicly listed company must make on all press releases. Similarly, if an investing individual or organizations income comes primarily from investment activities, then we believe all their investments must be fully disclosed. Such an investor is a business participating in the public sector and the reporting requirements should be no different then those required of a public company issuing stock.
All the background aside on how NewMarket is working to maintain shareholder confidence by creating and protecting a unique and exceptional shareholder opportunity, you nevertheless have been impacted by the efforts of some of the nefarious efforts at work in the OTCBB. Your current investment in NewMarket has been negatively impacted and doubt as to my integrity and perhaps my capability has been generated. I am frustrated that in the face of all the progress we have made at NewMarket through exceptionally hard work and personal commitment, that I am nevertheless held accountable to the false and misleading statements of anonymous individuals that have in the past been punished by Lycos Raging Bull for similar activities. Lycos is a failure at exercising regulation that can eliminate if not mitigate such illegal activity – defamation and stock manipulation. So, even though I am frustrated, I am nevertheless compelled to do all I can to address the accusations and concerns that have been generated. Please excuse my momentary pontification on a point that may seem corny. I think you are aware that I am a graduate of the United States Military Academy at West Point. At West Point we take an oath (one among many) “to not lie, cheat, or steel nor tolerate those that do.” While perhaps corny to some, I take it very seriously. The purpose of this momentary pontification is to try and express how offensive and distasteful it is for me to have to address these false and misleading accusations. Please know I am not offended by you. I can sincerely appreciate your concern and I want to do all I can to address your concern. I am offended at the likes of Even and Tsheri hiding behind privacy in abuse of the Constitution, making misleading and false accusations and profiting from their deceit at the expense of genuine investors.
Off my soap box and on to doing my best to address concerns. I say doing my best, because I honestly am not sure where some of the accusations come from in regard to “Phil’s Scheme.” Where I get 87 million shares for instance? I have tried to list the key concerns and in narrative address each one. I of course will be happy to arrange of phone call to further address any concerns. I also do a great deal of traveling and would be happy to meet if I happen by your neck of the woods.
Philip Verges NMKT Stock Ownership
I am a partner in VergeTech (VTI). I founded VTI with my two brothers and sister and our father in 1997. We started VTI with another family (minority owners) that invested cash and had one family member that went to work for VTI – the one family member happened to be old boss (and Naval Academy Graduate which I have forgiven him for) of mine at EDS when I was a programmer. Other then the father of my Naval Academy former boss, all of us are individuals of relatively modest means – no millionaires in the group – though today we may cumulatively be paper millionaires. One brother is a lawyer, the other an engineer and MBA. My sister is also an engineer as is my father who also has 30 years of management experience mostly at American Airlines. We all still talk to each other and we all still work together. My father is living in Singapore and managing the business NewMarket purchased there. My sister runs our professional services organization. One brother is managing our business development in China and the other brother litigates as necessary.
In 2002 we sold all the assets of VTI to NewMarket. NewMarket was called IPVoice at that time. VTI had sufferd through the turn down in the technology market place. We had gone from about $11 million in sales in 2001 to $2 million in sales in 2002. We didn’t even collect a good deal of the $11 million in sales as a result of the turn down. Nevertheless we believe we had developed the beginnings of a compelling business model. It is essentially what we now talk about as the NewMarket business model. We strategized a plan to move the model into a micro-cap publicly listed environment in order to change the capitalization model from a venture backed strategy to pubic stock backed strategy. We found IPVoice, a struggling publicly listed company with a business focus that complimented VTI’s business. IPVoice was severely in debt with no cash, no income, no production ready technology, little to no trading volume and little to no market capitalization value. We entered into a deal we considered genuinely a partnership with the existing IPVoice shareholders whereby VTI shareholders received a note convertible into 50% of the stock of IPVoice on a fully diluted basis.
No one at VTI had any public company management experience and we were counting on existing IPVoice management covering that aspect of our business. However, former IPVoice management issued themselves 12 million shares of S-8 stock and abonded the Company. They have not returned a call since the day we signed the original deal on June 19th 2002. Needles to say, the 12 million shares hitting the market added insult to injury and destroyed the opportunity to revive any life into the existing capitalization structure of the Company. Late in the fall of 2002, VTI was forced to convert over 50% of their convertible note in order to take shareholder control of the Company and execute a reverse split. VTI received 30 million shares of stock that where reversed down to 2 million shares.
In 2003, the company began to perform. We were able to make our first two acquisitions and raise approximately $1 million dollars. The Company stock began to trade with some regularity in April of 2003. The price per share after April averaged about $0.17 cents until November when the Company price per share averaged about $0.44 on very high volume. In addition to raising approximately $1 million dollars, the Company was able to completely service all the convertible debt inherited from previous management. Approximately 25 million shares were issued to service $4 million in previously non-performing debt from the balance sheet. The $1 million dollars was raised by VTI borrowing against the remaining balance of its own convertible note and reinvesting 100% of the borrowed money. The 25 million shares were issued to the note holder of the $4 million in non-performing debt. None of this stock went to me or VTI.
In 2004 VTI converted out of the balance of the note received for the original sale of VTI assets to NewMarket. VTI received 20 million shares. The number of shares was calculated according to the original agreement – 50% of the issued and outstanding on a fully diluted basis as of June 19th 2002. At the end of 2003, NewMarket had issued all the stock required to fulfill its outstanding obligations that were current as of June 19th 2002. The current issued and outstanding at the end of 2003 was approximately 50 million shares. If VTI had held its entire note and not converted a portion to effect the reverse split, VTI would have been eligible to receive 50 million shares in accordance with the 50% issued and outstanding formula. But as VTI had converted more than half of its note already, less than half of the 50 million shares were issued to VTI – 20 million shares. This brings VTI’s total number of shares to 22 million as disclosed in the 2003 and 2004 10Ks. I personally own a 25% stake in VTI.
The 22 million shares are listed twice. It is listed under the section of the 10K that requires any shares controlled by an officer to be disclosed and it is listed again under affiliate ownership disclosures. I am the only officer and director of VTI, so technically I control all the shares VTI owns. All other directors and officers resigned when we sold the VTI assets to NewMarket in order to mitigate the personal liability associated with being the officer and director of a Company that is the affiliate of a publicly traded Company. There are not 44 million shares.
In 2004 VTI borrowed another approximately $2.8 million dollars against its stock ownership and invested 100% of the proceeds into NewMarket. All of the loans VTI has entered into permit repayment in cash and allow our stock to be freed from its current collateral agreement. VTI providing the financing to NewMarket was frankly a plan B. In the spring of 2004, I went out to raise money on a conventional registration statement. With in on hour of signing a term sheet the NewMarket stock price dropped dramatically and continued to drop. I believe the prospective investors where naked shorting the stock to provide the funds to the Company. I believe this was complicated by other naked short sellers anticipating the availability of discounted shares. Accordingly, I canceled the term sheet and decided not to raise any money for the Company at that time through the registration of stock. I alternatively went to my VTI partners and persuaded them to borrow and invest the necessary capital. We borrowed the money from a family friend on what I believe to be exceptional terms. The money has been loaned to NewMarket secured by a convertible note that on a worse case basis could convert into 40 million shares. I do not believe that a conversion into 40 million shares is a viable return on investment alternative. I can’t imaging the market for NewMarket shares sustaining the type of overhead pressure that an actual conversion would put on the stock. The only real benefit that the 40 million share convertion option provides is a poison pill for any potential takeover schemes. If a third party were to identify how undervalued NewMaket is given its growth from $2.3 million in 2003 sales to $24 million in 2004 sales, with current shareholder equity of $17 million and with no discernable market cap or share price appreciation in the past 12 months, then they might see NewMarket as a potential takeover opportunity. The 40 million share convertible note is a significant deterrent to such a strategy.
I believe NewMarket is undervalued. I believe NewMarket can be a $500 million dollar company in the next 3-5 years. I believe the NewMarket price per share can be well into the dollars. I am very pleased with the opportunity to enjoy my portion of VTI’s 22 million shares being worth dollars per share. I do hope to earn more stock for my role as CEO and Chairman and I do look forward to enjoying the dividends in the form of marketable securities rendered from fractional ownership in NewMarket subsidiaries.
The accusation that I own 87 million shares or could own 87 million shares is a preposterous accusation.
New Auditors and On Time Reporting
NewMarket was compelled to change auditors under the regulations associated with Sarbanes Oxley. Sarbanes requires the audit partner to rotate every five years. I confess this is not a rule I was familiar with until it was brought to my attention. Our former auditor is a small firm and our new auditor is a small firm. I do not believe a small audit firm for a small company is an unreasonable situation. I believe it is the most practical situation. NewMarket does not warrant a big four firm, let alone a top 20 firm. In the future we might, but not today. Our former auditor was in fact only one employee that subcontracted other auditors. Accordingly, our former auditor did not have the ability to rotate audit partners. In addition to the challenge of changing auditors in general, we are subject to the resource limitations of a small accounting firm trying to do multiple audits for multiple small firms in a very compressed amount of time. We do our best to be the squeaky wheel, but are fairly limited in our ability to demand the auditor to speed up. In our effort to rush the report out as fast as possible once the Auditor completed the report we unfortunately lost some quality control and ended up having to re-release the report with corrections not including the re-release simply do to a formatting issue when the report was edgarized. The change of auditors and the timing of the release has nothing to do with audit discrepancies or conflicts.
Dan Scofield COO
Working in a key role in a small high growth business is a challenging and demanding task. The task for some can be exhilarating and for some the task is overwhelming. I have both exhilarating days and frighteningly overwhelming days, but the overall average for me is way onto the exhilarated side of the scale. While we are cash flow positive and we have cash in the bank we are not excessively cash flow positive nor do we maintain a great cash reserve. We are an aggressive growth company, so we aggressively invest our cash resources to grow. I travel well over 50% of the time and I have deployed my own father to Singapore and my brother to China. This environment is not for everyone. We were pleased to have Dan. Dan has great experience and skills, but Dan had never operated in a small high growth company. We admire Dan’s effort and respect his decision.
Business Model Simplification – Transparency
Admittedly, the NewMarket business model is unique. We are trying to augment company profits through monetizing a portion of the overall business value of our high tech subsidiaries. We package new and old technology to give new technology the brand name benefit of old technology and old technology the benefit of new features. We are working to enhance shareholder value by introducing a new breed of dividends in the form of marketable securities in our subsidiaries. We work to accelerate sales by selling into the technology leap frog opportunity in developing economies. We are addressing the shrinking profit margin issue facing the technology service sector, the lack of investment interest in emerging technology, and the corresponding issue that results in lackluster technology share prices. We believe all these issues are intertwined and while it may be simpler to address one, a singular strategy would not be successful. While a global strategy may traditionally be considered the luxury of a large corporation we alternatively believe that the world economy is made of far more small businesses than large businesses and that the global strategy actually belongs to small business working internationally with other small businesses.
The model is complicated only because it comprehensively addresses the entire technology ecosystem form invention of technology, to financing of the invention, to first sale of the technology, to maintenance of a technology that is now an excepted standard. No small business strategy is addressing such a comprehensive approach. Only the large brand name technology incumbents are addressing the entire technology ecosystem and there opportunity is limited. They can consolidate mid and large technology businesses that update their existing functionality, but super sized companies like Microsoft and Oracle are not capable of sourcing, acquiring and mentoring the kitchen table and garage technology inventions that represent the next generation of functionality. We have a big opportunity to create a systemic solution that continuously introduces the next generation technology to market. This market is currently haphazard, random and chaotic. If we can continue to exceed in the expansion of our business model into new technology markets, new geographic regions and on sheer volume of business, NewMarket can establish itself as the market leader in a market that has yet to have clear identity.
In the meantime, we will struggle with the burden of not fitting into a predefined category. However, this lack of category should not be confused with a lack business transparency. The company is a fully reporting company that meets all SEC reporting requirements. If the company and a transparency issue, I believe we would be notified by the SEC. Breaking the financial reporting down into a level of detail greater than required would add an additional expense burden. I would much rather allocate available cash toward growth than exceeding reporting requirements. I don’t believe a further breakdown would add any insight into the business model or provide any further insight into the value of the Company. There is no transparency issue. The suggestion of an issue is being manufactured to suggest an issue with management integrity. Please go to SEC.GOV and look up Electronic Data Systems. First you will see they file a 10K extension. Filing and extension is not unusual for a company and it is not a reflection of any weakness or poor management integrity. In reviewing there report you will not see any financial break down of their subsidiaries. However, under an attachment you will see a four page list of subsidiaries. Are we to believe Raging Bull posters that claim NewMarket has a more detailed reporting requirement then EDS?
This is an enormously long email. If you made it this far, I apologize for rambling and soap boxing. I am very passionate about what we are endeavoring to build here at NewMarket and never at a lack of words. I hope my email has helped to restore some of you confidence if not at lease mitigate some of the concern that has been generated by the ill-intentioned nonsense on Raging Bull. I am serious about being available by phone and for personal meetings. Please do not hesitate to contact me.
Best Regards,
Philip
Here is the e-mail in question. When you have it on your monitor click on tools then add sender to list and see where the message originated from.
Hi Telephonics –
It was good to here from you. Thank you for all your support. I am aware of the issues on Raging Bull. I have been emailing concerned shareholders for the last tow days.
I have received a number of emails like yours with concerns emanating from false and misleading claims on Raging Bull. Unfortunately, I do not feel simply answering the questions is enough. The intent of the negative Raging Bull posts is to damage my integrity. Most of the questions are about wild prevarications twisted from one random statement or another. Some of the questions I can not even think of where they come from. They are complete fabrications. I have done my best to provide not only responses to the questions, but enough background to demonstrate the nefarious intent of the original Raging Bull post. I have written an extraordinarily long and comprehensive response to the sum of the accusations on Raging Bull. Below is the response in its entirety. I am re-using the text below across multiple emails so I can reach out to as many shareholders today and in the next few days as possible. Please do not be offended if you talk with other shareholders and discover they have received a similar letter in part or in whole.
As committed as we are here at NewMarket to genuinely building a new business model for continuously introducing new technologies to market, it is always gravely disappointing to loose shareholders as a result of on ongoing nefarious misinformation campaign. We are truly committed to building an exceptional opportunity for shareholders. We believe our plans to regularly issue ownership in our subsidiaries to shareholders in the form of marketable securities through dividend declarations will revolutionize the publicly listed micro-cap market place. When we loose a shareholder before our opportunity to prove our commitment through the realization of the first dividend declaration, we experience a sense of failure and regret. We regret that the shareholder believed in our commitment enough to give NewMarket a chance, but that we failed to maintain that shareholder’s confidence long enough for them to realize the sincerity of our commitment through the actual delivery of a dividend. Everyone looses. We realize the shareholder may likely have taken a loss on their investment and in turn we know our shareholder confidence has been tarnished. Shareholder confidence is the key to NewMarket succeeding in the full realization of our new business model.
The micro-cap market and particularly the OTCBB can be a very trying experience for genuine secondary income investors. It can also be a very rewarding experience. The larger cap markets and national exchanges are dominated by institutional investors – large investment banks, mutual funds, and insurance companies. Institutional investors buy large blocks of stock and hold their positions for long periods to achieve single and low double digit returns. Single and low double digit returns on large sums of money results in relatively large returns. The OTCBB does not attract institutional investors. In fact, most institutional investors are prohibited from investing on the OTCBB by their own mandates. The OTCBB attracts investors seeking larger than single and low double digit returns. They are generally investors with less than institutional cash reserves to invest looking for dramatic returns -- and the OTCBB can deliver lottery ticket like returns. The OTCBB consistently but with great irregularity sees stocks go from pennies to dimes and dimes to dollars. However, the inverse occurs as well. With out the stabilizing influence of institutional investment buying and holding large blocks of stock, the OTCBB is an exceptionally volatile environment.
The genuine secondary income investor is the lifeblood of the OTCBB. I talk with investors from all walks of life and it is not unusual for me to encounter investors that are buying $100 or $200 dollars of stock that consider that level of investment a substantial investment. For such an investor, loosing that $100 or $200 dollars can be more devastating then the loss of $100,000 for a more sophisticated investor. The range from $100 to $100,000 dollars defines the core of the OTCBB investment community. The companies these core investors put their money into have chosen to be publicly listed primarily to raise capital for their businesses. However, the core OTCBB investors’ $100 to $100,000 investment only indirectly benefits the publicly listed company. The publicly listed company generally raises money form Organizational Investors that can invest $500,000 to $5,000,000 dollars. In exchange for that level of investment, the company gives the Organizational Investor stock that the Organizational Investor in turn sells to the $100 to $100,000 investor through the open market. At NewMarket we genuinely work very hard to balance the interests of all participants in the entire investment lifecycle – the Company, the Organizational Investor and most importantly the $100 to $100,000 investor and lifeblood to the OTCBB.
The volatility of the OTCBB creates a lucrative opportunity for less then genuine market participants. Organizational Investors entice companies looking for capital with the promise of large investments. The Organizational Investor asks for a security that will convert into common stock at a discount of whatever the common stock price is at the time of conversion. The Organizational Investor also only provides the cash in increments over time provided the stock trading dynamics can support the cash promised. In reality, the Organizational Investor never makes a bono-fide investment. The Organizational Investor sells stock short covered by the security agreement that allows them to convert into common stock at a discount. The effects of this type of agreement can be devastating to a company’s share price. In my opinion, Cornell is such an organization but certainly not the only one. Companies that have entered into agreements with Cornell have more often then not seen their share prices plummet. Cornell approached NewMarket and I asked them to supply me a list of financing agreements they had completely financed. In other words, I asked them to demonstrate where they had ever provided all the financing promised in the original security agreement. They never provided me with this list let alone a single example of where they had completely funded. I have to believe no company has ever survived an agreement with Cornell due to the detrimental impact on share price or the company figured out a way to exit the agreement in order to get out from under the negative impact of the agreement. The $100 to $100,000 dollar lifeblood investor gives there money to the Cornell’s in these types of arrangements and are left with underwater stock.
The OTCBB volatility also attracts naked short selling. Naked short selling is a high profile issue at the moment. Until the SEC implementation of Regulation SHO many claimed naked short selling was only a paranoid delusion. While Regulation SHO has not yet done much to limit naked short selling, it has at least validated the reality of the issue. For a naked short selling strategy to succeed, the price of the shorted stock must go down for the short seller to buy and cover at a lower price or the company must go out of business so that no entity is left to pursue the litigation against the naked short seller. The sale of counterfeit shares (naked shorting) creates an artificial supply of stock which in turn can have a negative impact on share price. In this manner, naked shorting can create a self-fulfilling prophecy. Naked short sellers also employ a strategy of creating fear uncertainty and doubt in the minds of genuine shareholders buy attacking the integrity of a Company’s management team. This is generally achieved through the posting on web site stock bulletin boards. Naked short sellers so far have eluded prosecution by keeping their short sales off shore and by posting on web site stock bulletin boards anonymously.
In addition to our genuine efforts to balance the interest of all participants in the entire investment lifecycle – the Company, the Organizational Investor and the $100 to $100,000 investor, we are also working diligently to mitigate the potentially negative impact of the less then genuine market participants. We mitigate this potential negative impact through both tactical and strategic initiatives. Tactically we mitigate the negative impact by communicating with shareholders and market participants. We do our best to keep shareholders apprised of our efforts to genuinely build a company in order to try and maintain there confidence. We also keep an eye on irregular trading activity, such as a market maker that is selling but not buying stock, and we notify them in writing immediately of the issue and ask them to provide documentation to prove that all sales are legitimate. So far, none of them have provided documentation, but they all usually stop selling once they receive our notice. More strategically we are pursuing a listing on a more regulated national exchange. Also, now that we have been listed on the Regulation SHO threshold security list we intend on a more strategic level to send a demand letters to all market makers to provide the identity of the individuals or firms holding the naked short positions. As naked short selling is illegal, no market maker can legitimately claim any type of exemption in regard to providing documentation of an illegal activity. We also intend to pursue the defaming stock posters through the legislative branch of government. The judicial branch of government has been ineffective in overcoming the privacy defense that defaming stock posters hide behind. However, the defaming stock posters are damaging the constituents of elected legislators by abusing constitutional privacy. Elected federal legislators take an oath of office that includes protecting the constitution against all enemies foreign and domestic. We believe the strategic solution to illegal stock shorting will come through legislation updating the professional investor’s disclosure requirements. For example, if a poster has been hired by a professional investor, then their posts should include a disclosure similar to the disclosure a publicly listed company must make on all press releases. Similarly, if an investing individual or organizations income comes primarily from investment activities, then we believe all their investments must be fully disclosed. Such an investor is a business participating in the public sector and the reporting requirements should be no different then those required of a public company issuing stock.
All the background aside on how NewMarket is working to maintain shareholder confidence by creating and protecting a unique and exceptional shareholder opportunity, you nevertheless have been impacted by the efforts of some of the nefarious efforts at work in the OTCBB. Your current investment in NewMarket has been negatively impacted and doubt as to my integrity and perhaps my capability has been generated. I am frustrated that in the face of all the progress we have made at NewMarket through exceptionally hard work and personal commitment, that I am nevertheless held accountable to the false and misleading statements of anonymous individuals that have in the past been punished by Lycos Raging Bull for similar activities. Lycos is a failure at exercising regulation that can eliminate if not mitigate such illegal activity – defamation and stock manipulation. So, even though I am frustrated, I am nevertheless compelled to do all I can to address the accusations and concerns that have been generated. Please excuse my momentary pontification on a point that may seem corny. I think you are aware that I am a graduate of the United States Military Academy at West Point. At West Point we take an oath (one among many) “to not lie, cheat, or steel nor tolerate those that do.” While perhaps corny to some, I take it very seriously. The purpose of this momentary pontification is to try and express how offensive and distasteful it is for me to have to address these false and misleading accusations. Please know I am not offended by you. I can sincerely appreciate your concern and I want to do all I can to address your concern. I am offended at the likes of Even and Tsheri hiding behind privacy in abuse of the Constitution, making misleading and false accusations and profiting from their deceit at the expense of genuine investors.
Off my soap box and on to doing my best to address concerns. I say doing my best, because I honestly am not sure where some of the accusations come from in regard to “Phil’s Scheme.” Where I get 87 million shares for instance? I have tried to list the key concerns and in narrative address each one. I of course will be happy to arrange of phone call to further address any concerns. I also do a great deal of traveling and would be happy to meet if I happen by your neck of the woods.
Philip Verges NMKT Stock Ownership
I am a partner in VergeTech (VTI). I founded VTI with my two brothers and sister and our father in 1997. We started VTI with another family (minority owners) that invested cash and had one family member that went to work for VTI – the one family member happened to be old boss (and Naval Academy Graduate which I have forgiven him for) of mine at EDS when I was a programmer. Other then the father of my Naval Academy former boss, all of us are individuals of relatively modest means – no millionaires in the group – though today we may cumulatively be paper millionaires. One brother is a lawyer, the other an engineer and MBA. My sister is also an engineer as is my father who also has 30 years of management experience mostly at American Airlines. We all still talk to each other and we all still work together. My father is living in Singapore and managing the business NewMarket purchased there. My sister runs our professional services organization. One brother is managing our business development in China and the other brother litigates as necessary.
In 2002 we sold all the assets of VTI to NewMarket. NewMarket was called IPVoice at that time. VTI had sufferd through the turn down in the technology market place. We had gone from about $11 million in sales in 2001 to $2 million in sales in 2002. We didn’t even collect a good deal of the $11 million in sales as a result of the turn down. Nevertheless we believe we had developed the beginnings of a compelling business model. It is essentially what we now talk about as the NewMarket business model. We strategized a plan to move the model into a micro-cap publicly listed environment in order to change the capitalization model from a venture backed strategy to pubic stock backed strategy. We found IPVoice, a struggling publicly listed company with a business focus that complimented VTI’s business. IPVoice was severely in debt with no cash, no income, no production ready technology, little to no trading volume and little to no market capitalization value. We entered into a deal we considered genuinely a partnership with the existing IPVoice shareholders whereby VTI shareholders received a note convertible into 50% of the stock of IPVoice on a fully diluted basis.
No one at VTI had any public company management experience and we were counting on existing IPVoice management covering that aspect of our business. However, former IPVoice management issued themselves 12 million shares of S-8 stock and abonded the Company. They have not returned a call since the day we signed the original deal on June 19th 2002. Needles to say, the 12 million shares hitting the market added insult to injury and destroyed the opportunity to revive any life into the existing capitalization structure of the Company. Late in the fall of 2002, VTI was forced to convert over 50% of their convertible note in order to take shareholder control of the Company and execute a reverse split. VTI received 30 million shares of stock that where reversed down to 2 million shares.
In 2003, the company began to perform. We were able to make our first two acquisitions and raise approximately $1 million dollars. The Company stock began to trade with some regularity in April of 2003. The price per share after April averaged about $0.17 cents until November when the Company price per share averaged about $0.44 on very high volume. In addition to raising approximately $1 million dollars, the Company was able to completely service all the convertible debt inherited from previous management. Approximately 25 million shares were issued to service $4 million in previously non-performing debt from the balance sheet. The $1 million dollars was raised by VTI borrowing against the remaining balance of its own convertible note and reinvesting 100% of the borrowed money. The 25 million shares were issued to the note holder of the $4 million in non-performing debt. None of this stock went to me or VTI.
In 2004 VTI converted out of the balance of the note received for the original sale of VTI assets to NewMarket. VTI received 20 million shares. The number of shares was calculated according to the original agreement – 50% of the issued and outstanding on a fully diluted basis as of June 19th 2002. At the end of 2003, NewMarket had issued all the stock required to fulfill its outstanding obligations that were current as of June 19th 2002. The current issued and outstanding at the end of 2003 was approximately 50 million shares. If VTI had held its entire note and not converted a portion to effect the reverse split, VTI would have been eligible to receive 50 million shares in accordance with the 50% issued and outstanding formula. But as VTI had converted more than half of its note already, less than half of the 50 million shares were issued to VTI – 20 million shares. This brings VTI’s total number of shares to 22 million as disclosed in the 2003 and 2004 10Ks. I personally own a 25% stake in VTI.
The 22 million shares are listed twice. It is listed under the section of the 10K that requires any shares controlled by an officer to be disclosed and it is listed again under affiliate ownership disclosures. I am the only officer and director of VTI, so technically I control all the shares VTI owns. All other directors and officers resigned when we sold the VTI assets to NewMarket in order to mitigate the personal liability associated with being the officer and director of a Company that is the affiliate of a publicly traded Company. There are not 44 million shares.
In 2004 VTI borrowed another approximately $2.8 million dollars against its stock ownership and invested 100% of the proceeds into NewMarket. All of the loans VTI has entered into permit repayment in cash and allow our stock to be freed from its current collateral agreement. VTI providing the financing to NewMarket was frankly a plan B. In the spring of 2004, I went out to raise money on a conventional registration statement. With in on hour of signing a term sheet the NewMarket stock price dropped dramatically and continued to drop. I believe the prospective investors where naked shorting the stock to provide the funds to the Company. I believe this was complicated by other naked short sellers anticipating the availability of discounted shares. Accordingly, I canceled the term sheet and decided not to raise any money for the Company at that time through the registration of stock. I alternatively went to my VTI partners and persuaded them to borrow and invest the necessary capital. We borrowed the money from a family friend on what I believe to be exceptional terms. The money has been loaned to NewMarket secured by a convertible note that on a worse case basis could convert into 40 million shares. I do not believe that a conversion into 40 million shares is a viable return on investment alternative. I can’t imaging the market for NewMarket shares sustaining the type of overhead pressure that an actual conversion would put on the stock. The only real benefit that the 40 million share convertion option provides is a poison pill for any potential takeover schemes. If a third party were to identify how undervalued NewMaket is given its growth from $2.3 million in 2003 sales to $24 million in 2004 sales, with current shareholder equity of $17 million and with no discernable market cap or share price appreciation in the past 12 months, then they might see NewMarket as a potential takeover opportunity. The 40 million share convertible note is a significant deterrent to such a strategy.
I believe NewMarket is undervalued. I believe NewMarket can be a $500 million dollar company in the next 3-5 years. I believe the NewMarket price per share can be well into the dollars. I am very pleased with the opportunity to enjoy my portion of VTI’s 22 million shares being worth dollars per share. I do hope to earn more stock for my role as CEO and Chairman and I do look forward to enjoying the dividends in the form of marketable securities rendered from fractional ownership in NewMarket subsidiaries.
The accusation that I own 87 million shares or could own 87 million shares is a preposterous accusation.
New Auditors and On Time Reporting
NewMarket was compelled to change auditors under the regulations associated with Sarbanes Oxley. Sarbanes requires the audit partner to rotate every five years. I confess this is not a rule I was familiar with until it was brought to my attention. Our former auditor is a small firm and our new auditor is a small firm. I do not believe a small audit firm for a small company is an unreasonable situation. I believe it is the most practical situation. NewMarket does not warrant a big four firm, let alone a top 20 firm. In the future we might, but not today. Our former auditor was in fact only one employee that subcontracted other auditors. Accordingly, our former auditor did not have the ability to rotate audit partners. In addition to the challenge of changing auditors in general, we are subject to the resource limitations of a small accounting firm trying to do multiple audits for multiple small firms in a very compressed amount of time. We do our best to be the squeaky wheel, but are fairly limited in our ability to demand the auditor to speed up. In our effort to rush the report out as fast as possible once the Auditor completed the report we unfortunately lost some quality control and ended up having to re-release the report with corrections not including the re-release simply do to a formatting issue when the report was edgarized. The change of auditors and the timing of the release has nothing to do with audit discrepancies or conflicts.
Dan Scofield COO
Working in a key role in a small high growth business is a challenging and demanding task. The task for some can be exhilarating and for some the task is overwhelming. I have both exhilarating days and frighteningly overwhelming days, but the overall average for me is way onto the exhilarated side of the scale. While we are cash flow positive and we have cash in the bank we are not excessively cash flow positive nor do we maintain a great cash reserve. We are an aggressive growth company, so we aggressively invest our cash resources to grow. I travel well over 50% of the time and I have deployed my own father to Singapore and my brother to China. This environment is not for everyone. We were pleased to have Dan. Dan has great experience and skills, but Dan had never operated in a small high growth company. We admire Dan’s effort and respect his decision.
Business Model Simplification – Transparency
Admittedly, the NewMarket business model is unique. We are trying to augment company profits through monetizing a portion of the overall business value of our high tech subsidiaries. We package new and old technology to give new technology the brand name benefit of old technology and old technology the benefit of new features. We are working to enhance shareholder value by introducing a new breed of dividends in the form of marketable securities in our subsidiaries. We work to accelerate sales by selling into the technology leap frog opportunity in developing economies. We are addressing the shrinking profit margin issue facing the technology service sector, the lack of investment interest in emerging technology, and the corresponding issue that results in lackluster technology share prices. We believe all these issues are intertwined and while it may be simpler to address one, a singular strategy would not be successful. While a global strategy may traditionally be considered the luxury of a large corporation we alternatively believe that the world economy is made of far more small businesses than large businesses and that the global strategy actually belongs to small business working internationally with other small businesses.
The model is complicated only because it comprehensively addresses the entire technology ecosystem form invention of technology, to financing of the invention, to first sale of the technology, to maintenance of a technology that is now an excepted standard. No small business strategy is addressing such a comprehensive approach. Only the large brand name technology incumbents are addressing the entire technology ecosystem and there opportunity is limited. They can consolidate mid and large technology businesses that update their existing functionality, but super sized companies like Microsoft and Oracle are not capable of sourcing, acquiring and mentoring the kitchen table and garage technology inventions that represent the next generation of functionality. We have a big opportunity to create a systemic solution that continuously introduces the next generation technology to market. This market is currently haphazard, random and chaotic. If we can continue to exceed in the expansion of our business model into new technology markets, new geographic regions and on sheer volume of business, NewMarket can establish itself as the market leader in a market that has yet to have clear identity.
In the meantime, we will struggle with the burden of not fitting into a predefined category. However, this lack of category should not be confused with a lack business transparency. The company is a fully reporting company that meets all SEC reporting requirements. If the company and a transparency issue, I believe we would be notified by the SEC. Breaking the financial reporting down into a level of detail greater than required would add an additional expense burden. I would much rather allocate available cash toward growth than exceeding reporting requirements. I don’t believe a further breakdown would add any insight into the business model or provide any further insight into the value of the Company. There is no transparency issue. The suggestion of an issue is being manufactured to suggest an issue with management integrity. Please go to SEC.GOV and look up Electronic Data Systems. First you will see they file a 10K extension. Filing and extension is not unusual for a company and it is not a reflection of any weakness or poor management integrity. In reviewing there report you will not see any financial break down of their subsidiaries. However, under an attachment you will see a four page list of subsidiaries. Are we to believe Raging Bull posters that claim NewMarket has a more detailed reporting requirement then EDS?
This is an enormously long email. If you made it this far, I apologize for rambling and soap boxing. I am very passionate about what we are endeavoring to build here at NewMarket and never at a lack of words. I hope my email has helped to restore some of you confidence if not at lease mitigate some of the concern that has been generated by the ill-intentioned nonsense on Raging Bull. I am serious about being available by phone and for personal meetings. Please do not hesitate to contact me.
Best Regards,
Philip
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