NewMarket Technology Inc. Builds Financial Sustainability and Credibility with Increased Profits and Financial Statement Amendments to Improve Compliance
11/22/2005 13:30
With $1.2 Million YTD Profit on $34.8 Million in Revenue, CEO Publishes Open Letter on Improving Financial Foundation and Recent Review by the SEC
NewMarket Technology Inc. (OTCBB: NMKT) today released an open letter from its CEO and Chairman, Philip Verges, continuing to chronicle the Company's experience on the Over The Counter Bulletin Board (OTCBB) exchange as it grows from a virtual start-up in 2002 with $1 million in revenue to $34.8 million in profitable year to date revenue for the first three quarters of 2005. The letter details the Company's improving profits and the recent financial footnote updates and accounting adjustments included in the most recent financial report filed yesterday in SEC Form 10QSB.
The letter is included in its entirety below:
Dear fellow shareholders and investors in the emerging technology market,
Yesterday NewMarket reported its best quarterly financial report ever. Revenue was 40% higher than the previous quarter at $14.2 million and profit jumped substantially to $960,000 bringing the year to date profit to $1.2 million. NewMarket reported only $2.3 million in revenue for the entire year of 2003. The Company has come a long way in less than two years. The business model is gaining momentum and the Company is fortifying its foundation by improving financial performance, along with improving its processes and procedures.
In addition to filing the quarterly report in SEC Form 10QSB, the Company also filed a supplemental SEC Form 8K disclosure to explain retroactive accounting adjustments and new financial footnotes reflected in the current 10QSB for the period ended September 30, 2005. The SEC Form 8K disclosure also announced the Company's plans to file an amended 10KSB for period ended December 31, 2004, and amended 10QSB's for periods ended March 31, 2005, and June 30, 2005. The planned amended filings will include the retroactive accounting adjustments and new financial footnotes already reflected in the current 10QSB.
While the SEC Form 8K disclosure may cause initial concern stating that the previous year annual report and the two previous quarterly reports do not convey reliable financial performance, I otherwise believe the ultimate outcome for NewMarket shareholders and investors is all together good. Keep in mind the current quarterly report filed yesterday already includes the accounting adjustments and new footnotes. The financial performance in the current report is reliable. The $34.8 million in year to date revenue and the $1.2 million in year to date profit has been calculated with the accounting changes already included. NewMarket's compliance and disclosure has been improved with the new footnotes and accounting changes included in the current report.
The financial reporting changes in amended financial reports will not alter the Company's previously reported revenue. Profits will be reduced by approximately $100,000 per quarter or $400,000 a year. NewMarket will still report a profit in the amended 2004 annual report. The balance sheet will be impacted, but the net change will be negligible. The balance sheet change has offsetting adjustments.
Why the Accounting Adjustments and New Footnotes?
In June 2005 the Securities and Exchange Commission (SEC) reviewed NewMarket's 2004 annual report SEC Form 10KSB and first quarter report for 2005 SEC Form 10QSB. The review included multiple written correspondences between the SEC and NewMarket and multiple telephone conferences. The purpose of the review by the SEC was to assist the Company with compliance and applicable disclosure requirements and to enhance the overall disclosure of the NewMarket filings.
The primary changes recommended by the SEC included additional detail regarding the integration of Infotel financials and the agreement to acquire Logicorp.
Accounting Changes
One recommended retroactive accounting entry change reflects a reduction in the original value placed on the software asset acquired with the purchase of Infotel. In the pro forma financial statements included in the Form 8-K/A dated June 2, 2004, the Company recorded negative goodwill for the acquisition of Infotel. The Company should have reduced the carrying value of the software code owned by Infotel before any recognition of negative goodwill. The carrying value of the software code for excess of fair value over the cost will be reduced following the guidance of paragraph 44 of SFAS 141. Accordingly, the negative goodwill previously assessed will be credited. The net balance sheet change is negligible with offsetting adjustments.
The second accounting entry change includes the amortization expense of the Infotel software asset beginning from the time of purchase. The software code acquired with the purchase of Infotel should have included an amortization expense from the first day of the consolidation of the Infotel financials into the NewMarket financial statement. This expense is approximately $100,000 per quarter and will reduce the quarterly profit accordingly. This is a non-cash change.
New Footnotes
Infotel's fiscal year end is not synchronized with NewMarket's fiscal year end. Infotel's fiscal year end is September 30th. NewMarket's fiscal year end is December 31st. NewMarket consolidates Infotel's financials on a fiscal calendar basis rather than an actual calendar basis. For instance, the Infotel first fiscal quarter for the period ending December 31st is reported with NewMarket's first fiscal quarter for the period ending March 31st. Infotel accounts for approximately $4 million of NewMarket's overall annual revenue. This consolidation practice may create a risk by not revealing an issue with the substantial revenue contribution from Infotel for up to 90 days after the issue has occurred.
NewMarket entered into an agreement to purchase a general technology service business, Logicorp, in the second half of 2004. The terms of the purchase agreement were never completely executed, though substantially more than $1 million in cash of a total $2.1 million of an agreed purchase price was paid by NewMarket. Some joint operations between Logicorp and NewMarket ensued, but since the agreement was never fully executed (NewMarket did not pay the full purchase amount and no Logicorp shares were ever issued to NewMarket), the contemplated acquisition was never recorded in the NewMarket financials as an acquisition. The cash paid by NewMarket was otherwise recorded on the balance sheet as an investment in an unconsolidated company. Ultimately, Logicorp did not prove to be a viable or sustainable business and the operations of Logicorp have been closed or divested. NewMarket has alternatively entered into an agreement with the sellers to exchange the contemplated equity position in Logicorp for a minority equity position in a financial services software company named Broker Payment Services. NewMarket anticipates the terms of this agreement to be completed by the end of 2005. If the contemplated agreement to alternatively purchase an equity position in Broker Payment Services is not fully executed, NewMarket may have to realize the more than $1 million in cash partial payment as a loss. Even if the alternative contemplated agreement is completely executed, NewMarket may still need to discount or impair the current $1 million in unconsolidated investment.
Again, it is important to remark that the current financial report included in SEC Form 10QSB for the third fiscal quarter of 2005 includes all of the SEC recommended accounting adjustments and new footnotes. The amended reports will be filed as quickly as possible, but will not change the current third quarter report. The amendments will reflect consistent revenue numbers with the current reports on file. Profits will be reduced, but the amended reports will still reflect profitable performance.
Thank you,
Philip M. Verges
CEO and Chairman
NewMarket Technology Inc.
About NewMarket Technology Inc. (www.newmarkettechnology.com)
NewMarket Technology Inc. is a Systems Innovation Company. NewMarket has combined a traditional systems integration and support services capacity with a specialized asset-based approach to assisting its clients with 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 (Nasdaq: MSFT), Cisco Systems (Nasdaq: CSCO) and Sun Microsystems (Nasdaq: SUNW). At the same time, 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's emerging technology portfolio includes products for the Telecommunications, Healthcare, Homeland Security and Financial Services industries. NewMarket delivers its portfolio of products and services through its global network of Solution Integration subsidiaries in North America, Latin America, China and Singapore. As a Systems Innovator, NewMarket has set itself apart from the systems integration market through the introduction of a technology business model that monetizes the value of emerging technologies to improve corporate profits and enhance shareholder value with the regular issue of dividends.
This press release contains statements (such as projections regarding future performance) that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to those detailed from time to time in the Company's filings with the Securities and Exchange Commission.
