Augie - here are my questions.
BUSINESS CAPABILITIES:
Please explain Newmarket’s business capabilities (defined/branded products and services, customer bases, etc), using this context:
- $100k capital equipment, implying that you can’t manufacture anything, and have limited physical facilities.
- $100K inventory, implying that you don’t have products that you manufacture and sell
- $0 in Research and Development during your entire tenure at NMKT, suggesting zero innovation or new product development.
- As of Dec 31 2004, only 200 employees, implying that “services” provided by NMKT employees does not represent significant revenue
Specifically:
1. Xiptel: How can Xiptel be operating without capital equipment? Is it coincidence that Xiptel has never announced a named customer? Or that you have chosen not to disclose Xiptel financials, despite suggestions to investors that Xiptel is a spin off candidate?
2. RFID: How can you claim to have an RFID program? No inventory, capital equipment, and no R&D. What is a “provisional patent”, which you announced last year? What is your specific RFID product?
3. Homeland Defense: You make frequent references to “homeland defense solutions”. What specifically are they? Can you provide one specific example of a product? For that product, please explain: How was it developed without R&D? How is it produced without capital equipment? How has it been sold, given that no customer wins or names have ever been announced?
4. Last January you announced that a NMKT subsidiary would be development financial software that would result in an estimated $10million - $12million in 2005 revenue. How, given that there is zero R&D? What were the actual results for 2005? If this was part of the failed logicorp deal, why did you choose not to inform investors that the failure of Logicorp meant that your $10million - $12million revenue expectation is eliminated?
DFTS:
1. Defense Technology Systems (DFTS): This company had no assets, $4million in liabilities, no products, 4 (four) employees of which two were clerical, and was in violation of bankruptcy agreements. Why did NMKT enter into a transaction with this company? What role did Augustine Capital, holder of DFTS convertible debt, play? Why did you choose not to include this information when announcing DFTS?
2. In the PR announcing the sale of DCI to Skylynx, you state that DFTS has moved to the pink sheets as part of an effort to fix the company, which implies that this was a voluntary move. Is the real reason because DFTS has been unable to file its June 30, 2005 10K? Why did you choose not to mention the late 10K filing in your explanation?
3. What is the reason why DFTS is unable to file the 10k? Aren’t investors entitled to know this? Given that DFTS refilled it’s 2004 10K this past August, does that suggest that there is an SEC review underway (given that the NMKT refilings were due to an SEC review)?
SEC RESTATEMENT:
2. Why did management choose to not timely notify investors of the SEC review, which was conducted in June 2005?
3. When Rick Lutz suggested to investors that the refilings in June 2005 were the result of Amex discussions, was he misleading? Was the real reason due to the SEC investigation?
FINANCIAL REPORTING
1. Newmarket’s Accounts Receivable balance of $20million is equivalent to 120 calendar days of sales (or about 140 business days). Why? Given that a normal range is 30-45 days, this would imply that AR in question is approx $10million - $15million.
2. Debt – in the past 5 quarters, $7.6million of debt has been converted to equity (at an average of 21 cents per share). The majority of this debt has never appeared on the balance sheet. Where has it come from? Why have you chosen not to issue 8k disclosure of the transaction details, as required, to inform investors?
3. During your tenure, you have never once issued an 8k disclosing details of a material financial transaction. Given that you are operating without a CFO to countersign, without an independent board of directors, and without an audit committee, what rationale do you have for not filing 8k disclosures to inform investors on the details your self-approved transactions, many of which are to related parties and other business partners?
4. You choose not to disclose revenue and gross margin by business unit. Why? This information is readily available, since it is used to compile the consolidated numbers that you do report.
Corporate Governance:
1. You have refused to hire a CFO, you operate with one board member who is not independent, you have spent 80% of your tenure as the only officer, you have never formed an audit committee (which requires independent directors), and you have never submitted a matter to shareholder vote. During that time, you have engaged in: A significant financing transaction with a company that you own (VTI), attempted to form a financing company (Innoprise) in which you would have an economic conflict of interest, issued 5million shares for “consulting services” at an average 50% discount to market, issued 37million shares to convert debt most of which has never appeared on the balance sheet, and engaged in a transaction with a company (DFTS) with significant financial risk that happened to be owned by your business partner (the same one that you attempted to form Innoprise with). Is the reason why you have refused to hire a CFO or appoint a full slate of officers, nominate independent directors and form an Audit Committee because it would limit your ability to engage in the type of dealings that you have conducted during your tenure?
2. You stated last year that the failed financing in Dec 2004 prevented you from hiring a CFO. Why did this prevent you from spending $200k/year on a CFO? Given your insider dealings, consistently late filings, and accounting restatement, why have you chosen not to invest in a CFO? Why can you issue 2million shares for consulting services (at significant discounts to market) in the first 3 quarters of 2005, and yet imply that you can’t afford a CFO? Can you name one other public company who intentionally operates without a CFO?
3. Why has the only board member (in addition to yourself) never been submitted to a shareholder vote?
VTI
1. Why do you refuse to file VTI’s statement of disclosure for it’s NMKT’s holdings? VTI should use the closing price as of Dec 31 to estimate beneficial conversions, yet you claim that you cannot estimate. Why? Why does your current disclosure in NMKT’s 10Q not include the 40million shares that you issued to yourself via the convertible note?
2. You have chosen to raise capital into VTI, and then loan the proceeds to NMKT. Why have you chosen this model, instead of raising capital directly into NMKT? What are the profits of VTI in this arrangement? How can you prove to investors where your economic allegiance is, given that you are the sole officer presiding over both sides of the transaction? How does this address your representation that NMKT suffers from shorting when engaging in financing transaction, given that investors into VTI can short NMKT just the same as if they were investing directly into NMKT?
3. As asked previously, why have you chosen not to disclose the details of VTI transactions via a NMKT 8k filing?
AMEX:
1. NMKT applied for an Amex listing in Jan 2005, at which time you stated that NMKT met all qualifications (that statement was actually from Dec 2004). In Feb 2005, you stated that NMKT was responding to questions. One year later, NMKT is not listed. You have denied that NMKT has been declined. What was the specific response from Amex during 2005? Why have you chosen not to inform investors of this response?
2. Did the Amex response include mentions of the lack of independent directors, lack of an audit committee (which requires independent directors) lack of CFO, consistently late filings, accounting restatement, lack of tangible assets, lack of product/services specifics, and no named customers
