Attached files
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EX-31.2 - EXHIBIT 31.2 - NewMarket Technology Inc | a6106463ex312.htm |
EX-31.1 - EXHIBIT 31.1 - NewMarket Technology Inc | a6106463ex311.htm |
EX-32.1 - EXHIBIT 32.1 - NewMarket Technology Inc | a6106463ex321.htm |
EX-32.2 - EXHIBIT 32.2 - NewMarket Technology Inc | a6106463ex322.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark-One)
(x) QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the quarterly period ended September 30, 2009.
OR
(
) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the transition period from ________ to _________
Commission
file number 000-27917
NewMarket
Technology, Inc.
(Exact
name of Registrant as Specified in Its Charter)
NEVADA
|
65-0729900
|
|
(State
or other Jurisdiction of
Incorporation
or Organization)
|
(I.R.S.
Employer
Identification
No.)
|
14860
Montfort Drive, Suite 210
Dallas,
Texas 75254
(Address
of Principal Executive Offices)
(972)
386-3372
(Issuer’s
Telephone Number, Including Area Code)
Check whether the registrant: (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
___
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of “accelerated and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
Accelerated Filer___ Accelerated
Filer___ Non-Accelerated
Filer _X
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.)
Yes
__ No
X_
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:
As of
November 23, 2009, the registrant had 18,660,375 shares of common stock
outstanding.
1
INDEX
NEWMARKET
TECHNOLOGY, INC.
2
ASSETS
|
September
30, 2009
|
December
31, 2008
|
||||||
(Unaudited)
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 3,714,642 | $ | 4,960,869 | ||||
Accounts
receivable
|
21,667,741 | 17,974,496 | ||||||
Inventory
|
3,143,160 | 1,874,544 | ||||||
Prepaid
expenses and other current assets
|
2,537,511 | 3,775,645 | ||||||
Total
current assets
|
31,063,054 | 28,585,554 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
783,318 | 803,477 | ||||||
OTHER
ASSETS
|
||||||||
Notes
receivable including accrued interest
|
4,578,574 | 4,958,456 | ||||||
Investment
in unconsolidated subsidiares
|
1,343,916 | 1,311,229 | ||||||
Investment
in restricted securities
|
186,112 | 186,112 | ||||||
Goodwill
|
15,104,379 | 15,104,379 | ||||||
Available
for sale securities
|
364,000 | 294,000 | ||||||
Intangibles
|
211,419 | 212,277 | ||||||
Total
other assets
|
21,788,400 | 22,066,453 | ||||||
Total
assets
|
$ | 53,634,772 | $ | 51,455,484 | ||||
LIABILITIES
AND EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 7,243,610 | $ | 8,038,083 | ||||
Accrued
expenses and other liabilities
|
3,368,374 | 2,443,885 | ||||||
Customer
deposits
|
286,667 | 8,909 | ||||||
Liabilities
of discontinued operations
|
308,683 | 308,683 | ||||||
Long
term debt, current portion
|
3,065,530 | 3,247,676 | ||||||
Short
term debt
|
1,607,107 | 2,356,322 | ||||||
Total
current liabilities
|
15,879,971 | 16,403,558 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Notes
payable, net of deferred financing costs
|
1,428,365 | 1,208,980 | ||||||
Total
long-term liabilities
|
1,428,365 | 1,208,980 | ||||||
Total
liabilities
|
17,308,336 | 17,612,538 | ||||||
EQUITY
|
||||||||
Common
stock; $.001 par value; 300,000,000 shares authorized;
|
||||||||
16,177,457
and 11,998,431 shares issued and outstanding
|
||||||||
at
September 30, 2009 and December 31, 2008,
respectively
|
16,177 | 239,969 | ||||||
Preferred
stock; $.001 par value; 10,000,000 shares authorized;
|
||||||||
Series
C 925 and 925; Series E 41 and 41; Series F 0 and
|
||||||||
580;
Series H 0 and 835; Series I 0 and 541;
|
||||||||
Series
J 2,166 and 0, and; Series K 500 and 0 shares
|
||||||||
issued
and outstanding at September 30, 2009 and
|
||||||||
December 31,
2008, respectively
|
4 | 3 | ||||||
Deferred
compensation
|
(111,250 | ) | (226,333 | ) | ||||
Additional
paid-in capital
|
55,838,194 | 53,212,902 | ||||||
Accumulated
comprehensive income
|
635,864 | 2,256,639 | ||||||
Accumulated
Deficit
|
(22,112,590 | ) | (24,352,041 | ) | ||||
Total
NewMarket Technology, Inc. stockholders' equity
|
34,266,399 | 31,131,139 | ||||||
Noncontrolling
interest
|
2,060,037 | 2,711,807 | ||||||
Total
equity
|
36,326,436 | 33,842,946 | ||||||
Total
liabilities and equity
|
$ | 53,634,772 | $ | 51,455,484 | ||||
See
accompanying notes to consolidated financial statements.
|
3
NewMarket
Technology, Inc.
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
REVENUE
|
$ | 31,707,269 | $ | 32,379,164 | $ | 75,581,615 | $ | 76,069,467 | ||||||||
COST
OF SALES
|
25,617,769 | 26,217,589 | 61,167,080 | 59,092,154 | ||||||||||||
Gross
Margin
|
6,089,500 | 6,161,575 | 14,414,535 | 16,977,313 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Selling,
general and administrative expenses
|
4,459,612 | 3,719,802 | 10,891,740 | 11,400,162 | ||||||||||||
Depreciation
and amortization
|
38,228 | 239,172 | 115,567 | 797,357 | ||||||||||||
Total
expenses
|
4,497,840 | 3,958,974 | 11,007,307 | 12,197,519 | ||||||||||||
Income
from operations
|
1,591,660 | 2,202,601 | 3,407,228 | 4,779,794 | ||||||||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||||||
Interest
income
|
128,737 | 204,049 | 396,461 | 538,746 | ||||||||||||
Interest
expense
|
(291,764 | ) | (371,198 | ) | (802,075 | ) | (731,077 | ) | ||||||||
Foreign
currency transaction gain
|
4,543 | 2,801 | 4,737 | 3,509 | ||||||||||||
Lawsuit
settlement expense
|
- | (4,637 | ) | (20,953 | ) | (14,637 | ) | |||||||||
Other
income/(expense)
|
705,027 | (51,661 | ) | 654,165 | (75,023 | ) | ||||||||||
Total
other income (expense)
|
546,543 | (220,646 | ) | 232,335 | (278,482 | ) | ||||||||||
Net
income before income tax (credit) and
|
||||||||||||||||
noncontrolling
interest
|
2,138,203 | 1,981,955 | 3,639,563 | 4,501,312 | ||||||||||||
Foreign
income tax
|
26,815 | 17,280 | 22,513 | 39,303 | ||||||||||||
Noncontrolling
interest in consolidated subsidiary
|
556,153 | 210,757 | 1,377,599 | 703,525 | ||||||||||||
Net
income
|
1,555,235 | 1,753,918 | 2,239,451 | 3,758,484 | ||||||||||||
Other
comprehensive income (loss)
|
||||||||||||||||
Gain
on available for sale securities
|
14,000 | - | 70,000 | - | ||||||||||||
Foreign
currency translation gain (loss)
|
304,725 | 9,138 | (1,690,775 | ) | 1,060,647 | |||||||||||
Comprehensive
income
|
$ | 1,873,960 | $ | 1,763,056 | $ | 618,676 | $ | 4,819,131 | ||||||||
Income
per weighted-average common share-basic
|
$ | 0.11 | $ | 0.16 | $ | 0.17 | $ | 0.35 | ||||||||
Income
per weighted-average common share-diluted
|
$ | 0.08 | $ | 0.14 | $ | 0.12 | $ | 0.30 | ||||||||
Number
of weighted average common shares o/s-basic
|
14,290,805 | 11,039,687 | 13,437,254 | 10,641,434 | ||||||||||||
Number
of weighted average common shares o/s-diluted
|
19,447,948 | 12,735,242 | 18,594,397 | 12,336,990 | ||||||||||||
See
accompanying notes to consolidated financial
statements.
|
4
NewMarket
Technology, Inc.
|
||||||||
Nine
months ended September 30,
|
||||||||
(Unaudited)
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income
|
$ | 2,239,451 | $ | 3,758,484 | ||||
Adjustments
to reconcile net earnings to net cash
|
||||||||
provided
(used) by operating activities:
|
||||||||
Stock
issued for services and amortization of
|
||||||||
deferred
compensation
|
334,883 | 677,180 | ||||||
Depreciation
and amortization
|
115,567 | 797,357 | ||||||
Minority
interest in consolidated subsidiary
|
1,377,599 | 703,525 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in accounts receivable
|
(3,692,946 | ) | (2,550,847 | ) | ||||
(Increase)
decrease in inventory
|
(1,268,616 | ) | (757,979 | ) | ||||
(Increase)
decrease in prepaid expenses
|
1,238,134 | (291,226 | ) | |||||
Increase
(decrease) in accounts payable
|
(794,473 | ) | 779,614 | |||||
Increase
(decrease) in deposits
|
277,758 | (115,954 | ) | |||||
Increase
(decrease) in accrued expenses and other payables
|
924,489 | (517,789 | ) | |||||
Net
cash provided by operating activities
|
751,846 | 2,482,365 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Notes
receivables advances
|
(2,023,099 | ) | ||||||
Accrued
interest receivable
|
(375,000 | ) | (500,000 | ) | ||||
Purchase
of property and equipment
|
(191,245 | ) | - | |||||
Proceeds
from sale of property and equipment
|
- | 243,932 | ||||||
Net
cash used in investing activities
|
(566,245 | ) | (2,279,167 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payments
on short-term borrowings
|
- | (283,108 | ) | |||||
Advances
on short term credit line
|
(166,666 | ) | - | |||||
Payments
on short term credit line
|
(749,215 | ) | ||||||
Net
cash used in financing activities
|
(915,881 | ) | (283,108 | ) | ||||
Effect
of exchange rates on cash
|
(515,947 | ) | (327,426 | ) | ||||
Net
decrease in cash and equivalents
|
(1,246,227 | ) | (407,336 | ) | ||||
CASH, beginning of
period
|
4,960,869 | 5,202,244 | ||||||
CASH, end of
period
|
$ | 3,714,642 | $ | 4,794,908 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
Interest
paid in cash
|
$ | 802,075 | $ | 371,198 | ||||
Non-cash
Financing Activities:
|
||||||||
Common
stock issued to settle debt
|
$ | 250,000 | $ | 150,500 | ||||
Preferred
stock issued to settle debt
|
$ | 1,250,000 | $ | - | ||||
Common
stock issued for conversion of preferred stock
|
$ | - | $ | 473 |
5
Notes
to Condensed Consolidated Financial Statements (Unaudited)
September
30, 2009
(1)
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Unaudited
Interim Financial Statements
The
accompanying unaudited interim consolidated financial have been prepared in
accordance with accounting principles generally accepted in the United States
and applicable Securities and Exchange Commission (“SEC”) regulations for
interim financial information. These financial statements are
unaudited and, in the opinion of the management of NewMarket Technology, Inc.
and its subsidiaries (“NewMarket” or the “Company”), include all adjustments
necessary to present fairly the balance sheets, statements of operations and
statements of cash flows for the periods presented in accordance with accounting
principles generally accepted in the United States. Certain
information and footnote disclosures normally found in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to SEC rules and
regulations. It is presumed that users of this interim financial
information have read or have access to the audited financial statements and
footnote disclosure for the preceding year contained in the Company’s Annual
Report on Form 10-K. Operating results for interim periods presented
are not necessarily indicative or the results that may be expected for the year
ending December 31, 2009.
Use of estimates
The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statements of financial condition and revenues and expenses for the year then
ended. Actual results may differ significantly from those
estimates.
Principles of
consolidation
The
Company accounts for investments in affiliates and subsidiaries in accordance
with Statement of Financial Accounting Standard (“SFAS”) No. 94, Consolidation of all Majority-owned
Subsidiaries, and Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial
Statements. The Company uses two different methods to report
investments in subsidiaries and other companies: consolidation and the equity
method.
Consolidation
The
Company uses the consolidation method to report its investment in its
subsidiaries and other companies when the Company owns a majority of the voting
stock of the subsidiary. All inter-company balances and transactions
have been eliminated. Infotel, the Company’s Singapore based subsidiary, has
been on a September 30 fiscal year end since its inception. The Company elected,
pursuant to ARB 51, to account for the operations of Infotel on a matching
period to matching period with the parent’s financials. This means
that should there be a significant shift in Infotel’s operations,
positive or negative, it will not be reflected in the consolidated financials
for an additional 90 days.
Equity
Method
The
Company uses the equity method to report investments in businesses where it
holds 20% to 50% voting interest, but does not control operating and financial
policies.
Under the
equity method, the Company reports:
·
|
Its
interest in the entity as an investment on its balance sheets,
and
|
·
|
Its
percentage share of earnings or losses on its statement of
operations
|
At
September 30, 2009, the Company did not record any income or loss, nor adjust
its investment account, by the net income or loss of the affiliates, as the
actual equity percentage paid for was the investments was less than 10%, with a
concurrent de minimus net income/loss related thereto.
Fair
Value Instruments
Statement
of Financial Accounting Standards (“SFAS”) 157, Fair Value Measurements,
defines fair value, establishes a framework for measuring fair value and expands
disclosures for each major asset and liability category measured at fair value
on either a recurring or nonrecurring basis. As a basis for
considering assumptions, SFAS 157 established a three-tier hierarchy which
prioritizes the inputs used in measuring fair value as follows:
6
·
|
Level
1 – Quoted prices for identical instruments in active
markets
|
·
|
Level
2 – Quoted prices for similar instruments in active markets, quoted prices
for identical or similar instruments in non-active markets, or
model-driven valuations in which all significant inputs are observable in
active markets
|
·
|
Level
3 – Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own
assumptions
|
SFAS 157
does not impose fair value measurements on items not already accounted for at
fair value; it applies to other accounting pronouncements that either require or
permit fair value measurements.
Certain
assets and liabilities are measured at fair-value on a non-recurring
basis. These assets include goodwill and intangible assets and are
the result of acquisitions. Items valued using internally generated
valuation techniques are classified according to the lowest level
input. Thus an item may be classified as Level 3 and such instruments
are not measured at fair value on a n ongoing basis but are subject to fair
value adjustments in certain circumstances, for example when there is evidence
of impairment.
The
Company determines whether the carrying value of goodwill is impaired on an
annual basis or more frequently if indications of potential impairment
exist. Fair values of recorded goodwill are determined by using a
discounted cash flow methodology which is based on projections of the amounts
and timing of future revenues and cash flows, assumed discount rates and other
assumptions and factors such as historical performance, anticipated market
conditions and capital expenditure requirements, if any.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash
equivalents.
Inventory
Inventory,
which consists primarily of finished goods, is stated at the lower of cost or
market. Cost is determined using the weighted average
method.
Other
Assets
Available-for-sale
securities consist of 1.4 million shares of the common stock of VirtualHealth
Technologies, Inc. These securities are carried at fair value
($364,000 at September 30, 2009) based upon quoted market
prices. Unrealized gains and losses are computed on the average cost
basis and are reported as a separate component of comprehensive income, included
as a separate item in stockholders’ equity. Realized gains, realized
losses and declines in value judged to be other-then temporary, are included in
other income (expense).
Property and
equipment
All
property and equipment is recorded at cost and depreciated over their estimated
useful lives, using the straight-line method, generally three, five or seven
years. Upon sale or retirement, the costs and related accumulated
depreciation are eliminated from their respective accounts, and the resulting
gain or loss is included in the results of operations. Repairs and
maintenance charges, which do not increase the useful lives of the assets, are
charged to operations as incurred.
Net income per share
Basic net
income per weighted average common share is computed by dividing the net income
by the weighted average number of common shares outstanding during the period.
Fully diluted includes all common shares that would be required to be issued of
various convertible instruments at their stated conversion rates using the
September 30, 2009, market price of the underlying common stock.
Stock compensation for services
rendered
The
Company issues shares of common stock in exchange for services
rendered. The costs of the services are valued according to
accounting principles generally accepted in the United States and are been
charged to operations as earned.
7
Revenue
recognition
As a
result of the multiple acquisitions from 2003 through 2006, the Company now has
three distinct revenue streams: (1) Services, principally programming services.
This revenue is recognized as services are provided and billed to the customers.
(2) Contract, which is principally an ongoing service revenue stream, such as
training contracts, technical support contracts, etc. This form of revenue is
recognized monthly as earned and billed, and (3) Product sales, which is the
sale of hardware and software, generally installed. Sometimes the hardware
and/or software are customized under the terms of the purchase contract. This
revenue is recognized as the products are delivered and the customer accepts
said products. Any portions of such contracts which may include installation,
training, conversion, etc. are recognized when such services have been
completed. Any ongoing support, training, etc., is separately structured and is
accounted for in contract revenue and in accordance with the
contracts.
Foreign
Currency Transaction and Translation Gains (Losses)
The
Company has operations located in the People’s Republic of China, Singapore,
Venezuela, Brazil and Columbia. The Company invoices customers in the local
currency, and if the Company payment is denominated in a foreign currency, the
Company translates the payment and records a foreign currency transaction gain
or loss in accordance with SFAS 52, Foreign Currency
Translation.
Derivative
Instruments
SFAS 133,
Accounting for Derivative
Instruments and Hedging Activities, as amended, establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at fair value, and
that changes in fair value be recognized currently in earnings (loss) unless
specific hedge accounting criteria are met.
Stock-based
Compensation
The
Company does not currently maintain a stock option plan for its management and
employees.
Income
(Loss) Per Share
SFAS 128,
Earnings Per Share,
requires dual presentation of basic and diluted earnings per share (“EPS”) with
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity.
Comprehensive
Income
SFAS 130,
Reporting Comprehensive
Income, requires the reporting and display of comprehensive income and
its components. SFAS 130 requires unrealized gains and losses on the
Company’s available for sale securities to be included in comprehensive income
as well as gains or losses due to foreign currency translation
adjustments.
Recently
Issued Accounting Standards
In April
2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”)
Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial
Instruments” (“FSP SFAS No. 107-1 and APB Opinion No. 28-1”). FSP
SFAS No. 107-1 and APB Opinion No. 28-1 amends SFAS No. 107, “Disclosures about
Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial
Reporting,” to require disclosures about fair value of financial instruments for
interim reporting periods. The adoption of FSP SFAS No. 107-1 and APB
Opinion No. 28-1 for the period ended September 30, 2009 did not have a
material impact on the Company’s consolidated financial
statements.
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No.
165”). SFAS No. 165 requires an entity to disclose the date through which
the entity has evaluated subsequent events and whether that evaluation date is
the date financial statements are issued. SFAS 165 is effective for interim
reporting periods after June 15, 2009. The adoption of SFAS 165 did not
have a material effect on the Company’s consolidated financial
statements.
8
In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets, an Amendment of FASB Statement No. 140” (“SFAS No.
166”). SFAS No. 166 eliminates the concept of a “qualifying
special-purpose entity,” changes the requirements for derecognizing financial
assets, and requires additional disclosures about transfers of financial
assets. SFAS No. 166 is effective for annual reporting periods after
November 15 2009. The adoption of the provisions of SFAS No. 166 is
not anticipated to have a material impact on the Company’s consolidated
financial statements.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS No. 167”). SFAS No. 167, among other things, requires a
qualitative rather than a quantitative analysis to determine the primary
beneficiary of a variable interest entity (“VIE”), amends FIN 46(R)’s
consideration of related party relationships in the determination of the primary
beneficiary of a VIE, requires continuous assessment of whether an enterprise is
the primary beneficiary of a VIE, and requires enhanced disclosures about an
enterprise’s involvement with a VIE. SFAS No. 167 is effective for
annual reporting periods after November 15 2009. The adoption of the
provisions of SFAS No. 167 is not anticipated to have a material impact
on the Company’s consolidated financial
statements.
In July
2009, the FASB issued SFAS No. 168, “FASB Accounting Standards
Codification” (“SFAS No. 168”), as the single source of authoritative
nongovernmental U.S. GAAP. All existing accounting standards are
superseded as described in SFAS No. 168. All other accounting literature not
included in the codification is non-authoritative. SFAS No. 168 is effective for
interim and annual periods ending after September 15, 2009. The
adoption of the provisions of SFAS No. 168 is not anticipated to have a material
impact on the Company’s consolidated financial
statements.
Concentrations of risks -
Geographic
As a
result of the various acquisitions in 2003 through 2006, the Company now has
offices, employees and customers in a variety of foreign countries. Its four
foreign-based subsidiaries are located in Singapore; Caracas, Venezuela;
Shanghai, Peoples Republic of China and Sao Paulo, Brazil. For the
three months ended September 30, 2009, RKM Suministros, C.A., based in Caracas,
Venezuela, serving Latin America, represents approximately 8% of the Company’s
total revenue and 6% of total assets; Infotel, based in Singapore, and serving
Asia, represents approximately 2% of the Company’s total revenue and 3% of total
assets; China Crescent Enterprises, Inc., based in Shanghai, China, serving
Asia, represents approximately 42% of the Company’s total revenue and 21% of
total assets and UniOne, based in Sao Paulo, Brazil, serving Latin America,
represents approximately 16% of the Company’s total revenue and 4% of total
assets.
Investment in unconsolidated
affiliates/subsidiaries
The
Company’s investment in affiliates at September 30, 2009, is composed of an 8%
equity position in RedMoon Broadband, Inc., and a 5% equity position in Alternet
Systems, Inc. These equity positions do not represent a controlling
interest in these companies.
The
Company accounts for its investment in affiliates, defined as those whereby the
Company owns less than 51% of the issued and outstanding common stock of the
affiliate and the Company does not exercise control over the operations of the
affiliate, by the equity method of accounting. At September 30, 2009, the
Company did not record any income or loss, nor adjust its investment account, by
the net income or loss of the affiliates, as the actual equity percentage paid
for was the investments was less than 10%, with a concurrent de minimus net
income/loss related thereto.
2.
DESCRIPTION OF BUSINESS:
NewMarket
Technology, Inc, (f/k/a IPVoice Communications, Inc.), is a Nevada corporation
which conducts business from its headquarters in Dallas, Texas. The
Company was incorporated on February 19, 1997 as Nova Enterprises, Inc., changed
its name to IPVoice Communications, Inc. in March of 1998, then to IPVoice.com,
Inc. in May of 1999, back to IPVoice Communications, Inc. in January of 2001 and
to NewMarket Technology, Inc., in July 2004. The Company is involved
in the information technology industry, principally voice over internet (VoIP),
systems integration, and wireless broadband technology. The Company
currently has domestic operations in Texas and California, and international
operations in The People’s Republic of China, Singapore, Venezuela, Colombia and
Brazil.
9
3.
STOCKHOLDERS’ EQUITY:
Common
stock
The
Company has authorized 300,000,000 shares of $0.001 par value common stock. The
Company had 16,177,457 shares of common stock issued and outstanding at
September 30, 2009.
During the
third quarter of 2009, the Company issued 2,358,244 shares of common stock as
follows:
· In
September 2009, the Company issued 1,477,035 shares of common stock in exchange
for a $591,700 reduction in short-term debt.
· In the
third quarter of 2009, the Company issued 881,209 shares of common stock
pursuant to the conversion of 185 shares of Series J Preferred
Stock.
On July
31, 2009, the Company announced the effectiveness of a 20-for-1 reverse stock
split. The financial statements have been adjusted to reflect this
change in stockholder’s equity. Additionally, the Company’s new
trading symbol for the common stock on the OTC market is NWMT.
Preferred
stock
The
Company has authorized 10,000,000 shares of $0.001 par value preferred
stock. Rights and privileges of the preferred stock are determined by
the Board of Directors prior to issuance. The Company
had 925 shares of Series C preferred, 41 shares of Series E preferred
stock, 2,166 shares of Series J preferred stock, and 500 shares of Series K
preferred stock issued and outstanding, at September 30, 2009.
In April
2009, the Company entered into a
Debt Restructure and Equity Reorganization Comprehensive Agreement ("Debt
Restructure") with Green
Shield Management Company
("Green Shield"), and ES Horizon, Inc. ("ES
Horizon"). Pursuant to the terms of the Debt Restructure, the Company
issued 750 shares of the newly authorized Series J Convertible Preferred Stock
to Green Shield and 500 shares of the newly authorized Series K Preferred Stock
to ES Horizon (see Note 6.)
Additionally,
pursuant to the Debt Restructure, in the third quarter of 2009, Green Shield
agreed to exchange 225 shares of Series F preferred stock, 835 shares of Series
H preferred stock, and 541 shares of Series I preferred stock for an equal
number of shares of Series J preferred stock.
4.
STOCK OPTIONS AND WARRANTS:
Stock
options
The
Company maintains no stock option plan or long-term incentive plan at this
time.
Warrants
In
November 2007, the Company entered to a long-term financing arrangement (see
Note 6). Pursuant to the terms of this financing, the Company issued
five year warrants to purchase a total of 609,156 shares of common stock of
the Company to two different parties. These options are exercisable
at a price of $4.40 per share. These warrants were valued at
the time of issuance at $536,540 using the Black-Scholes valuation
model.
In January
2008, the Company issued Oberon Securities, the placement agent for the recent
long-term financing agreement, five year warrants to purchase 140,000
shares of common stock. These options are exercisable at a price of $4.00 per
share. These warrants were valued at $123,400 at the time of
issuance using the Black-Scholes valuation model.
As of
September 30, 2009 the value of all outstanding warrants based on the
Black-Scholes valuation model was $0.
5. CAPITAL
STOCK TRANSACTIONS:
Following
is a schedule of changes in shareholder’s equity for the nine months ended
September 30, 2009:
|
||||||||||||||||||||||||||||
Number
of Shares |
Par
Value
of Shares |
Additional
Paid-In |
Deferred
|
Accumulated
Comprehensive |
Accumulated
|
Stockholders'
|
||||||||||||||||||||||
Preferred
|
Common
|
Preferred
|
Common
|
Capital
|
Compensation
|
Income
|
Deficit
|
Equity
|
||||||||||||||||||||
STARTING
BALANCE, 12/31/08
|
2,922 | 11,998,431 | $ | 3 | $ | 11,998 | $ | 53,440,872 | $ | (226,333 | ) | $ | 2,256,639 | $ | (24,352,041 | ) | $ | 31,131,138 | ||||||||||
Conversion
of preferred stock
|
(540 | ) | 1,601,991 | (1 | ) | 1,601 | (1,600 | ) | - | |||||||||||||||||||
Preferred
stock issued to settle debt
|
1,250 | 1 | 1,249,999 | 1,250,000 | ||||||||||||||||||||||||
Common
stock issued to settle debt
|
1,977,035 | 1,977 | 839,723 | 841,700 | ||||||||||||||||||||||||
Common
stock issued for services
|
450,000 | 450 | 219,350 | (197,500 | ) | 22,300 | ||||||||||||||||||||||
Common
stock issued for trade payables
|
150,000 | 150 | 89,850 | 90,000 | ||||||||||||||||||||||||
Amortization
of deferred comp.
|
312,583 | 312,583 | ||||||||||||||||||||||||||
Other
comprehensive income (loss)
|
(1,620,775 | ) | (1,620,775 | ) | ||||||||||||||||||||||||
Net
income
|
2,239,451 | 2,239,451 | ||||||||||||||||||||||||||
ENDING
BALANCE, 9/30/09
|
3,632 | 16,177,457 | $ | 4 | $ | 16,176 | $ | 55,838,194 | $ | (111,250 | ) | $ | 635,864 | $ | (22,112,590 | ) | $ | 34,266,397 |
10
6.
INDEBTEDNESS:
On
November 30, 2007, the Company and certain of its subsidiaries including, IP
Global Voice, Inc, Netsco, Inc., Newmarket Broadband, Inc., Newmarket
Intellectual Property, Inc and NewMarket China, Inc., entered into a Security
Agreement (the “Security Agreement”) with LV Administrative Services, Inc. (the
“Agent”) as administrative and collateral agent for Valens U.S. SPV I, LLC
(“Valens US”) and Valens Offshore SPV II, LLC (“Valens Offshore,” and together
with the Agent and Valens US, the “Creditor Parties”). Pursuant to the terms of
the Security Agreement, the Company issued a secured convertible term note to
Valens US and Valens Offshore in the principal amounts of $1,800,000 and
$2,200,000 respectively (collectively, the “Notes”). In addition, the Company
issued a Revolving Note to Valens US, pursuant to which Valens has committed to
advance up to $3,000,000 to the Company (the “Revolving Note”).
The Notes
and the Revolving Note bear interest at a rate equal to the “prime rate”
published in The Wall Street Journal plus two percent (2%), per annum (the
“Contract Rate”), provided however that the Contract Rate shall not at any time
be less than nine percent (9%) per annum. The unpaid principal and
accrued interest under the Notes and the Revolving Note are due and payable on
November 30, 2010 (the "Maturity Date"). The interest on the Notes and the
Revolving Note is payable monthly, in arrears, commencing on December 1,
2007.
The Notes
require amortizing payments of the principal amount of $133,333 together with
any accrued and unpaid amounts (the “Monthly Amount”) which are owed to the
Creditor Parties, commencing on June 1, 2008 and on the first business day of
each succeeding month thereafter through the maturity date. The Creditor Parties
may convert a portion of the Monthly Amount into shares of ,the Company’s common
stock provided: (A) the average closing price of the Company’s common stock
exceeds 115% of the Fixed Conversion Price of $.20; (B) the amount of such
conversion does not exceed 25% of the average dollar trading volume of the
Company’s common stock for the 22 trading date immediately preceding the due
date of the Monthly Payment. If the criteria set forth above in (A) is met but
the criteria set forth in (B) is not met as to the entire Monthly Amount, the
Creditor Parties shall convert only such part of the Monthly Amount that meets
the criteria set forth in (B). Any portion of the Monthly Amount that has not
been converted into shares shall be payable at the rate of 100% of the Monthly
Amount in cash. In addition, the Company is not permitted to make any payments
in shares of its common stock if there is no effective registration statement
covering the resale of the shares or an event of default exists and is
continuing.
Pursuant
to the Security Agreement, an event of default shall be deemed
to include: the Company's failure to pay any amount due under the
Notes and the Revolving Note where such failure continues for a period of 3 days
after such payment is due; the failure of the Company and its subsidiaries to
pay any taxes when due; any person or group, other than a lender under the
Security Agreement, becomes the beneficial owner of 35% or more of the Company's
voting equity interests or if the Board of Directors of the Company ceases to
consist of a majority of the Company's Board of Directors on the date of the
Security Agreement or the Company or any of its subsidiaries mergers or
consolidates with or sells all or substantially all of its assets; the
indictment of the Company or any of its subsidiaries or any officer of the
Company under any criminal statute or commencement of criminal or civil
proceedings against any company; and the Company’s failure to deliver common
stock as required by the warrants and the Notes and such failure is not cured
within 2 business days.
The
Company granted a security interest to Valens in each of the Company’s real or
personal, tangible or intangible, property and assets. The Company also pledged
the stock of its subsidiaries and other equity interests owned by the
Company.
The
Company also issued five year warrants to purchase 191,292 shares of common
stock of the Company to Valens Offshore and warrants to purchase 417,864
shares of common stock of the Company to Valens US which are exercisable at a
price of $4.40 per share.
In October
2008, the Revolving Note was cancelled at the request of the
Company.
In April
2009, the Company entered into a
Debt Restructure and Equity Reorganization Comprehensive Agreement ("Debt
Restructure") with Green
Shield Management Company
("Green Shield"), and ES Horizon, Inc. ("ES
Horizon"). In March 2009, Green Shield purchased $1.25 million of
senior debt with a due date of November 2010, from the Creditor
Parties. As part of the Debt Restructure, Green Shield agreed to
convert $750,000 of the senior debt into 750 shares of the Company's newly
designated Series J Preferred Stock (see Note 3). The Debt
Restructure also required the Company to authorize and issue a super -majority
voting Series K Preferred Stock. Additionally, Green Shield has
agreed to sell $500,000 of senior debt to ES Horizon. As part of the
transaction, ES Horizon converted $500,000 of senior debt into 5,000 shares of
Series K Preferred Stock (see Note 3). ES Horizon is a Nevada corporation, of
which the Company's President and Chief Executive Officer, Philip Verges, is a
99% owner. Green Shield is not an affiliate,
as defined in Rule 144 under the Securities Act of 1933,
of either ES Horizon or of the Company.
11
7.
EARNINGS PER SHARE:
Following
is the disclosure required by SFAS 128, Earnings per
Share.
For
the Nine Months Ended September 30, 2009
Income
(Numerator) |
Shares
(Denominator) |
Per-
Share Amount |
||||||||||
Basic
EPS:
|
||||||||||||
Income available
to common stockholders
|
$ | 2,239,451 | 13,437,254 | $ | 0.17 | |||||||
Effect
of Dilutive Securities:
|
||||||||||||
Convertible
preferred stock
|
0 | 5,157,143 | ||||||||||
Convertible
debt
|
0 | 0 | ||||||||||
Diluted
EPS:
|
||||||||||||
Income
available to common stockholders + assumed
conversions
|
$ | 2,239,451 | 18,594,397 | $ | 0.12 |
For
the Nine Months Ended September 30, 2008
Income
(Numerator) |
Shares
(Denominator) |
Per-
Share Amount |
||||||||||
Basic
EPS:
|
||||||||||||
Income
available to common stockholders
|
$ | 3,758,484 | 10,641,434 | $ | 0.35 | |||||||
Effect
of Dilutive Securities:
|
||||||||||||
Convertible
preferred stock
|
0 | 1,695,556 | ||||||||||
Convertible
debt
|
0 | 0 | ||||||||||
Diluted
EPS:
|
||||||||||||
Income
available to common stockholders + assumed conversions
|
$ | 3,758,484 | 12,336,990 | $ | 0.30 |
8.
DISCONTINUED OPERATIONS:
On October
20, 2003, Intercell acquired a controlling 60% equity interest in Brunetti, LLC
(“Brunetti”) in exchange for a $700,000 cash contribution to
Brunetti. On January 30, 2004, Intercell acquired the remaining 40%
equity interest in Brunetti in exchange for a $300,000 cash contribution to
Brunetti.
On October
11, 2004, Intercell discontinued the operations of Brunetti and implemented
steps to liquidate the assets of Brunetti. On March 1, 2005, Brunetti
filed a voluntary petition for relief in the United States Bankruptcy Court,
District of Colorado under Chapter 7 of Title 7 of the U.S. Bankruptcy
Code.
At
September 30, 2009, the carrying values of Brunetti’s assets and liabilities
(presented as assets and liabilities of discontinued operations) are as
follows:
Cash
|
$ | 9,377 | ||
Total
assets
(all
current)
|
$ | 9,377 | ||
Accounts
payable
|
$ | 179,473 | ||
Related
party payable
|
25,035 | |||
Line
of credit
|
10,735 | |||
Accrued
payroll
|
93,440 | |||
Total
liabilities
(all
current)
|
$ | 308,683 |
Brunetti
reported no revenues or income during the nine months ended September 30,
2009. Operations related to Brunetti resulted in a net loss during
the year ended December 31, 2008 and 2007 of $0 and $0,
respectively. Brunetti did not incur any income taxes during these
periods.
12
9. INCOME
TAXES
Deferred
income taxes (benefits) are provided for certain income and expenses which are
recognized in different periods for tax and financial reporting
purposes. The Company has net operating loss carry-forwards for
income tax purposes of approximately $18,800,000 which expire beginning December
31, 2117. There may be certain limitations on the Company’s ability
to utilize the loss carry-forwards in the event of a change of control, should
that occur. In addition, the Company amortizes goodwill for income tax purposes,
but not for reporting purposes. The amount recorded as a deferred tax asset,
cumulative as of September 30, 2009, is $19,807,000, which represents the amount
of tax benefits of the loss carry-forwards and goodwill
amortization. The Company has established a valuation allowance for
this deferred tax asset of $19,807,000, as the Company has no long-term history
of profitable operations, in substantive amount necessary to utilize this
asset. The significant components of the net deferred tax asset as
of September 30, 2009 are:
Net
operating losses
|
$ | 18,800,000 | ||
Goodwill
amortization
|
1,007,000 | |||
Valuation
allowance
|
(19,807,000 | ) | ||
Net
deferred tax asset
|
$ | 0 |
10.
COMMITMENTS AND CONTINGENCIES:
Leases
The
Company’s corporate headquarters operates out of approximately 2,800 square feet
of leased facilities located at 14860 Montfort Drive, Suite 210, Dallas, Texas
75254. The lease expires on December 31, 2009. The monthly rental payments are
$3,100. The Company has a number of additional leases for office space
associated with its subsidiary operating companies.
Litigation
From time
to time, the Company is involved in various claims and legal actions arising in
the ordinary course of business. Although the amount of any liability that could
arise with respect to currently pending actions cannot be accurately predicted,
in the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's consolidated financial position,
results of operations, or liquidity.
11. SUBSEQUENT
EVENTS:
On October
14, 2009, the Company entered into a Debt Restructure Agreement ("Debt
Restructure") with Green Shield Management Company ("Green
Shield"), and Timeless Investments, Ltd. ("Timeless").
Timeless currently holds $1.5 million in
debt (the "Note Participation")
purchased on October 8, 2009
from Valens Offshore SPV II
Corp. and Valens Offshore SPV I, Ltd. Timeless
assigned $500,000 of the Note Participation to
Green Shield on October 9, 2009. The $2.0 million of total
debt had a maturity date of November 10, 2010.
Pursuant
to the Debt Restructure, Timeless has agreed to convert $1.5 million of the Note
Participation into 1,500 shares of the Company's Series J
Preferred Stock. In addition, Green Shield has also agreed to convert
$500,000 of Note Participation, into 500 shares of the Company's Series J
Preferred Stock. Both Green Shield and Timeless have waived any
rights to and forgiven any unpaid interest, fees or penalties that may be due
under the Note Participation.
13
Safe
Harbor for Forward-Looking Statements
The
following discussion should be read in conjunction with our condensed
consolidated financial statements and the related notes included elsewhere in
this report.
Information
contained herein contains forward-looking statements, You should not
place undue reliance on those statements because they are subject to numerous
uncertainties and factors relating to our operations and business environment,
all of which are difficult to predict and many of which are beyond our
control. Forward-looking statements include information concerning
our possible and assumed future results of operations, including descriptions of
our business strategy. The statements often include words such as
“may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,”
“estimate” or other similar expressions. These statements are based
on assumptions that we have made in light of our experience and well as
perceptions of historical trends, current conditions, expected future
developments, and other factors we believe are appropriate under the
circumstances. Although we believe that these forward-looking
statements are based on reasonable assumptions, you should be aware that many
factors could affect our actual financials results or results of operations and
could cause actual results to differ materially from those on the
forward-looking statements. These factors include, but are not
limited to, competition from existing and future competitors, failure to
maintain and develop business, failure to increase or maintain the number of
customers we have, downturns in the economies and/or industries that we serve,
and the failure to attract or keep qualified professionals we
employ. These factors and others discussed in detail in our filings
with the Securities and Exchange Commission, including our Annual Report on Form
10-K for the fiscal year ended December 31, 2008 under the headings “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” You should keep in mind that any forward-looking
statements made by us herein, or elsewhere, speaks only as of the date on which
we made it. New risks and uncertainties come up from time to time,
and it is impossible for us to predict these events or how they may affect
us. We have no obligation to update any forward-looking statements
after the date hereof, except as required by federal securities
laws.
Links to
all of our filings, including our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, information statements and other
material information concerning us are available on the Investor Relations page
of our website at www.NewmarketTechnology.com
.
Critical accounting policies
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to revenue
recognition, bad debts, inventories, warranty obligations, contingencies and
income taxes. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. A discussion of our critical accounting policies and the related
judgments and estimates affecting the preparation of our consolidated financial
statements is included in the Annual Report on our form 10-K for the fiscal
year 2008. There have been no material changes to our critical
accounting policies as of September 30, 2009.
Overview
We believe
our strategy, introduced in June of 2002, to package proprietary technology
products and services with recognized brand names and to pursue sales in the
high demand IP communications, wireless broadband and systems integration
markets will be successful. In 2005, we initiated an expansion
of our business model through the launch of sister operations in Latin America
and Asia. In the future we may expand into other regions.
While we
have and continue to grow sales through mergers and acquisitions, management
plans for our long-term growth to be achieved through a combination of
acquisitions and organic sales growth.
We expect
that additional capital will be required to support our growth
plan. However, no specific capital plan exists. Current
consideration entails raising capital directly to our operating subsidiaries and
reducing or eliminating the use of our common stock for future capital
plans.
14
Part of
the Company’s growth strategy includes expansion into high-growth developing
economic regions. These developing economic regions provide both an
environment for accelerated growth as well as a parallel platform for acquiring
early stage subsidiary technology companies and developing them into mainstream
technology service and product companies.
Recent
Developments
In January
2009, we announced our “Greenfield” strategy which is an emerging technology
business partnership program under which we would identify and partner with
companies that would:
·
|
benefit
from the current organizational structure of
NewMarket
|
·
|
open
up potential new markets for emerging companies based on strategic
relationships
|
·
|
create
potential equity investments through merger strategies that allow for
capital raises through equity or debt
instruments
|
·
|
improve
the return-on-investment opportunities for emerging technologies and
emerging market businesses
|
As part of
this new strategy, in March 2009 we announced a strategic partnership with
NuMobile, Inc., f/k/a Phoenix Interests, Inc., under which we will exchange our
investment in Stonewall Networks, Inc. (“Stonewall”), a security software
developer for mobile networks, for a convertible equity interest in
NuMobile.
Results
of Operations
Three
months ended September 30, 2009 compared to three months ended September 30,
2008
Net sales
decreased 2% from $32,379,164 for the quarter ended September 30, 2008 to
$31,707,269 for the quarter ended September 30, 2009. This decrease
was primarily due to a small decrease in sales in our domestic systems
integration subsidiaries.
Cost of
sales decreased 2% from $26,217,589 for the quarter ended September 30, 2008 to
$25,617,769 for the quarter ended September 30, 2009 due to the corresponding
decrease in sales. Our gross margin, as a percentage of sales was 19% and 19%
for the quarters ended September 30, 2009 and 2008, respectively. Our management
plans to continue to pursue strategies to reduce the overall cost of sales as a
percentage of sales as the company grows.
General
and administrative expenses increased 20% to $4,459,612 for the quarter ended
September 30, 2009 from $3,719,802 for the quarter ended September 30,
2008. The increase is primarily the result of an increase in
headcount in our Latin American and Chinese operating subsidiaries.
Depreciation
and amortization expense decreased 84% from $239,172 for the quarter ended
September 30, 2008 to $38,228 for the quarter ended September 30, 2009. At the
end of 2008, the Company wrote off the balance of certain software assets held
by our Singapore-based systems integration subsidiary and consequently we are no
longer amortizing that balance. Depreciation on fixed assets is
calculated on the straight-line method over the estimated useful lives of the
assets.
The
Company had net income of $1,555,235 for the quarter ended September 30, 2009
after accounting for the non-controlling interest in a consolidated subsidiary,
compared to net income of $1,753,918 for the quarter ended September 30, 2008, a
decrease of 11%. The decrease was due to an increase in operating expenses.
Comprehensive net income, which is adjusted to compensate for the risk
associated with foreign profits and the potential conversion of foreign
currency, as well as the change in market value of available-for-sale
securities, increased from comprehensive net income of $1,763,056 for the
quarter ended September 30, 2008 to $1,873,960 for the quarter ended September
30, 2009, an increase of 6%.
Nine
months ended September 30, 2009 compared to nine months ended September 30,
2008
Net sales
decreased 1% from $76,069,467 for the nine months ended September 30, 2008 to
$75,581,615 for the nine months ended September 30, 2009. This
decrease was primarily due to decreased sales in our domestic systems
integration subsidiaries, offset by an increase in sales in our Chinese systems
integration subsidiary.
Cost of
sales increased 4% from $59,092,154 for the nine months ended September 30, 2008
to $61,167,080 for the nine months ended September 30, 2009 due to competitive
pricing pressures in our foreign systems integration subsidiaries, which was
offset by higher gross margins from outsourcing agreements entered into by our
Chinese and Colombian subsidiaries. Our gross margin, as a percentage
of sales was 19% and 22% for the nine months ended September 30, 2009 and 2008,
respectively. Our management plans to continue to pursue strategies to reduce
the overall cost of sales as a percentage of sales as the company
grows.
15
General
and administrative expenses decreased 4% to $10,891,740 for the nine months
ended September 30, 2009 from $11,400,162 for the nine months ended September
30, 2008. The decrease is primarily the result of a decrease in
headcount in our Latin American and Chinese operating subsidiaries earlier in
the year.
Depreciation
and amortization expense decreased 86% from $797,357 for the nine months ended
September 30, 2008 to $115,567 for the nine months ended September 30, 2009. At
the end of 2008, the Company wrote off the balance of certain software assets
held by our Singapore-based systems integration subsidiary and consequently we
are no longer amortizing that balance. Depreciation on fixed assets
is calculated on the straight-line method over the estimated useful lives of the
assets.
Net income
decreased 40% from $3,758,484 for the nine months ended September 30, 2008 after
accounting for the non-controlling interest in a consolidated subsidiary, to
$2,239,451 for the nine months ended September 30, 2009. The decrease was due to
a decrease in our gross margin offset by a decrease in operating expenses.
Comprehensive net income, which is adjusted to compensate for the risk
associated with foreign profits and the potential conversion of foreign
currency, as well as the change in market value of available-for-sale
securities, decreased 87% from $4,819,131 for the nine months ended September
30, 2008 to $618,676 for the nine months ended September 30, 2009.
Liquidity
and Capital Resources
Our cash
balance at September 30, 2009 decreased $1,246,227 from $4,960,869 as of
December 31, 2008, to $3,714,642. The decrease was the result of a
combination of cash used in investing activities of $566,245, cash used in
financing activities of $915,881 and the effect of exchange rates on cash of
$515,947 offset by cash provided by operating activities of
$751,846. Operating activities for the nine months ended September
30, 2009 exclusive of changes in operating assets and liabilities provided
$4,067,500, as well as a decrease in prepaid expenses of $1,238,134 and an
increase in customer deposits and accrued expenses of $1,202,247 offset by an
increase in accounts receivable and inventory of $4,961,562 and a decrease in
accounts payable of $794,473.
As of
September 30, 2009, we own 1.4 million shares of common stock of
VirtualHealth. We have classified these shares as available for sale
securities in which unrealized gains (losses) are recorded to shareholders’
equity. At September 30, 2009, all 1.4 million shares of
VirtualHealth common stock are tradable and the market value of the
VirtualHealth common shares at September 30, 2009 was $364,000.
Since
inception, we have financed operations primarily through equity security sales.
We may need to raise cash through additional equity sales at some point in the
future in order to sustain operations. Accordingly, if revenues are insufficient
to meet needs, we will attempt to secure additional financing through
traditional bank financing or a debt or equity offering; however, because of the
potential of a future poor financial condition, we may be unsuccessful in
obtaining such financing or the amount of the financing may be minimal and
therefore inadequate to implement our continuing plan of operations. There can
be no assurance that we will be able to obtain financing on satisfactory terms
or at all, or raise funds through a debt or equity offering. In addition, if we
only have nominal funds by which to conduct our operations, it will negatively
impact our potential revenues.
Off-Balance
Sheet Arrangements
We do not
currently have any off-balance sheet arrangements as defined in
Item 303(c)(2) of Regulation S-K.
Recent
Accounting Pronouncements
For a
discussion of new accounting pronouncements, refer to Note 1 of Notes to
Condensed Consolidated Financial Statements.
We are
exposed to market risk from changes in foreign currency exchange rates,
including fluctuations in the functional currency of foreign
operations. The functional currency of operations outside the United
States is the respective local currency. Foreign currency translation
effects are included in accumulated comprehensive income in shareholder’s
equity. We do not utilize derivative financial instruments to
manage foreign currency fluctuation risk.
16
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act (the “Exchange Act”), as amended, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to our management to allow for timely decisions regarding
required disclosure.
Based on
their evaluation, as of September 30, 2009, our management, including our Chief
Executive Officer and Chief Financial Officer, have concluded that our
disclosure controls and procedures as defined in Rule 13a-15(e) and Rule
15d-15(e) under the Securities Exchange Act of 1934 were effective.
Changes
in Internal Control over Financial Reporting
No change
in our internal controls over financial reporting (as defined in Rules 13a-15(f)
under the Exchange Act) occurred during the quarter ended September 30, 2009
that has materially affected, or is reasonably likely to materially affect our
internal control over financial reporting.
We are
involved from time to time in various legal actions. Ware not
currently aware, however, of any actions that management believes would
materially adversely affect the business, financial conditions or results of
operations. We may be subject to future claims which would cause it
to incur significant expenses or damages, including from subsidiaries that have
previously been acquired. If we acquire or consolidate additional
subsidiaries in the future, we may assume obligations and liabilities of such
entities.
We not
aware of any contemplated legal proceeding by a governmental authority in which
we may be involved.
No
material changes in the risks related to our business have occurred since the
filing of our Annual Report on Form 10-K for the year ended December 31,
2008. You should carefully consider the risk factors set forth
in the Annual Report on Form 10-K and the other information set forth elsewhere
in this Quarterly Report on Form 10-Q. You should be aware that these
risk factors may not describe every risk facing our
Company. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or results of operations.
Set forth
below is information regarding the issuance and sale of our securities without
registration during the three month period ended September 30,
2009:
· In
September 2009, the Company issued 1,477,035 shares of common stock in exchange
for a $591,700 reduction in short-term debt.
· In the
third quarter of 2009, the Company issued 881,209 shares of common
stock pursuant to the conversion of 185 shares of Series J Preferred
Stock.
Each of
the above issuances was deemed to be exempt under Rule 506 of Regulation D
and/or Section 4(2) of the Securities Act of 1933, as amended. No advertising or
general solicitation was employed in offering the securities. The offerings and
sales were made to a limited number of persons, all of whom were accredited
investors, business associates of our company or executive officers of our
company, and transfer was restricted by our company in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
17
None.
None.
None.
Exhibits
EXHIBIT
|
|
NO.
|
DESCRIPTION OF EXHIBIT
|
10.1
|
Annual
Report for the year ended December 31, 2008, as filed in Company’s Form
10-K June 19, 2009, and incorporated herein by
reference
|
31.1
*
|
Certification of Chief
Executive Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
*
|
Certification of Chief
Executive Officer and Principal Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
*
|
Certification
of Philip M. Verges, Chairman and Chief Executive Officer of the Company,
pursuant to 18 United States Code Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
*
|
Certification
of Philip J. Rauch, Chief Financial Officer of the Company, pursuant to 18
United States Code Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
* Filed Herewith
Reports
on Form 8-K
During the
three-month period ended September 30, 2009, the Company filed the following
Current Report on Form 8-K:
Current
Report on Form 8-K filed on August 21, 2009 which included disclosure under Item
4.01 related to the acceptance by the Audit Committee of the Board of Directors
of the Company of the resignation of the Pollard-Kelley Auditing Services, Inc.,
the Company’s independent auditors and the appointment effective August 3, 2009,
of Hamilton, PC as the Company’s new independent registered
auditor.
18
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant certifies that it has caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NewMarket
Technology, Inc.
|
|||
Date:
November 23, 2009
|
By:
|
/s/ Philip M.
Verges
|
|
Philip
M. Verges
|
|||
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
|
|||
Date:
November 23, 2009
|
By:
|
/s/ Philip J.
Rauch
|
|
Philip
J. Rauch
|
|||
Chief
Financial Officer
(Principal
Financial Officer)
|
|||
19