Attached files
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| EX-32 - EXHIBIT 32 - NewMarket Technology Inc | a6262021ex32.htm |
| EX-31.1 - EXHIBIT 31.1 - NewMarket Technology Inc | a6262021ex31_1.htm |
| EX-31.2 - EXHIBIT 31.2 - NewMarket Technology Inc | a6262021ex31_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2009
OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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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 | (I.R.S. Employer | |
| Incorporation or Organization) | 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) |
Securities registered under Section 12(b) of the Exchange Act:
| Title of each class: | Name of exchange on which registered: | |
| Common Stock, Par Value $0.001 | Over-the-Counter |
Securities registered under Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer [ ]
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Accelerated Filer [ ]
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Non-Accelerated Filer [ü]
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Smaller Reporting Company [ ]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant based on the closing price of the Registrant’s common stock on June 30, 2009: $7,462,375
DOCUMENTS INCORPORATED BY REFERENCE:
None
NewMarket Technology, Inc.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
History of the Business
The Company was originally incorporated as Nova Enterprises, Inc. in the State of Nevada on February 19, 1997, to develop and produce a unique proprietary software solution for use in Internet Telephony (hereafter referred to as "IP Telephony"). In March 1998, we entered into a reorganization agreement, pursuant to which our predecessor exchanged 9,000,000 shares of its common stock for all of the outstanding common shares of a private operating company known as IPVoice Communications, Inc. ("IPVCDE"), a transaction commonly referred to as a "reverse acquisition." In general terms, a reverse acquisition is a transaction in which the inactive public entity acquires an operating company and then changes its name as the surviving parent corporation to the name of the subsidiary and allows the subsidiary to appoint management in the surviving public entity. Thereafter, the subsidiary may formally merge with the parent or may continue to operate as a separate operating subsidiary. In this case, the subsidiary transferred all of its assets to the parent. The reorganization agreement was accounted for as a reorganization of IPVCDE.
In May 1999, the corporate name was changed to IPVoice.com, Inc. In January 2001, in connection with the acquisition of 100% of the issued and outstanding shares of the common stock of IPVoice Communications, Inc., a Delaware corporation, the name was changed to IPVoice Communications, Inc. As a result of that acquisition, the prior Delaware corporation ceased to exist, and the Nevada corporation became known as IPVoice Communications, Inc. The prior officers and directors resigned and were replaced by the officers and directors of the Delaware incorporated IPVoice Communications, Inc. This transaction was accounted for as a reorganization of IPVoice Communications, Inc.
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Until August 1999, we conducted business from our headquarters in Denver, Colorado at which time the headquarters was relocated to Phoenix, Arizona. In June 2002, our headquarters relocated again to its current location in Dallas, Texas.
To better reflect our renewed business plan and the product line expansion beyond voice communications, we changed our name from IPVoice Communications Inc. to NewMarket Technology Inc. in June 2004. Our common stock is currently traded on the Pink Sheets Electronic Quotation Service under the symbol "NWMT."
In June 2002, we acquired all of the assets of VergeTech Inc. (“VTI”) in exchange for a $3,000,000 promissory note convertible into 50% of the issued and outstanding shares of the Company as of the date of issuance. VTI was a privately held communications industry technology services firm founded in 1997 and headquartered in Dallas, Texas.
Consistent with the VTI asset acquisition agreement, our Board of Directors and the management team resigned and VTI management assumed the vacated management positions. Philip Verges, the founder of VTI, became our Chief Executive Officer and Chairman of the Board.
As part of our new business strategy, two acquisitions were completed in 2003. We acquired all of the issued and outstanding stock of Infotel Technology PTE Ltd. ("Infotel") based in Singapore as part of a strategy to establish a foothold operation in Asia. Infotel is a communications systems integrator engaged in the business of reselling and integrating specialty communication devices to various government agencies and commercial customers. We also acquired a majority of the issued and outstanding stock of IP Global Voice, Inc. ("IP Global Voice") of San Francisco, California. IP Global Voice is a full feature voice-over IP (“voIP”) service provider that began providing service to small and medium-sized businesses in December, 2003.
We entered the healthcare industry in 2004 by acquiring a majority interest in Medical Office Software Inc, (“MOS”) ,a twenty year old Florida-based technology company providing practice management and claims processing IP software and maintenance to three thousand ongoing physician clients. In October 2006, we sold our majority interest in MOS pursuant to a stock purchase agreement with VirtualHealth Technologies, Inc. (“VirtualHealth”). Under the terms of the Agreement, we received 1.4 million shares of VirtualHealth common stock and a $900,000 convertible note in exchange for our majority interest in MOS.
We continued to expand our telecommunications industry strategy in 2004 with an equity investment in RedMoon Broadband Inc. ("RedMoon") RedMoon specializes in the engineering and management of municipal wireless broadband networks. In 2004 we also acquired one-hundred percent of RKM Suministros, Ltd. (“RKM”), a Venezuela-based computer systems integration company.
In January of 2005, we partnered with Gaozhi Science and Technology, Inc. of Shanghai, China and established NewMarket China, Inc. ("NewMarket China"), a wholly-owned subsidiary of NewMarket Technology. In the third quarter of 2005, NewMarket China formed a Chinese wholly-owned foreign entity, Clipper Technology, Inc. (“CLPTEC”). CLPTEC is engaged in the development, implementation, integration and maintenance of technology software and supporting peripherals for computing, communications, and data exchanges. In October 2005, CLPTEC executed an agreement with The Huali Group (“Huali”), based in Ningbo, China, under which CLPTEC received a a 51% ownership interest in Clipper-Huali, Ltd. (“Clipper-Huali”) a newly-formed Chinese corporation. Clipper-Huali engages in the business of application software development, sale of proprietary software, value added reselling of leading business application software and the sale of system and network software.
In 2005, NewMarket expanded an existing partnership with TekVoice Communications, Inc. (“TekVoice”) to an equity investment in TekVoice. TekVoice expanded the NewMarket telecommunications strategy into the Hispanic and Latin American markets with plans to establish an independent public listing on a United States securities exchange. TekVoice is a Hispanic and Latin America voIP service provider. In December 2007, TekVoice was acquired by AlterNet Systems, Inc. (“AlterNet”) through a reverse acquisition.
In May 2005, we executed a stock purchase agreement to acquire fifty-one percent interest in Vera Technology Inc (“Vera”). In a simultaneous agreement, Vera acquired one hundred percent of Classified Information Inc. (“CI”). We exchanged $1.3 million in preferred stock for the issuance of Vera preferred stock of equal value that includes fifty-one percent voting rights. CI provides a proprietary and patented, secure data exchange solution that enables simple and complete interoperability across all network configurations, on all computer systems, and with essentially every associated software package. The proprietary solution allows companies to communicate securely via the Internet through adaptive and secure transfer protocols supporting all leading standards of EDI, XML, and flat file transfers. In August 2006, we executed an agreement with Vera under which we sold our majority interest in Vera to the existing management of Vera in consideration for $5,000 in cash and a $1.3 million unsecured promissory note. The note matures in twenty years; however the principal repayment may be accelerated provided that Vera meets certain financial milestones.
In June 2005, IP Global Voice acquired substantially all of the assets of Corsa Networks Technologies, Inc. (“Corsa”). Corsa was an IP systems integration firm specializing in the construction of secure data and communication networks. The assets were operated in conjunction with the operations of IP Global Voice. Due to difficulty in obtaining favorable credit terms with vendors, the operations of IP Global Voice were discontinued effective November 1, 2009. The current domestic economic and credit climate has made it very difficult for IP Global Voice and Corsa to continue to operate under their existing business model.
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In February 2006, we entered into a purchase agreement with the founders of UniOne Consulting Ltda., a Brazilian limited liability company, (“UniOne”), to acquire the founders’ 100% interest in UniOne. The purchase price paid by the Company was $6,460,320. The purchase price is payable in tranches through the end of 2010. UniOne is a systems integrator, developer and business practice implementation company, providing support for the integration and maintenance of enterprise software applications. UniOne is located in Sao Paulo, Brazil, and had a regional office in Santiago de Chile, Chile until the end of 2008.
In August 2006, NewMarket China executed an Agreement and Plan of Reorganization (the “Agreement”) with Intercell International Corporation ("Intercell"). The Agreement provided for all of the issued and outstanding stock of NewMarket China, Inc., one thousand (1,000) shares held by NewMarket, to be exchanged for two million (2,000,000) restricted common shares of Intercell. As a result of the Agreement, NewMarket China became a wholly-owned subsidiary of Intercell. Simultaneously, NewMarket purchased 250,000 shares of newly designated Series A Preferred Stock from Intercell for an aggregate purchase price of $250,000. The shares of Series A Preferred Stock may be converted into that number of authorized but unissued common shares of Intercell, which shall be equal to 60% ownership of the Company after giving effect to such issuance on and as of the date of conversion. In January 2007, Intercell’s name was changed to NewMarket China to reflect the new operations of the business. In June 2008, NewMarket China’s name was changed to China Crescent Enterprises, Inc. (“China Crescent”).
In February 2007, we executed a share exchange agreement with Paragon Financial Corporation, (“Paragon”), a Delaware corporation, under which we sold our ownership interest in UniOne in exchange for the issuance to us of a supermajority voting preferred stock. These preferred shares are deemed at all times to be equivalent to ninety-five percent (95%) of the outstanding common shares of Paragon for voting purposes on all matters. Paragon’s name was subsequently changed to NewMarket Latin America, Inc. (“NLAI”). In the second quarter of 2009, we announced an agreement under which Worldwide Strategies, Inc. (“Worldwide”) will acquire NLAI’s interest in UniOne and NewMarket will exchange our voting preferred stock in NLAI for a supermajority voting preferred stock in Worldwide. It is anticipated that this transaction will close in the second quarter of 2010.
In April 2009, China Crescent issued 750 shares of Series B Convertible Preferred Stock to Huali in connection with the acquisition by CLPTEC of an additional 25% interest in Clipper-Huali. In the fourth quarter of 2009, China Crescent acquired 100% of Dalian Aoyuan Electronic Technology Services Co., Ltd. (“DAETS”), a systems integration company located in Dalian, China and 100% of Shenzhen Newbao Technology Co., Ltd. (“Newbao”), a wireless equipment manufacturer located in Shenzhen, China.
We have never been the subject of a bankruptcy, receivership or similar proceeding.
2007 Financing:
On November 30, 2007, we and certain of our subsidiaries 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, we 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, we issued a Revolving Note to Valens US, pursuant to which Valens has committed to advance up to $3,000,000 us (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 required 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 our 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.
We granted a security interest to Valens in each of our real or personal, tangible or intangible, property and assets. We also pledged the stock of certain of our subsidiaries and other equity interests owned by us.
We also issued five year warrants to purchase 3,825,840 shares of our common stock to Valens Offshore and warrants to purchase 8,347,287 shares of common stock to Valens US which are exercisable at a price of $0.22 per share.
In 2008, at our request, the Revolving Note was cancelled.
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In April 2009, Greenshield Management Company (“GreenShield”) purchased $1.25 million in principal value of the Notes from the Creditor Parties. We then entered into a Debt Restructure and Equity Reorganization Comprehensive Agreement ("Debt Restructure") with GreenShield. Pursuant to the terms of the Debt Restructure, Greenshield exchanged the debt, inclusive of accrued interest, for the issuance of 1,250 shares of newly authorized Series J Convertible Preferred Stock. GreenShield subsequently assigned 500 shares of the Series J Convertible Preferred Stock to ES Horizons, Inc. (“ES Horizons”), a management company that is beneficially owned by our Chairman of the Board. In May 2009, ES Horizons exchanged their 500 shares of Series J Convertible Preferred Stock for the issuance of 500 shares of newly authorized Series K Preferred Stock of the Company.
In October 2009, Timeless Investments, Ltd. (“Timeless”), and GreenShield purchased the remaining principal balance of the Notes from the Creditor Parties. Subsequently, the Company entered into a Debt Restructure Agreement ("Second Debt Restructure") with Timeless and GreenShield under which Timeless agreed to convert $1.5 million of the Notes into 1,500 shares of the Company’s Series J Preferred Stock and GreenShield agreed to convert $500,000 of the Notes into 500 shares of the Company's Series J Preferred Stock. Both GreenShield and Timeless waived any rights to and forgave any unpaid interest, fees or penalties that may have been due under the Notes. Additionally, as part of the Second Debt Restructure, Timeless and GreenShield cancelled the security interest and released all the collateral held pursuant to the original Security Agreement with the Creditor Parties.
Current Corporate Strategy:
We are in the business of developing market entry technology products and services into early and mainstream technology products and services. To this end, we have introduced a unique business model which we believe overcomes the profit margin pressure facing the technology service sector resulting from the globalization of the technology labor force.
In general, the component functions of our business model are to:
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find and acquire timely early stage technology companies
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incrementally invest to market refine the acquired technology offering
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concentrate initial sales efforts on focused pilot opportunities
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expand pilot opportunities to a level that prove market viability
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spin the technology company out into a next stage, standalone company to support expanded capital formation
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maintain the support service economy of scale by retaining support service contract functions at NewMarket Technology
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build service and sales capacity in developing economies oversees to take advantage of reduced labor expense and to sell into fast growing economic regions with less brand name competition than in North America
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Technology sector businesses face two substantial market wide systemic issues. The first is the growing global technical labor force is creating significant profit margin pressure as technology companies continue to ratchet down expenses and sell at prices below their competition by employing the ever growing technology labor force from developing economic countries around the world. The global technology labor force is growing and technology companies will continue to chase each other's downward spiraling labor expense in turn continuing to squeeze technology company profit margins for the foreseeable future. Secondly, since the collapse of the dotcom investment market, the technology sector has not been able to re-establish consistent investment community interest in technology innovation. Profit margin pressure deters investment community interest at the same time making internal research and development investment an unlikely alternative. Technology innovation is critical to the technology sector. Updated technology products with enhanced features and performance that replace last generation products are a significant and critical portion of the overall technology market.
We believe NewMarket improves technology product and service profit margins by combining traditional product and service revenues with income monetized from the overall business value of a technology offering. The equity value is usually a factor of the future earnings potential of a new technology. Earnings potential is generally derived by projecting the currently realized revenue and earnings of a product or service offering, within its market entry customer scope, across the entire market of potential customers that are likely future candidates for the new product or service offering. We contain each technology product and service offering within a subsidiary company. As the product and service offering matures, we plan to monetize the overall value of the technology offering through an incremental liquidation of stock in the subsidiary company housing the now mature product or service offering. The revenue and profits of the now mature product or service offering combined with the income from the incremental sale of stock in the associated subsidiary will provide us with a profit margin advantage.
Our corporate structure that enables the incremental sale of subsidiary stock in order to boost product and service revenues and profits is also the aspect of our business model that attracts investment in technology product and service innovation. In addition to selling stock in subsidiary companies to combine equity income with traditional product and service revenue and profits, the subsidiary structure provides an attractive long term and incremental return on investment opportunity for both institutional and retail common shareholders. When a subsidiary company is positioned for incremental liquidation through an independent public listing or the sale of subsidiary stock to a third-party company, we will issue subsidiary stock to common shareholders through a dividend declaration. By issuing stock in subsidiary companies to our common shareholders, we believe it will enhance long-term return opportunity for our common shareholders by adding dividend returns to NewMarket stock appreciation, if any. The ability of our common shareholders to liquidate subsidiary stock issued in a NewMarket dividend creates incremental return opportunities that can be immediately realized without liquidating our stock.
We believe our business opportunity is perpetuated by the ongoing demand for technology innovation. New technologies likewise require ongoing investment. However, since the 2001 collapse of the high tech IPO market, new technologies have struggled to find investment and investors have not found an attractive start-up investment model.
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We have set out to replace the high tech IPO market with the micro-cap public market. The technology start-ups are appropriately much smaller organizations with more reasonable start-up goals. The required capital investments are correspondingly smaller.
In order to create a meaningful organization through smaller investments, the counter strategy to smaller investments is more investments. We are concentrating on Internet Protocol (IP) Communication Technologies. We currently focus on two market sector concentrations, each leveraging a core expertise in IP technology, wireless broadband and systems integration.
Greenfield Partnership Program:
The NewMarket Technology Greenfield Partnership Program (the “Greenfield Program”) was introduced by us in 2009 to accelerate and enhance the introduction of new technology innovations into new markets, including those markets with diversified, high growth opportunities. Greenfield Program participant companies were chosen to participate in the partnership program based on their technology and service offerings, in conjunction with the emerging geographic markets in which they operate. We are a re-seller of Greenfield Partnership Program participant company technologies and provide basic back office support to the companies as they establish and grow their operations. Additionally, we provide cross-selling channels for participant companies with complementary technologies. Current Greenfield Program participant companies include AlterNet Systems, Inc. (“AlterNet”), Nova Energy, Inc. (“Nova”) and NuMobile, Inc. (“NuMobile”).
AlterNet is a leading enabler of mobile commerce services with a regional presence in 17 countries throughout the Americas and Caribbean through a network of fulfillment partners and agents. AlterNet's subsidiaries provide a comprehensive suite of hosted and Software as a Service (SaaS) applications for the utility, transportation, financial, and telecommunication, and retail industries.
Nova has a focus on the emerging markets of East Africa and has launched an updated corporate strategy to pursue several business lines in that region, including technology systems integration, mobile money remittance, and housing and health products initiatives.
NuMobile is building a portfolio of security and software solutions for the global mobile computing and smartphone market. Through a roll-up strategy, NuMobile plans to acquire and develop mobile computing solutions for a variety of applications, including mobile banking, for the global marketplace.
Our Principal Products/Services:
We provide full service software and systems development, integration and maintenance and maintain product reseller and integrator partnerships with Microsoft, Hyperion, SAP, Oracle, SSA Global, Cisco, and Sun Microsystems among other software and systems vendors. We maintain our own line of emerging proprietary technologies that complement and enhance the functions and features of our corporate brand name partners. We also offer lower cost, high quality software development outsourcing to our clients through our resources in China and Latin America. Our systems integrations solutions include:
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Customer Resource Management (CRM)
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Enterprise Resource Planning (ERP)
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Business intelligence
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Financial management, including accounting, budgeting and financial reporting
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Network security
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Revenue/Products Breakdown:
To date, our revenues have come primarily in the following product areas:
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software licensing
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IP telephony services
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technical consulting
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systems integration products and services
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Our Customers:
We have two major types of customers: large and small national and international corporations, such as Siemens, Petrobras, Sabre, Anglo American, Petroleos de Venezuela (PDVSA), Avon, Bayer, ExxonMobil, and Visa International; and municipalities, governments (domestic and foreign) and governmental agencies.
Geographic Markets:
Our target markets are located domestically in all 50 states and internationally in developing economies, including Asia and Latin America.
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Competitive Business Conditions:
The systems integration industry is highly competitive and varied. Many of our existing and potential competitors have financial, personnel, marketing, customer bases and other financial resources significantly greater than ours. Among our various competitors include IBM, Electronic Data Systems (EDS) and SAIC. These competitors have the flexibility to introduce new service and pricing options that may be more attractive to our existing and potential customers. As a result, these competitors have greater growth and profit potential than we do. We will attempt to overcome the competitive advantages of our competitors by pursuing our new strategy of acquiring businesses that are complementary to our own and which provide us with brand name recognition.
Major Suppliers:
Our principal suppliers are provided below:
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Microsoft
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SAP
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Hyperion Solutions
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Broadsoft
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Cisco Systems
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Sun Microsystems
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SSA Global
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Oracle
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Juniper Networks
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Hewlett-Packard
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Dell Computers
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Although there can be no assurances, management believes that we have good relations with each of our principal suppliers.
Patents, Trademarks and Licenses:
We have one provisional patent for our RFID shipping management product. Otherwise we do not hold, and have not applied for, any patents. We have previously filed for service mark protection with the U.S. Patent and Trademark Office for the following marks but, we do not immediately intend to vigorously follow up on those filings.
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IPVoice
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MultiCom
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AuditRite
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TrueConnect
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TruePartner
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4Com
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ICB Connect
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IP Jack-in-the-Box (stylized mark)
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COMMUNICATIONS OUT OF THE BOX
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IPVoice.net
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IPVoice.com
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FLAT5
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FLAT25
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4X4
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The applications were filed between August 1998 and early 2001. To date, the following marks have been accepted for registration: MultiCom, TrueConnect, 4Com, IP Jack-in-the-Box, and FLAT25. Various office actions have been issued and responses filed. There can be no guarantees as to when, if ever, registration will be granted on any or all of our applications.
Regulatory Matters:
We currently are not subject to any federal or state regulation with respect to our Internet-related services. However, there can be no assurances that we will not be subject to such regulations in the future. Additionally, we are not aware of any pending legislation or regulations that would have a material adverse effect on our operations. As we expand our efforts we must remain attentive to relevant federal and state regulations. Many states have consumer protection laws that further define the framework within which our marketing activities must be conducted. We intend to comply fully with all laws and regulations; however, the constraints of federal and state restrictions could impact the success of direct marketing efforts and otherwise increase our costs of doing business.
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Future Regulation:
Due to the increasing popularity and use of the Internet, it is possible that additional laws and regulations may be adopted with respect to the Internet, covering issues such as:
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content
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privacy
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access to adult content by minors
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pricing
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bulk e-mail
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encryption standards
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consumer protection
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electronic commerce
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taxation
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copyright infringement
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other intellectual property issues
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We cannot predict the impact, if any, that future regulatory changes or developments may have on our business, financial condition or results of operation. Changes in the regulatory environment relating to the Internet access industry, including regulatory changes that directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition from regional telephone companies or others, could increase our operating costs, limit our ability to offer services and reduce the demand for our services.
If, as the law in this area develops, we become liable for information carried on, stored on or disseminated through our gateways, it may be necessary for us to take steps to reduce our exposure to this type of liability through alterations in our equipment, expanded insurance coverage or other methods. This may require us to spend significant amounts of money for new equipment or premiums and may also require us to discontinue offering certain products or services.
A governmental body could impose sales and other taxes on the provision of our services, which could increase the costs of doing business. A number of state and local government officials have asserted the right or indicated a willingness to impose taxes on Internet-related services and commerce, including sales, use and access taxes. No such laws have become effective to date. We cannot accurately predict whether the imposition of any such taxes would materially increase our costs of doing business or limit the services that we provide. It may be possible to pass on some of these costs to the consumer and continue to remain competitive.
As our services are available over the Internet in multiple states and foreign countries, these jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each such state and foreign country. New legislation or the application of laws and regulations from jurisdictions in this area could have a detrimental effect upon our business.
Environmental
Our business is not subject to any material costs or other effects as a result of compliance with federal, state or local environmental laws.
Research and Development:
The Company spent $0 on research and development during the years ended December 31, 2009 and 2008, respectively.
Employees:
We currently have over 500 employees. We currently have two officers and four board members. Bruce Noller is the Chief Executive Officer and Philip J. Rauch serves as our Chief Financial Officer. The current Board of Directors consists of Philip Verges, Philip J. Rauch, James Mandel and Bruce Noller. None of the current employees is represented by a labor union for purposes of collective bargaining. We consider our relations with our existing employees to be good.
Available Information:
Our website address is www.NewMarketTechnology.com, We make available free of charge through our Internet site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and Forms 3, 4 and 5 filed on behalf of directors and executive officers, and any amendments to these reports, filed or furnished pursuant to the Securities Exchange Act of 1934 as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission.
Risks Related to Our Company
While we have been profitable for several of the last eight years, profits have been small and we have incurred monthly and quarterly operating losses from time to time in the last eight years.
We cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future. If we are unable to remain profitable, our liquidity could be materially harmed.
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It will be difficult to predict our future results. You should consider the uncertainties that we may encounter as a company in a new and rapidly evolving market. These uncertainties include:
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market acceptance of our products or services;
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consumer demand for, and acceptance of, our products, services and follow-on products;
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our ability to create user-friendly applications; and
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our unproven and evolving business model.
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We will need to achieve greater revenues to maintain profitability. There can be no assurance that we will be successful in increasing revenues, or generating acceptable margins, or, if we do, that operation of our business will be a profitable business enterprise. We may have to seek additional outside sources of capital for our business. There can be no assurance that we will be able to obtain such capital on favorable terms and conditions or at all. If this occurs the market price of our common stock could suffer.
Our quarterly and annual sales and financial results have varied significantly in the past, and we expect to experience fluctuations in the future, which means that period-to-period comparisons are not necessarily meaningful or indicative of future performance.
Our sales and operating results have varied, and may continue to vary, significantly from year to year and from quarter to quarter as a result of a variety of factors, including the introduction of new products by competitors, pricing pressures, the timing of the completion or the cancellation of projects, the evolving and unpredictable nature of the markets in which our products and services are sold and economic conditions generally or in certain geographic areas in which our customers do business. Furthermore, we may be unable to control spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, we cannot assure you that sales and net income, if any, in any particular quarter will not be lower than sales and net income, if any, in a preceding or comparable quarter or quarters. In addition, sales and net income, if any, in any particular quarter are not likely to be indicative of the results of operations for any other quarter or for the full year. The trading prices of our securities may fluctuate significantly in response to variations in our quarterly or annual results of operations.
We may not be able to sustain or accelerate growth, or sustain or accelerate recurring revenue from our business.
There can be no assurance that demand for our services and products will increase or be sustained, or that our current or future products will have market acceptance in that product category. Our acquisition costs per customer are high due to the significant costs associated with sales, research and development and marketing. To the extent we do not achieve growth and this cost per customer is not reduced, it will be difficult for us to generate meaningful revenue at acceptable margins or achieve profitability. To the extent that our business model is not successful, because market acceptance does not develop as expected, or other competing technologies evolve in connection with the changing market or for any other reason, we might have future unexpected declines in revenue.
Rapid technological change could render our products and services obsolete.
The information technology industry is characterized by rapid technological innovation, sudden changes in user and customer requirements and preferences, frequent new product and service introductions and the emergence of new industry standards and practices. Each of these characteristics could render our services, products, intellectual property and systems obsolete. The rapid evolution of our market requires that we improve continually the performance, features and reliability of our products and services, particularly in response to competitive offerings. Our success also will depend, in part, on our ability:
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to develop or license new products, services and technology that address the varied needs of our customers and prospective customers
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to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis
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If we are unable, for technical, financial, legal or other reasons, to adapt in a timely manner to changing market conditions or user preferences, we could lose customers, which would cause a decrease in our revenue.
We may be unable to obtain additional capital if needed to grow our business, which would adversely impact our business. If we raise additional financing, you may suffer significant dilution.
Although we expect that our current cash and cash from operations will be sufficient to satisfy our working capital and ordinary course capital expenditure needs over the next 12 months, if our revenues do not continue to grow to cover our expenses, we will need to seek additional third-party investment in order to provide additional working capital and, in any event, additional capital will be required to finance our growth plans. We cannot be certain that financing from third parties will be available on acceptable terms to us or at all. Our future capital requirements will depend upon several factors, including the rate of market acceptance of our products and services, our ability to expand our customer base and our level of expenditures for sales and marketing. If our capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. If we cannot raise funds on acceptable terms, we may not be able to develop our products and services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on our ability to grow our business. Further, if we issue equity securities, you will experience dilution of your ownership percentage, and the new equity securities may have rights, preferences or privileges senior to those of our common stock.
10
Many of our competitors have significantly greater resources than we do and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Certain of our competitors have significantly greater financial, technical, marketing and other resources than we do and may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Additional competition could result in price reductions, reduced margins and loss of market. We cannot guarantee that we will be able to compete successfully against future competitors or that future competitive pressures will not materially and adversely affect our business, financial condition and results of operations.
If we lose the services of our key personnel, we may be unable to replace them, and our business could be negatively affected.
Our success depends in large part on the continued service of our management and other key personnel and our ability to continue to attract, motivate and retain highly qualified employees. In particular, the service of Philip Verges, our Chairman, is integral to the execution of our business strategy. If one or more of our key employees leaves NewMarket, we will have to find a replacement with the combination of skills and attributes necessary to execute our strategy. Because competition from other technology companies for skilled employees is intense, and the process of finding qualified individuals can be lengthy and expensive, we believe that the loss of services of key personnel could negatively affect our business, financial condition and results of operations.
Our future plans call for acquiring companies that augment and complement current products and customers. Such plans involve various risks to future business operations and financial condition. If we fail to perform adequate due diligence, we may acquire a company or technology that:
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is not complementary to the business
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is difficult to assimilate into the business
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subjects the Company to possible liability for technology or product defects
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involves substantial additional costs exceeding estimated costs
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In addition, we also face the following risks in connection with acquisitions:
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we may spend significant funds conducting negotiations and due diligence regarding a potential acquisition that may not result in a successfully completed transaction
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we may be unable to negotiate acceptable terms of an acquisition
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if financing is required to complete the acquisition, we may be unable to obtain such financing on reasonable terms, if at all
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negotiating and completing an acquisition, as well as integrating the acquisition into our operations, will divert management time and resources away from our current operations and increase our costs
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Risks Related to Our Industry
Deterioration of the IT services industries could lead to further reductions in capital spending budgets by our customers, which could further adversely affect our revenues, gross margins and income.
Our revenues and gross margins will depend significantly on the overall demand for information technology products and services. Reduced capital spending budgets by our customers caused by an ongoing industry downturn have led to continued soft demand for our products and services, which has resulted in, and may continue to result in, decreased revenues, earnings levels or growth rates. The global economy in general, and the technology market in particular, has weakened and market conditions continue to be challenging. As a result, individuals and companies are delaying or reducing expenditures. We have observed effects of the global economic downturn in many areas of our business. In addition, the technology industry has experienced significant consolidation, and this trend is expected to continue. It is possible that we and one or more of our competitors each supply products to the companies that have merged or will merge. This consolidation could result in further delays in purchasing decisions by merged companies or in us playing a decreased role in the supply of products to the merged companies. Further delays or reductions in spending could have a material adverse effect on demand for our products and services and, consequently, our results of operations, prospects and stock price.
Risks Related to Doing Business in China and Other Foreign Countries
Changes in Chinese laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition. Under our current leadership, the Chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.
Substantially all of the sales of our China Crescent subsidiary are generated from China. We anticipate that sales of our products in China will continue to represent a substantial majority of China Crescent’s total sales in the near future. Any significant decline in the condition of the Chinese economy could adversely affect demand for our products, among other things, which in turn would have a material adverse effect on our business and financial condition.
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The Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If our new business ventures are unsuccessful, or other adverse circumstances arise from these transactions, we face the risk that the parties to these ventures may seek ways to terminate the transactions, or, may hinder or prevent us from accessing important information regarding the financial and business operations of these acquired companies. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under Chinese law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.
Substantially all of our revenues in China are generated from China Crescent’s subsidiary, CLPTEC. However, Chinese regulations restrict the ability of CLPTEC to make dividends and other payments to its parent company. Chinese legal restrictions permit payments of dividends by CLPTEC only out of its accumulated after-tax profits, if any, determined in accordance with Chinese accounting standards and regulations. Any limitations on the ability of CLPTEC to transfer funds to China Crescent could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
China only recently has permitted provincial and local economic autonomy and private economic activities, and, as a result, we are dependent on our relationship with the local government in the province in which we operate our business. Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
China historically has been deficient in Western style management and financial reporting concepts and practices, as well as in modern banking, computer and other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in China. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. We may have difficulty establishing adequate management, legal and financial controls in China.
Substantially all of the sales of our Unione subsidiary are generated from Brazil. We anticipate that sales of our products and services in Brazil will continue to represent a substantial majority of Unione’s total sales in the near future. Any significant decline in the condition of the Brazilian economy could adversely affect demand for our products and services, among other things, which in turn would have a material adverse effect on our business and financial condition.
We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in China, Brazil and Venezuela. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties.
Risks Related to Currency Exchange Between Foreign Currencies and United States Dollars
Our reporting currency is the U.S. dollar and our operations in foreign countries use their local currency as their functional currencies. A substantial percentage of our revenue and expenses are in foreign currencies. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the value of the Chinese RMB depends to a large extent on Chinese government policies and China’s domestic and international economic and political developments, as well as supply and demand in the local market. Fluctuation in exchange rates between foreign currencies and the U.S. dollar may result in significant appreciation or depreciation of those currencies against the U.S. dollar.
Risks Related to Our Capital Stock
The public market for our common stock may be limited.
The market price of our common stock has been and is likely to continue to be volatile and significantly affected by various factors, including:
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general market conditions and market conditions affecting technology stocks in particular;
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actual or anticipated fluctuations in our quarterly or annual operating results;
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announcements relating to contracts, investments, acquisitions, divestitures;
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discontinued operations, layoffs or corporate actions;
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industry conditions or trends; and
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limited market making activity and research coverage.
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The stock markets, especially the over-the-counter markets, have experienced significant price and volume fluctuations that have affected the market prices of many technology companies' stocks. These fluctuations have often been unrelated or disproportionate to operating performance. These broad market or technology sector fluctuations may adversely affect the market price of our common stock. General economic, political and market conditions such as recessions and interest rate fluctuations may also have an adverse effect on the market price of our common stock. In addition, the market price of our common stock has also been and is likely to continue to be affected by expectations of analysts and investors.
The U.S. Securities and Exchange Commission (the ‘SEC”) has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and therefore is a “penny stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares.
We may be the subject of securities class action litigation due to future stock price volatility.
Shareholder interest in our company may be substantially diluted as a result of the sale of additional securities to fund our plan of operation.
Our preferred stock has certain preferences over our common stock with regard to liquidation, dividends and election of directors.
Our issued and outstanding Preferred Stock holds a preference in liquidation over our common stock. All of our outstanding Preferred Stock is subject to conversion into common stock upon the occurrence of certain enumerated events and contain provisions that may limit our ability to raise additional capital if needed. In addition, any such conversion will dilute our existing common stockholders.
Our ability to issue additional preferred stock or other convertible securities may adversely affect the rights of our common stockholders and may make takeovers more difficult, possibly preventing you from obtaining optimal share price.
Our Articles of Incorporation authorize the issuance of shares of "blank check" preferred stock, which would have the designations, rights and preferences as may be determined from time to time by the board of directors. Accordingly, the board of directors is empowered, without shareholder approval (but subject to applicable government regulatory restrictions), to issue additional preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the common stock. In the event of an issuance, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. We have also historically used securities that are convertible into common stock as a currency to finance acquisitions and may continue to do so in the future.
Not applicable.
As of December 31, 2009, our corporate headquarters operated out of approximately 2,800 square feet of leased facilities located at 14860 Montfort Drive, Suite 210, Dallas, Texas 75254. Our telephone number is (972) 386-3372. Our lease expires on December 31, 2010. Our monthly rental payments are $3,100. We have a number of additional leases for office space associated with our subsidiary operating companies.
We do not own any property or intend to have any property in the foreseeable future. We do not intend to renovate, improve or develop properties. We are not subject to any competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.
We are presently engaged in various legal actions as indicated below. We cannot determine at this time to what extent liability or damages, if any, will be imposed against us as a result of these matters. We do not currently maintain insurance coverage that would be applicable to any damages that may be awarded against us as a result of these matters. Should any significant damage awards be rendered against us, the payment of such damages may have a material adverse effect on our operations and financial condition.
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Davis vs. NewMarket Technology, Inc. is an action brought by the Chapter 7 bankruptcy trustee of Barbara Will, an ex-president of the Company, alleging breach of an employment agreement. The action was brought in Phoenix, Arizona and seeks $1,195,850 plus interest. The Company has filed a motion to stay the proceedings or dismiss pursuant to an arbitration clause and for lack of personal jurisdiction. The trustee (Davis) abandoned the suit on June 15, 2006, and then NewMarket filed a motion to dismiss which was objected by Barbara Will. Since then NewMarket received on October 19, 2006, a Notice of Intent to Arbitrate by Barbara Will to enforce her employment agreement of approximately $1.5 million. We negotiated a settlement agreement on this matter in the fourth quarter of 2009 which resulted in the issuance of 1,000 shares of Series J Convertible Preferred Stock.
In October 2006, a demand for arbitration was filed styled Broadsoft v. Xiptel. Broadsoft has brought a contract/collections action against Xiptel claiming Xiptel owes a total of $587,300 in principal obligations and interest. NewMarket Technology, Inc. is a guarantor of Xiptel's contract with Broadsoft. Xiptel and NewMarket Technology, Inc. have viable defenses and counterclaims against Broadsoft and the companies will vigorously defend their case. Actual exposure, while potentially somewhat greater than the full amount currently claimed (including attorneys fees and further interest), is believed by management to be far less than the claimed amount. The Company believes the claim is without merit and intends to vigorously defend the action.
We have incurred expenses related to the settlement of lawsuits of $1,020,953 and $286,581 for the years ended December 31, 2009 and 2008, respectively.
We are not aware of any contemplated legal proceeding by a governmental authority in which we may be involved.
We did not submit any matter to a vote of security holders during 2009.
Our common stock is presently traded on the over-the-counter market on the Pink Sheets Electronic Quotation Service (“Pink Sheets”). The high and low bid information for each quarter for the two most recent fiscal years is presented below. The quotations are interdealer prices without adjustment for retail markups, markdowns or commissions and do not necessarily represent actual transactions. These prices may not necessarily be indicative of any reliable market value. On December 31, 2009, the last reported sale price of the common stock on the Pink Sheets was $0.037 per share.
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High | Low | ||||||
| 2008 | ||||||||
| First Quarter | $ | 4.40 | $ | 2.40 | ||||
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Second Quarter
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$ | 3.80 | $ | 1.70 | ||||
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Third Quarter
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$ | 2.94 | $ | 1.62 | ||||
| Fourth Quarter | $ | 2.20 | $ | 0.58 | ||||
| 2009 | ||||||||
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First Quarter
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$ | 0.88 | $ | 0.40 | ||||
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Second Quarter
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$ | 0.68 | $ | 0.32 | ||||
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Third Quarter
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$ | 0.85 | $ | 0.30 | ||||
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Fourth Quarter
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$ | 0.44 | $ | 0.05 | ||||
Holders:
As of December 31, 2009, we had 30,356,128 shares of our common stock outstanding held of record by approximately 172 shareholders of record. We currently have only one class of common stock outstanding. Based upon information provided to us by persons holding securities for the benefit of others, it is estimated that we have in excess of 15,000 beneficial owners of our common stock as of that date.
Dividends:
We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payment of cash dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant. We are also subject to certain restrictions related to the declaration of dividends on our common stock by the terms of our outstanding preferred stock.
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The following selected financial data is derived from our consolidated financial statements.. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein. The information presented below is in thousands, except per share amounts.
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Year ended December 31,
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2009
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2008
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2007
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2006
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2005
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Selected Statement of Operations Data
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Net sales
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$ | 98,154 | 95,105 | 93,108 | 77,636 | 50,138 | ||||||||||||||
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Net income (loss)
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$ | 1,582 | (30,340 | ) | 7,349 | 5,887 | 2,909 | |||||||||||||
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Net income (loss) per weighted avg, common share-basic
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$ | 0.10 | (2.79 | ) | 0.80 | 0.80 | 0.60 | |||||||||||||
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Selected Balance Sheet Data
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Working capital
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$ | 22,498 | 12,182 | 19,198 | 10,018 | 6,142 | ||||||||||||||
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Total assets
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$ | 63,135 | 51,455 | 75,080 | 64,576 | 51,512 | ||||||||||||||
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Long-term liabilities
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$ | 1,132 | 1,209 | 2,109 | 9,916 | 4,244 | ||||||||||||||
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Stockholders equity
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$ | 38,694 | 31,131 | 58,292 | 45,168 | 32,766 | ||||||||||||||
Forward-Looking Statements:
Some statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include the words “may,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate” and other similar words. These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. Although we believe that the plans and objectives reflected in or suggested by such forward-looking statements are reasonable, such plans or objectives may not be achieved. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including: (a) lack of demand for our products and services; (b) competitive products and pricing; (c) limited amount of resources devoted to advertising; (d) lack of demand for our products and services being purchased via the Internet; and (e) other factors that may negatively affect our operating results. Statements made herein are as of the date of the filing of this Form 10-K with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. We expressly disclaim any obligation to update any information or forward-looking statements contained in this Form 10-K, except as may otherwise be required by applicable law.
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.
Revenue in fiscal year 2009 was $98,154,494 which resulted in net income of $1,582,374. The comprehensive net income for 2009 was $1,682,065, which represents an adjustment to compensate for the risk associated with foreign profits and the potential conversion of foreign currency, unrealized gains or losses in available-for-sale securities, and changes to the derivative liability associated with outstanding warrants.
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.
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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.
Results of Operations -Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Net sales increased 3% from $95,104,801 for the year ended December 31, 2008 to $98,154,494 for the year ended December 31, 2009. Sales of systems integration products and services through our Asian subsidiaries increased 7% in 2009. As a result of domestic economic conditions, sales of systems integration products and services domestically were essentially flat in 2009. Sales of systems integration products and services through our Latin American subsidiaries decreased 2% in 2009, primarily in Brazil.
Cost of sales increased 5% from $74,784,778 for the year ended December 31, 2008 to $78,504,378 for the year ended December 31, 2009. This increase was primarily due to a corresponding increase in sales for the year. Our cost of sales, as a percentage of sales was approximately 80% and 79% for the years ended December 31, 2009 and 2008, respectively. Competitive economic conditions domestically and in Latin America put pricing pressure on our service offerings which resulted in a slightly lower gross margin in 2009. Our management plans to continue to pursue strategies to reduce the overall cost of sales as a percentage of sales as the company grows. In the second half of 2009, we began to offer IT outsourcing services through both CLPTEC in China and Unione in Brazil. These services typically provide higher gross margins than sales of systems integration products and services.
General and administrative expenses for the year ended December 31, 2009 were $15,171,433 compared to $18,958,850 for the year ended December 31, 2008, a decrease of 20%. The decrease in general and administrative expenses was primarily due to a reduction in headcount in our domestic and Brazilian operating subsidiaries, offset by a 7% increase in expenses associated with the start-up of new CLPTEC subsidiaries in Dalian and Shenzhen, China.
Other expenses for the year ended December 31, 2009 were $1,218,299 compared to other expenses of $29,568,545 for the year ended December 31, 2008, a decrease of 96%. This decrease is primarily attributable to significant write-downs and impairment expenses incurred in 2008. In 2009, we incurred a $1,020,953 expense related to the settlement of a lawsuit and a $641,067 expense related to discontinuing the operations of our IP Global Voice subsidiary. This was offset by a $1,649,968 in other income, primarily in our Venezuelan subsidiary. We periodically review the assets of the Company in accordance with generally-accepted accounting principles which may require us to adjust the carrying value of assets on our books.
Depreciation and amortization expense decreased 62% from $458,802 for the year ended December 31, 2008 to $173,950 for the year ended December 31, 2009. The decrease is due primarily to the write-down of software assets in the Company’s Singapore operating subsidiary in 2008 which are no longer being amortized. Depreciation on fixed assets is calculated on the straight-line method over the estimated useful lives of the assets which are typically between three and seven years.
The company recorded net income of $1,582,374 for the year ended December 31, 2009 compared to a net loss of $30,340,220 for the year ended December 31, 2008, after accounting for the non-controlling interest in consolidated subsidiaries. The loss in 2008 was primarily attributable to the aforementioned impairment and write-downs of various assets. Comprehensive net income (loss), 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 value of available-for-sale securities held by us and the change in the derivative liability attributable to outstanding warrants increased from a comprehensive loss of $29,399,707 for the year ended December 31, 2008 to comprehensive income of $1,682,065 for the year ended December 31, 2009.
Results of Operations -Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Net sales increased 2% from $93,108,116 for the year ended December 31, 2007 to $95,104,801 for the year ended December 31, 2008. This increase was due primarily to a small increase in sales in our operating subsidiary in China.
Cost of sales increased 11% from $67,322,978 for the year ended December 31, 2007 to $74,784,778 for the year ended December 31, 2008. This increase was primarily due to an increase in product costs in the fourth quarter of the year. Our cost of sales, as a percentage of sales was approximately 79% and 72% for the years ended December 31, 2008 and 2007, 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. Management will leverage the increased purchasing volume to improve purchasing contracts and reduce overall cost of sales. Management will also implement resource utilization strategies that can demonstrate notable savings when applied over higher volumes of production.
General and administrative expenses for the year ended December 31, 2008 were $18,958,850 compared to $19,836,138 for the year ended December 31, 2007, a decrease of 4% The decrease in general and administrative expenses was primarily due to a reduction in headcount in our operating subsidiaries. We plan to reduce the general and administrative expenses as a percentage of overall sales through the consolidation of redundant processes in resources inherited in the recent acquisitions.
Other expenses for the year ended December 31, 2008 was $29,568,545 compared to other income of $2,879,970 for the year ended December 31, 2007, a decrease of $32,448,515. This decrease is primarily attributable to an increase in interest expense of $516,231, a goodwill impairment expense of $7,240,220, an impairment of other assets related to software of $2,852,608, a bad debt expense of $6,339,105 and a write-down of notes receivable and investments of $12,284,638. We periodically review the assets of the Company in accordance with generally-accepted accounting principles which may require us to adjust the carrying value of assets on our books.
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Depreciation and amortization expense decreased 41% from $775,698 for the year ended December 31, 2007 to $458,802 for the year ended December 31, 2008. The decrease is due primarily to the sale and disposal of fixed assets in the Company’s Chinese operating subsidiary. Depreciation on fixed assets is calculated on the straight-line method over the estimated useful lives of the assets which are typically between three and seven years.
The company recorded a net loss of $30,340,220 for the year ended December 31, 2008 compared to net income of $7,348,832 for the year ended December 31, 2007. The loss was primarily attributable to the aforementioned impairment and write-downs of various assets. The comprehensive net income (loss), 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 value of available-for-sale securities held by us and the change in the derivative liability attributable to outstanding warrants decreased from comprehensive income of $7,885,223 for the year ended December 31, 2007 to a comprehensive loss of $29,399,707 for the year ended December 31, 2008.
Liquidity and Capital Resources
Cash Flow Activities
Our cash balance increased $660,078, from $4,960,868 as of December 31, 2008, to $5,620,946 as of December 31, 2009. The increase was the result of cash provided by operating activities of $250,090, cash provided by investing activities of $362,342 and cash provided financing activities of $87,621, offset by the effect of exchange rates on cash of $39,975. Operating activities for the year ended December 31, 2009 exclusive of changes in operating assets and liabilities provided $5,275,811, as well as a decrease in prepaid expenses of $1,411,577 and an increase in accounts payable and deposits of $5,671,621, offset by an increase in accounts and interest receivable of $11,170,359, an increase in inventory of $918,675 and a decrease in accrued expenses of $19,885.
Financing Activities
In recent years, we have funded our working capital requirements principally through borrowings under bank lines of credit, term loans, and issuances of common stock in exchange for debt. To the extent our operations are not sufficient to fund our capital requirements, we may enter into additional revolving loan agreements with a financial institution, or attempt to raise additional capital through the sale of additional common or preferred stock or through the issuance of additional debt. To the extent that we raise additional capital or settle existing liabilities through the sale or issuance of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. The current financing environment in the United States is exceptionally challenging and we can provide no assurances that we could raise capital either for operations or to finance an acquisition.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our wholly-owned and majority-owned subsidiaries. All material intercompany accounts, transactions and profits have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, trade receivables, prepaid expenses, payables and accrued expenses, Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. We consider the carrying values of our financial instruments in the consolidated financial statements to approximate fair value, due to their short-term nature.
17
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets, usually three to seven years.
Stock-Based Compensation
We recognize the cost of stock-based compensation plans and awards in operations on a straight-line basis over the vesting period (if any) of the awards. We measure and recognize compensation expense for all stock-based payment awards made to employees and directors. The compensation expense for our stock-based payments is based on an estimated fair value at the time of the grant. We estimate the fair value of stock based payment awards on the date of the grant using an option pricing model. These option pricing models involve a number of assumptions, including the expected lives of stock options, the volatility of the market price of our common stock and interest rates. We are using the Black-Scholes option pricing model. Stock based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that are ultimately expected to vest. Changes in our assumptions can materially affect the estimate of the fair value of stock-based payments and the related amount recognized in our consolidated financial statements.
Valuation of Long-Lived Assets
We periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. We do not believe that there has been any impairment to long-lived assets as of December 31, 2009.
Goodwill
We evaluate for potential impairment, the amount of goodwill recorded, by means of a cash flow analysis in accordance with Accounting Standards Codification 350-20 (“ASC 350-20”), Goodwill. For the years ended December 31, 2009 and 2008, we recorded impairment charges of $0 and $7,240,220, respectively.
Statement of Cash Flows
In accordance with ASC 230-10, Statement of Cash Flows, cash flows from our operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
Translation Adjustment
We conduct a substantial amount of business outside the United States where the primary currency of the economic environment in which our operations are conducted is the local currency. We use the United States dollar ("U.S. dollars") for financial reporting purposes.
In accordance with ASC 830-10, Foreign Currency Matters, our results of operations and cash flows are translated at the average exchange rates during the period, assets and liabilities are translated at the exchange rates as of the balance sheet dates, and equity is translated at the historical exchange rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Comprehensive Income
Comprehensive income includes accumulated foreign currency translation gains and losses, any unrealized accumulated gains or losses attributable to available-for-sale securities, and changes in the derivative liability associated with outstanding warrants. We have reported the components of comprehensive income on our statements of stockholders’ equity.
Effects of Inflation
Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change and continually maintain effective cost control in operations
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).
18
Recent Accounting Pronouncements
(See “Recently Issued Accounting Pronouncements” in Note 2 of Notes to the Consolidated Financial Statements.)
While our reporting currency is the U.S. dollar, the majority of our consolidated revenues and consolidated costs and expenses are denominated in foreign currencies. A portion of our assets are denominated in foreign currency. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. dollars and foreign currencies. If a foreign currency depreciates against the U.S. dollar, the value of a portion of our revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
The information required by this item appears beginning on page F-1 of this report.
On August 3, 2009, the Board of Directors of the Company was notified that Pollard-Kelley Auditing Services, Inc. (“PKASI”) had resigned as our independent registered public accounting firm. Subsequently, in August 2009, the Board of Directors approved the engagement of Hamilton, PC as the Company’s independent registered public accounting firm.
During the fiscal years ended December 31, 2008 and 2007 and through August 3, 2009 (i) there were no disagreements between the Company and PKASI on any matter of accounting principles or practices, financial statement disclosure or auditing scope and procedure which, if not resolved to the satisfaction of PKASI would have caused PKASI to make reference to the matter in reports on the Company’s financial statements, and (ii) PKASI’s reports on the Company’s financial statements did not contain an adverse opinion or disclaimer of opinion, or was modified as to uncertainty, audit scope or accounting principles.
Management’s Report on Internal Control Over Financial Reporting
(a) Evaluation of Disclosure Controls and Procedures
Management of the Company with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934) pursuant to Rile 13a-15 under the Exchange Act. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management, including the Chief Executive Officer, Chief Financial Officer and the Company’s Board of Directors, to allow timely decisions regarding required disclosure.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2009.
(b) Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
It should be noted that the Company’s management, including the Chief Executive Officer and Chief Financial Officer, do not expect that the Company’s internal controls will necessarily prevent all errors or fraud. A control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met, Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
19
We conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s internal controls over financial reporting was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules if the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
(c) Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fourth quarter of 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
The following table sets forth information with respect to the sole executive officer and directors of NewMarket Technology, Inc. as of April 15, 2010.
|
Name
|
Age | Position | ||
| Philip M. Verges | 44 | Chairman of the Board | ||
| Philip J. Rauch | 49 |
Chief Financial Officer, Director
|
||
|
James Mandel
|
56 | Director | ||
| Bruce Noller | 53 | Chief Executive Officer, Director |
Biographical Information on Officers and Directors
PHILIP VERGES, Chairman of the Board, previously managed the Company since its inception. Mr. Verges is an experienced executive manager, with a track record in both telecommunications and high technology. Mr. Verges is a 1988 graduate of the United States Military Academy. His studies at West Point centered on national security. Accelerated for early promotion, Mr. Verges served with distinction as a U.S. Army Captain in a wide variety of important engagements to include research and development of counterterrorism communication technologies and practices. Mr. Verges' early career after the Army includes time in the Computer Sciences Research and Development Department of General Motors as well as experience teaching systems engineering methodology and programming to Electronic Data Systems ("EDS") employees from 1991 to 1995. Mr. Verges' first business start-up experience was at EDS in a new division concentrating on call center technology in financial institutions. Later in 1995, he added to his start-up experience at a $30 million technology services business with the responsibility to open a new geographic region with a Greenfield operation. Mr. Verges founded Vergetech, Inc., the predecessor company to NewMarket, in 1997.
PHILIP J. RAUCH, Chief Financial Officer, has been an officer and Director of NewMarket since March, 2006. Mr. Rauch holds a Bachelor of Science in Economics degree with honors from the University of Pennsylvania, Wharton School of Business, with a concentration in finance and accounting. From February 2004 through February 2006, Mr. Rauch had been the Chief Operating and Financial Officer of Defense Technology Systems, Inc., a security products integrator. Beginning in 1997, Mr. Rauch served in a senior capacity at AboveNet, Inc. (formerly Metromedia Fiber Network, Inc.), a telecommunications infrastructure provider, as Vice President, Business Operations, and later as Controller. He is currently a member of the American Management Association.
BRUCE NOLLER, Chief Executive Officer, has been an officer of the Company since March 2008 and a Director since 2006. Previously he was President of Managed Services for the Company. Mr. Noller brings to the Company over 25 years of financial, operational and marketing experience. Mr. Noller served as President of Noller and Associates, Inc., a Dallas-based financial and business consulting firm. Previously, he served as Vice President for Integrated Control Systems, a worldwide management consulting firm. During that time, Mr. Noller proposed and oversaw engagements with a variety of industries including healthcare, distribution, manufacturing, retail, banking, insurance, mining and telecommunications. Mr. Noller has international management consulting experience in Singapore, Malaysia, China, Canada, Latin America and Europe. Mr. Noller received an MBA from the University of North Texas.
20
JAMES MANDEL, Director, has been the Chief Executive Officer and a Director of Multiband Corporation since October 1, 1998. From October 1991 to October 1996, he was Vice President of Systems for Grand Casinos, Inc., where his duties included managing the design, development, installation and on-going maintenance for the 2,000 room, $507 million Stratosphere Hotel, Casino and Tower in Las Vegas. Mr. Mandel also managed the systems development of Grand Casino Mille Lacs, in Onamia, Minnesota, Grand Casino Hinckley in Hinckley, Minnesota and six other casinos nationwide. He also serves as Chairman of the Board of CorVu Corporation and is a trustee of the Boys and Girls Club of Minneapolis.
Audit Committee and Charter
We have an audit committee and audit committee charter. Our audit committee is currently comprised of one director. A copy of our audit committee charter is filed as an exhibit to this Form 10-K. Our audit committee is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee.
Code of Ethics
We have adopted a corporate code of ethics that applies to our chief executive officer and our chief financial officer. A copy of the code of ethics is filed as an exhibit to this Form 10-K. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers, directors and 10% stockholders file reports of securities ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and 10% owners also are required to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of the Section 16(a) forms received by us, or written representations from certain reporting persons, we believe that, during the last fiscal year, all Section 16(a) filing requirements applicable our officers, directors and greater than 10%, beneficial owners were complied with.
This table summarizes the before-tax compensation for the Chief Executive Officer and Chief Financial Officer who were our only executive officers during fiscal 2009.
Summary Compensation Table:
| Long-Term | All Other | |||||||||||||||||
| Compensation | Compensation | |||||||||||||||||
| Annual | ||||||||||||||||||
| Compensation | Awards | |||||||||||||||||
| Securities | ||||||||||||||||||
| Name and | Underlying | |||||||||||||||||
| Principal Position | Year | Salary | Bonus | Options | ||||||||||||||
| Philip M. Verges | 2009 | $ | 250,000 | -- | -- | -- | ||||||||||||
| Chairman, Chief Executive Officer, | 2008 | 250,000 | -- | -- | -- | |||||||||||||
| Director | 2007 | 225,000 | -- | -- | -- | |||||||||||||
| (since June 2002) | ||||||||||||||||||
| Philip K. Rauch (1) | 2009 | $ | 200,000 | -- | -- | -- | ||||||||||||
| Chief Financial Officer, Director | 2008 | 200,000 | -- | -- | -- | |||||||||||||
| (since March 2006) | 2007 | 200,000 | -- | -- | -- | |||||||||||||
The foregoing compensation table does not include certain fringe benefits made available on a nondiscriminatory basis to all our employees such as group health insurance, dental insurance, long-term disability insurance, vacation and sick leave. In addition, we make available certain non-monetary benefits to our executive officers with a view to acquiring and retaining qualified personnel and facilitating job performance. We consider such benefits to be ordinary and incidental business costs and expenses. The aggregate value of such benefits in the case of each executive officer listed in the above table, which cannot be precisely ascertained but which is less than 10% of the cash compensation paid to each such executive officer, is not included in such table.
21
Option Grants in 2009
We maintain no stock option plan or long-term incentive plans at this time.
Option Exercises in 2009 and 2009 Year-End Option Values
We maintain no stock option plan at this time. As such, none of the executive officers listed in the Summary Compensation Table exercised stock options or held unexercised stock options during 2008.
Employment Agreements
We do not have any employment agreements in place with our officers at this time.
Director Compensation
Directors who are also our employees receive no additional remuneration for their services as directors. Beginning March 2006, non-employee directors receive a quarterly retainer of $3,000 and are reimbursed for necessary travel expenses incurred in connection with board meetings.
This table summarizes the before-tax compensation for the non-employee Board of Directors during fiscal 2008:
|
Name
|
Fees Earned or Paid in Cash ($)
|
Stock Awards ($)
|
Option Awards ($)
|
All Other Compensation ($)
|
||||||||||||
|
Hugh G. Robinson (1)
|
12,000 | -- | -- | -- | ||||||||||||
|
James Mandel
|
12,000 | -- | -- | -- | ||||||||||||
|
(1)
|
Hugh Robinson was a director of the Company since 2006 and passed away on March 1, 2010.
|
The following table sets forth as of December 31, 2009, certain information regarding beneficial ownership of the common stock held by each person known by us to own beneficially more than 5% of the Common Stock, each of our directors, each of the executive officers named in the Summary Compensation Table, and all of our executive officers and directors as a group.
Beneficial ownership is a technical term broadly defined by the SEC to mean more than ownership in the usual sense. In general, beneficial ownership includes any shares a director, executive officer or other 5% holder can vote or transfer, shares subject to stock options and warrants that are exercisable currently or become exercisable within 60 days and shares subject to convertible securities that are convertible currently or within 60 days. These shares are considered to be outstanding for the purpose of calculating the percentage of ownership of the stockholder holding these options, warrants or convertible securities, but are not considered to be outstanding for the purpose of calculating the percentage ownership of any other person. Percentage ownership is based on 30,356,128 shares of common stock and the cumulative shares of convertible preferred stock (each share of preferred stock is, at the holder's option, convertible into shares of common stock, subject to certain anti-dilution protection) outstanding as of December 31, 2009 and resulting in a fully diluted 33,385,670 shares of common stock at December 31, 2009. The conversion terms of all outstanding classes of convertible preferred stock allow the holders of such stock to convert their holding into a maximum number of shares at any given time equal to only 4.99% of the then outstanding number of shares of common stock. Except as otherwise noted, the stockholders named in this table have sole voting and dispositive power for all shares shown as beneficially owned by them.
22
|
Name of Beneficial Owner
|
Number of
Shares
|
% of
Outstanding
(1)
|
||||||
|
Philip Verges (2) (6)
|
1,150,000 | 3.4 | % | |||||
|
Bruce Noller (3)
|
20,000 | 0.1 | % | |||||
|
Philip J. Rauch (4)
|
50,000 | 0.1 | % | |||||
|
All current officers and directors
|
1,220,000 | 3.7 | % | |||||
|
Vergetech, Inc. (5) (6)
|
1,150,000 | 3.4 | % | |||||
|
(1)
|
Based on 30,356,128 shares of common stock outstanding on December 31, 2009 and the conversion of Series J Convertible Preferred shares eligible for conversion on that date.
|
|
(2)
|
Mr. Verges' address is c/o NewMarket Technology, Inc., 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
|
|
(3)
|
Mr. Noller’s address is c/o NewMarket Technology, Inc., 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
|
|
(4)
|
Mr. Rauch’s address is c/o NewMarket Technology, Inc., 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
|
|
(5)
|
VergeTech, Inc.'s address is 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
|
|
(6)
|
Mr. Verges, as the sole director and officer and the majority shareholder of VergeTech, Inc., is deemed to be the beneficial owner of VergeTech’s holdings.
|
In April 2009, GreenShield assigned 500 shares of Series J Convertible Preferred Stock to ES Horizons, Inc. a management company that is beneficially owned by Philip Verges, our Chairman of the Board. In May 2009, ES Horizons exchanged their 500 shares of Series J Convertible Preferred Stock for the issuance of 500 shares of newly authorized Series K Preferred Stock of the Company. Pursuant to the terms and rights of the Series K Preferred Stock, the holders of the Series K Preferred Shares shall have the right to vote on any matter with holders of common stock voting together as one (1) class and the holders of the Series K Preferred Shares shall have that number of votes (identical in every other respect to the voting rights of the holders of other Series of voting preferred shares and the holders of common stock entitled to vote at any Regular or Special Meeting of the Shareholders) equal to that number of shares of common stock which is not less than 51% of the vote required to approve any action, which Nevada law provides may or must be approved by vote or consent of the holders of other series of voting preferred shares and the holders of common stock or the holders of other securities entitled to vote, if any.
Summarized below is the aggregate amount of various professional fees billed by our principal accountants, Hamilton, PC in 2009 and our former accountants, Pollard-Kelley Auditing Services, Inc. (“PKASI”) in 2008:
|
|
2009
|
2008
|
||||||
|
Audit fees
|
$ | 91,500 | $ | 105,000 | ||||
|
Tax fees
|
0 | 0 | ||||||
|
|
||||||||
|
Total:
|
$ | 91,500 | $ | 105,000 | ||||
Audit Fees: Consists of fees billed for professional services rendered for the audits of our consolidated financial statements, reviews of interim consolidated financial statements included in the quarterly reports, services performed in connection with filings with the Securities & Exchange Commission letters and other services that are normally provided by principal accountants in connection with statutory and regulatory filings.
Tax Fees: Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.
23
(a) Financial Statements
The following financial statements of the Company and the related report of Independent Registered Public Accounting Firm thereon are set forth immediately following the Index of Financial Statements which appears on page F-1 of this report:
Independent Registered Public Accounting Firm Report
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
(b) Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
(c) Exhibits
|
EXHIBIT
|
||
|
NO.
|
DESCRIPTION OF EXHIBIT
|
|
|
2.1
|
Purchase Agreement dated October 14, 2003 by and among IPVoice Communications, Inc. and Intercoastal Financial Services Corporation. (Filed as Exhibit 20.1 to the Company's Current Report on Form 8-K filed October 15, 2003 and incorporated herein by reference.)
|
|
|
2.2
|
Stock Purchase Agreement dated August 26, 2003 by and between IPVoice Communications, Inc. and IP Global Voice, Inc. (Filed as Exhibit 21.0 to the Company's Current Report on Form 8-K filed September 2, 2003 and incorporated herein by reference.)
|
|
|
3.1
|
Articles of Incorporation of Nova Enterprises, Inc. (Filed as Exhibit 3.(i).1 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
3.2
|
Certificate of Amendment of Articles of Incorporation changing name to IPVoice Communications, Inc. (Filed as Exhibit 3.(i).2 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
3.3
|
Certificate of Amendment of Articles of Incorporation changing name to IPVC.com, Inc. (Filed as Exhibit 3.(i).3 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
3.4
|
Certificate of Amendment of Articles of Incorporation changing name to IPVoice.com, Inc. (Filed as Exhibit 3.(i).4 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
3.5
|
Certificate of Amendment of Correction completing the description of the Senior Convertible Preferred Shares listed in the Certificate of Amendment of Articles of Incorporation filed on April 19, 1999. (Filed as Exhibit 3.(i).5 to the Company's Quarterly Report of Form 10- QSB filed May 15, 2000 and incorporated herein by reference.)
|
24
|
3.6
|
Certificate of Amendment of the Articles of Incorporation designating the preferences, limitations and relative rights of Series B Preferred Stock. (Filed as Exhibit 3.(i).6 to the Company's Quarterly Report of Form 10-QSB filed May 15, 2000 and incorporated herein by reference.)
|
|
|
3.7
|
Certificate of Amendment of Articles of Incorporation changing name to IPVoice Communications, Inc. (Filed as Exhibit 3.(i).7 to the Company's Amendment No. 2 to Form SB-2 filed February 12, 2001 and incorporated herein by reference.)
|
|
|
3.8
|
Certificate of Amendment of the Articles of Incorporation designating the preferences, limitations and relative rights of Series C Preferred Stock. (Filed as Exhibit 3.(i).8 to the Company's Amendment No. 2 to Form SB-2 filed February 12, 2001 and incorporated herein by reference.)
|
|
|
3.9
|
Certificate of Amendment to the Articles of Incorporation increasing the authorized common stock to 100,000,000 shares. (Filed as Exhibit 3.(i).9 to the Company's Annual Report on Form 10-KSB filed May 15, 2000 and incorporated herein by reference.)
|
|
|
3.10
|
Bylaws of Nova Enterprises, Inc. (Filed as Exhibit 3.(ii).1 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.1
|
Form of Private Placement Offering Memorandum dated February 27, 1997 offering 1,600,000 common shares at $0.01 per share. (Filed as Exhibit 4.1 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.2
|
Form of Private Placement Offering Memorandum dated April 20, 1998 offering 992,500 common shares at $1.00 per share. (Filed as Exhibit 4.2 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.3
|
Form of Private Placement Offering Memorandum dated September 15, 1998 offering 100,000 common shares at $0.50 per share. (Filed as Exhibit 4.3 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.4
|
Form of Private Placement Offering Memorandum dated December 1, 1998 offering 1,000,000 common shares at $0.15 per share. (Filed as Exhibit 4.4 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.5
|
Form of Private Placement Offering Memorandum dated February 1, 1999 offering 1,250,000 common shares at $0.40 per share. (Filed as Exhibit 4.5 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.6
|
Form of Private Placement Offering Memorandum dated February 1, 1999 offering 104 Units at $25,000.00 per unit. (Filed as Exhibit 4.6 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.7
|
Form of Promissory Note for Private Placement Offering of 104 Units at $25,000 per unit. (Filed as Exhibit 4.7 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.8
|
Form of Warrant for Private Placement Offering of 104 Units at $25,000 per unit. (Filed as Exhibit 4.8 to the Company's Form 10-SB filed November 3, 1999 and incorporated herein by reference.)
|
|
|
4.9
|
Certificate of Designation, Preferences and Rights of Class C Cumulative Convertible Preferred Stock (Filed as Exhibit 10.2 to the Company's Form 8-K filed March 3, 2005 and incorporated herein by reference.)
|
25
|
4.10
|
Certificate of Designation, Preferences and Rights of Class D Cumulative Preferred Stock (Filed as Exhibit 10.3 to the Company's Form 8-K filed March 3, 2005 and incorporated herein by reference.)
|
|
|
4.11
|
Certificate of Designation, Preferences and Rights of Class J Convertible Preferred Stock. (Filed as Exhibit 4.1 to the Company's Form 8-K filed May 1, 2009 and incorporated herein by reference.)
|
|
|
4.12
|
Certificate of Designation, Preferences and Rights of Class K Preferred Stock. (Filed as Exhibit 4.1 to the Company's Form 8-K filed May 1, 2009 and incorporated herein by reference.)
|
|
|
10.1
|
Secured Convertible Promissory Note dated August 26, 2003 from IP Global Voice, Inc. (Filed as Exhibit 20.0 to the Company's Current Report on Form 8-K filed September 2, 2003 and incorporated herein by reference.)
|
|
|
10.2
|
DCI Acquisition Agreement (Filed as Exhibit 10.1 to the Company's Form 8-K filed March 3, 2005 and incorporated herein by reference.)
|
|
|
10.3
|
8% Promissory Note by and between NewMarket Technology, Inc., as Borrower, and Glenwood Partners, L.P. dated as of March 9, 2005 (Filed as Exhibit 10.3 to the Company's Form 8-K filed March 15, 2005 and incorporated herein by reference.)
|
|
|
10.4
|
Quota Purchase and Sale Agreement between NewMarket Technology, Inc., Flavio Da Silva, Marcio Pissardo, Celso Isberner, Alexandre Couto and Mind Information Services Ltda. (Filed as Exhibit 10.1 to the Company's Form 8-K filed March 8, 2006 and incorporated herein by reference.)
|
|
|
10.5
|
Agreement and Plan of Reorganization by and between NewMarket Technology, Inc., NewMarket China, Inc. and Intercell International Corp. (Filed as Exhibit 10.1 to the Company's Form 8-K filed August 11, 2006 and incorporated herein by reference.)
|
|
|
10.6
|
Stock Purchase Agreement by and between Medical Office Software, Inc., NewMarket Technology, Inc. and VirtualHealth Technology, Inc. (Filed as Exhibit 10.1 to the Company's Form 8-K filed October 12, 2006 and incorporated herein by reference.)
|
|
10.7
|
Security Agreement made as of November 30, 2007 by and among the Lenders from time to time party thereto, LV Administrative Services, Inc., as administrative and collateral agent, NewMarket Technology, Inc., IP Global Voice, Inc. NewMarket China, Inc., Netsco Inc. NewMarket Intellectual Property, Inc. and New Market Broadband, Inc. (Filed as Exhibit 10.1 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.8
|
Secured Revolving Note dated November 30, 2007 issued by NewMarket Technology, Inc. and the other companies thereto to Valens U.S. SPV I, LLC, as holder in the principal amount of $3,000,000. (Filed as Exhibit 10.2 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.9
|
Secured Convertible Term Note dated November 30, 2007 issued by NewMarket Technology, Inc. and the other companies thereto to Valens U.S. SPV I, LLC, as holder in the principal amount of $1,800,000. (Filed as Exhibit 10.3 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.10
|
Secured Convertible Term Note dated November 30, 2007 issued by NewMarket Technology, Inc. and the other companies thereto to Valens Offshore SPV II, Corp, as holder in the principal amount of $2,200,000. (Filed as Exhibit 10.4 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.11
|
Common Stock Purchase Warrant dated November 30, 2007 issued by NewMarket Technology, Inc. to Valens U.S. SPV I, LLC for 8,347,287 shares of common stock. (Filed as Exhibit 10.5 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
10.12
|
Common Stock Purchase Warrant dated November 30, 2007 issued by NewMarket Technology, Inc. to Valens Offshore SPV II, Corp for 3,825,840 shares of common stock. (Filed as Exhibit 10.6 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
26
|
10.13
|
Registration Rights Agreement dated November 30, 2007 by and between NewMarket Technology, Inc. and Valens U.S. SPV I, LLC. (Filed as Exhibit 10.7 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.14
|
Registration Rights Agreement dated November 30, 2007 by and between NewMarket Technology, Inc. and Valens U Offshore SPV II, Corp. (Filed as Exhibit 10.8 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.15
|
Stock Pledge Agreement dated November 30, 2007 by and among LV Administrative Services, Inc. as administrative and collateral agent for the Creditor Parties, as defined therein, and NewMarket Technology, Inc. (Filed as Exhibit 10.9 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
|
10.16
|
Intellectual Property Security Agreement dated November 30, 2007 by NewMarket Technology, Inc., IP Global Voice, Inc. NewMarket China, Inc., Netsco Inc. NewMarket Intellectual Property, Inc. and New Market Broadband, Inc. in favor of LV Administrative Services, Inc. as administrative and collateral agent for the Lenders, as defined in the Security Agreement. (Filed as Exhibit 10.10 to the Company's Form 8-K filed December 6, 2007 and incorporated herein by reference.)
|
|
10.17
|
Debt Restructure and Equity Reorganization Comprehensive Agreement, dated April 28, 2009 by and between NewMarket Technology, Inc., GreenShield Management Company and ES Horizon, Inc. (Filed as Exhibit 10.1 to the Company's Form 8-K filed May 1, 2009 and incorporated herein by reference.)
|
|
|
10.18
|
Debt Restructure Agreement, dated October 14, 2009 by and between NewMarket Technology, Inc., GreenShield Management Company and Timeless Investments, Ltd. (Filed as Exhibit 10.1 to the Company's Form 8-K filed October 20, 2009 and incorporated herein by reference.)
|
|
|
14.1
|
NewMarket Technology, Inc. Code of Ethics (Filed as Exhibit 14.1 to the Company’s Form 10-KSB filed March 31, 2006 and incorporated herein by reference.)
|
|
|
14.2
|
NewMarket Technology, Inc. Audit Committee Charter (Filed as Exhibit 14.1 to the Company’s Form 10-KSB filed March 31, 2006 and incorporated herein by reference.)
|
|
|
31.1 *
|
Certification of Chief Executive Officer Pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934 as amended.
|
|
|
|
||
|
31.2 *
|
Certification of Chief Financial Officer Pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934 as amended.
|
|
|
32.1 *
|
Certification of Chief Executive Officer Pursuant to 18USC Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
|
|
|
32.2 *
|
Certification of Chief Financial Officer Pursuant to 18USC Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
|
* Filed Herewith
27
In accordance with Section 13 or Section 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NewMarket Technology, Inc.
(Registrant)
|
Date:
|
April 22, 2010
|
||
|
|
By:
|
/s/ Bruce Noller
|
|
|
|
Bruce Noller
|
||
|
|
Chief Executive Officer
|
||
|
|
|||
|
|
|||
|
Date:
|
April 22, 2010
|
||
|
|
By:
|
/s/ Philip J. Rauch
|
|
|
|
Philip J. Rauch
|
||
|
|
Chief Financial Officer
|
||
28
In accordance with the Exchange Act this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
/s/ Philip M. Verges
|
Chairman of the Board
|
April 22, 2010
|
||
|
Philip M. Verges
|
||||
|
/s/ Bruce Noller
|
Chief Executive Officer and
|
April 22, 2010
|
||
|
Bruce Noller
|
Director
|
|||
|
|
||||
|
/s/ Philip J. Rauch
|
Chief Financial Officer and
|
April 22, 2010
|
||
|
Philip J. Rauch
|
Director
|
|||
|
|
||||
|
/s/ James Mandel
|
Director
|
April 22, 2010
|
||
|
James Mandel
|
29
|
Report of Independent Registered Public Accounting Firm
|
F-2 | |
|
Consolidated Balance Sheet
|
F-3 | |
|
Consolidated Statements of Operations
|
F-4 | |
|
Consolidated Statements of Stockholders’ Equity
|
F-5 | |
|
Consolidated Statements of Cash Flows
|
F-6 | |
|
Notes to Consolidated Financial Statements
|
F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
NewMarket Technology, Inc. and Subsidiaries
Dallas, Texas
We have audited the accompanying balance sheets of NewMarket Technology, Inc., and subsidiaries as of December 31, 2009, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financials statements of NewMarket Technology, Inc. and subsidiaries as of December 31, 2008, were audited by other auditors whose report dated June 12, 2009, expressed an unqualified opinion.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NewMarket Technology, Inc. and subsidiaries as of December 31, 2009, and the result of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
|
/s/ Hamilton, PC
|
|
|
Hamilton, PC
|
Denver, Colorado
April 22, 2010
F-2
|
NewMarket Technology, Inc.
|
||||||||
|
Consolidated Balance Sheet
|
||||||||
|
December 31,
|
||||||||
|
ASSETS
|
2009
|
2008
|
||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 5,620,946 | $ | 4,960,868 | ||||
|
Accounts receivable
|
30,644,855 | 17,974,496 | ||||||
|
Inventory
|
3,593,219 | 1,874,544 | ||||||
|
Prepaid expenses, deposits and other current assets
|
2,364,068 | 3,775,645 | ||||||
|
Total current assets
|
42,223,088 | 28,585,553 | ||||||
|
PROPERTY AND EQUIPMENT, NET
|
829,412 | 803,477 | ||||||
|
OTHER ASSETS
|
||||||||
|
Notes receivable including accrued interest
|
4,715,183 | 4,958,456 | ||||||
|
Investment in unconsolidated subsidiaries
|
1,492,013 | 1,311,229 | ||||||
|
Investment in restricted securities
|
- | 186,112 | ||||||
|
Available for sale securities, net of reserve of $581,000
|
303,576 | 294,000 | ||||||
|
Goodwill
|
13,569,463 | 15,104,379 | ||||||
|
Intangible property, net of accumulated amortization
|
2,597 | 212,277 | ||||||
|
Total other assets
|
20,082,832 | 22,066,453 | ||||||
|
Total assets
|
$ | 63,135,332 | $ | 51,455,483 | ||||
|
LIABILITIES AND EQUITY
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable
|
$ | 12,683,296 | $ | 8,038,083 | ||||
|
Accrued expenses
|
2,424,000 | 2,443,885 | ||||||
|
Liabilities of discontinued operations
|
342,033 | 308,683 | ||||||
|
Customer deposits
|
183,634 | 8,909 | ||||||
|
Short-term debt
|
3,107,943 | 2,356,322 | ||||||
|
Long-term debt, current portion
|
983,680 | 3,247,676 | ||||||
|
Total current liabilities
|
19,724,586 | 16,403,558 | ||||||
|
Long-term debt
|
1,131,683 | 1,208,982 | ||||||
|
Total liabilities
|
20,856,269 | 17,612,540 | ||||||
|
EQUITY
|
||||||||
|
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 4,417 and 0;
|
||||||||
|
Series K 500 and 0 shares issued and outstanding
|
||||||||
|
at December 31, 2009 and 2008, respectively
|
5 | 3 | ||||||
|
Common stock; $.001 par value; 300,000,000 shares authorized;
|
||||||||
|
30,356,105 and 11,998,431 shares issued and outstanding
|
||||||||
|
at December 31, 2009 and 2008, respectively
|
30,356 | 239,969 | ||||||
|
Deferred compensation
|
(49,375 | ) | (226,333 | ) | ||||
|
Additional paid-in capital
|
59,126,561 | 53,212,902 | ||||||
|
Accumulated comprehensive income
|
2,356,330 | 2,256,639 | ||||||
|
Accumulated deficit
|
(22,769,669 | ) | (24,352,041 | ) | ||||
|
Total NewMarket Technology, Inc. stockholders' equity
|
38,694,208 | 31,131,136 | ||||||
|
Noncontrolling interest
|
3,584,855 | 2,711,807 | ||||||
|
Total equity
|
42,279,063 | 33,842,943 | ||||||
|
Total liabilities and equity
|
$ | 63,135,332 | $ | 51,455,483 | ||||
|
See accompanying notes to consolidated financial statements.
|
||||||||
F-3
|
NewMarket Technology, Inc.
|
||||||||||||
|
Consolidated Statement of Operations
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
REVENUE
|
$ | 98,154,494 | $ | 95,104,801 | $ | 93,108,116 | ||||||
|
COST OF SALES
|
78,504,378 | 74,784,778 | 67,322,978 | |||||||||
|
Gross Margin
|
19,650,116 | 20,320,023 | 25,785,138 | |||||||||
|
OPERATING EXPENSES
|
||||||||||||
|
General and administrative expenses
|
15,171,433 | 18,958,850 | 19,836,138 | |||||||||
|
Depreciation and amortization
|
173,950 | 458,802 | 775,698 | |||||||||
|
Total expenses
|
15,345,383 | 19,417,652 | 20,611,836 | |||||||||
|
Income from operations
|
4,304,733 | 902,371 | 5,173,302 | |||||||||
|
OTHER INCOME (EXPENSE)
|
||||||||||||
|
Interest income
|
523,476 | 543,155 | 623,593 | |||||||||
|
Interest expense
|
(1,484,910 | ) | (1,125,159 | ) | (608,928 | ) | ||||||
|
Foreign currency transaction gain (loss)
|
5,549 | (1,278 | ) | (4,474 | ) | |||||||
|
Gain on debt forgiveness
|
- | - | 4,293,000 | |||||||||
|
Gain on sale of fixed assets
|
- | - | 303,631 | |||||||||
|
Goodwill impairment
|
(7,240,220 | ) | (1,457,690 | ) | ||||||||
|
Impairment of other assets
|
(2,852,608 | ) | - | |||||||||
|
Notes receivable and investment impairment
|
(12,284,638 | ) | - | |||||||||
|
Bad debt expense
|
(50,474 | ) | (6,339,105 | ) | - | |||||||
|
Lawsuit settlement expense
|
(1,020,953 | ) | (286,914 | ) | (248,433 | ) | ||||||
|
Loss on discontinued operations
|
(641,067 | ) | - | - | ||||||||
|
Other income
|
1,646,968 | 244,392 | 150,443 | |||||||||
|
Other expense
|
(196,888 | ) | (226,170 | ) | (171,172 | ) | ||||||
|
Total other income (expense)
|
(1,218,299 | ) | (29,568,545 | ) | 2,879,970 | |||||||
|
Net income before income tax (credit) and
|
||||||||||||
|
minority interest
|
3,086,434 | (28,666,174 | ) | 8,053,272 | ||||||||
|
Foreign income tax
|
(93,825 | ) | (286,581 | ) | (108,665 | ) | ||||||
|
Non-controlling interest in consolidated subsidiary
|
(1,410,235 | ) | (1,387,465 | ) | (595,775 | ) | ||||||
|
Net income (loss)
|
1,582,374 | (30,340,220 | ) | 7,348,832 | ||||||||
|
Other comprehensive income (loss)
|
||||||||||||
|
(Loss) on available-for-sale securities
|
(176,536 | ) | (581,000 | ) | - | |||||||
|
Decrease in value of derivative liability
|
- | 536,540 | - | |||||||||
|
Foreign currency translation gain
|
276,227 | 984,973 | 536,391 | |||||||||
|
Comprehensive income (loss)
|
$ | 1,682,065 | $ | (29,399,707 | ) | $ | 7,885,223 | |||||
|
Income (loss) per weighted-average common share-basic
|
$ | 0.10 | $ | (2.79 | ) | $ | 0.76 | |||||
|
Income (loss) per weighted-average common share-diluted
|
$ | 0.09 | $ | (2.79 | ) | $ | 0.69 | |||||
|
Number of weighted average common shares o/s-basic
|
15,557,148 | 10,869,655 | 9,687,865 | |||||||||
|
Number of weighted average common shares o/s-diluted
|
17,112,863 | 10,869,655 | 10,600,727 | |||||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||||||
F-4
|
NewMarket Technology, Inc.
|
||||||||||||||||||||||||||||||||||||
|
Consolidated Statement of Stockholders' Equity
|
||||||||||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
Retained
|
Total
|
|||||||||||||||||||||||||||||||||
|
Number of Shares
|
Par Value of Stock
|
Paid-In
|
Deferred
|
Comprehensive
|
Earnings/
|
Stockholders'
|
||||||||||||||||||||||||||||||
|
Preferred
|
Common
|
Preferred
|
Common
|
Capital
|
Compensation
|
Income/(Loss)
|
(Accum. Deficit)
|
Equity
|
||||||||||||||||||||||||||||
|
BEGINNING BALANCE, December 31, 2006
|
5,485 | 8,708,264 | $ | 6 | $ | 8,708 | $ | 46,005,555 | $ | (265,758 | ) | $ | 779,736 | $ | (1,360,653 | ) | $ | 45,167,594 | ||||||||||||||||||
|
Conversion of preferred stock
|
(2,033 | ) | 344,361 | (2 | ) | 344 | (342 | ) | - | |||||||||||||||||||||||||||
|
Conversion of debt to common stock
|
1,012,045 | 1,012 | 4,358,401 | 4,359,413 | ||||||||||||||||||||||||||||||||
|
Issuance of common stock for services
|
72,500 | 73 | 544,427 | (450,000 | ) | 94,500 | ||||||||||||||||||||||||||||||
|
Issuance of common stock for lawsuit settlement
|
12,500 | 13 | 106,987 | 107,000 | ||||||||||||||||||||||||||||||||
|
Amortization of deferred compensation
|
678,258 | 678,258 | ||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
536,390 | 536,390 | ||||||||||||||||||||||||||||||||||
|
Net income
|
7,348,832 | 7,348,832 | ||||||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2007
|
3,452 | 10,149,671 | 4 | 10,150 | 51,015,028 | (37,500 | ) | 1,316,126 | 5,988,179 | 58,291,987 | ||||||||||||||||||||||||||
|
Conversion of preferred stock
|
(930 | ) | 485,753 | (1 | ) | 485 | (484 | ) | - | - | - | - | ||||||||||||||||||||||||
|
Conversion of debt and interest to common stock
|
- | 831,257 | 831 | 1,182,470 | - | - | - | 1,183,301 | ||||||||||||||||||||||||||||
|
Issuance of common stock for services
|
- | 431,750 | 432 | 1,043,959 | (620,000 | ) | 424,391 | |||||||||||||||||||||||||||||
|
Issuance of common stock for law suit settlement
|
- | 100,000 | 100 | 199,900 | 200,000 | |||||||||||||||||||||||||||||||
|
Amortization of deferred compensation
|
- | 431,167 | 431,167 | |||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
- | 940,513 | 940,513 | |||||||||||||||||||||||||||||||||
|
Net income (loss)
|
- | (30,340,220 | ) | (30,340,220 | ) | |||||||||||||||||||||||||||||||
|
BALANCE, December 31, 2008
|
2,522 | 11,998,431 | 3 | 11,998 | 53,440,873 | (226,333 | ) | 2,256,639 | (24,352,041 | ) | 31,131,139 | |||||||||||||||||||||||||
|
Conversion of preferred stock
|
(1,289 | ) | 12,921,475 | (1 | ) | 12,921 | (12,920 | ) | - | |||||||||||||||||||||||||||
|
Conversion of debt and interest to preferred stock
|
3,250 | 3 | 3,249,997 | 3,250,000 | ||||||||||||||||||||||||||||||||
|
Conversion of debt and interest to common stock
|
4,783,876 | 4,784 | 1,117,601 | 1,122,385 | ||||||||||||||||||||||||||||||||
|
Issuance of preferred stock for law suit settlement
|
1,000 | 1 | 999,999 | 1,000,000 | ||||||||||||||||||||||||||||||||
|
Issuance of common stock for services
|
400,000 | 400 | 197,100 | (197,500 | ) | - | ||||||||||||||||||||||||||||||
|
Issuance of common stock for trade payables
|
252,323 | 252 | 133,911 | 134,163 | ||||||||||||||||||||||||||||||||
|
Amortization of deferred compensation
|
374,458 | 374,458 | ||||||||||||||||||||||||||||||||||
|
Other comprehensive income
|
99,691 | 99,691 | ||||||||||||||||||||||||||||||||||
|
Net income
|
1,582,374 | 1,582,374 | ||||||||||||||||||||||||||||||||||
|
ENDING BALANCE, December 31, 2009
|
5,483 | 30,356,105 | $ | 6 | $ | 30,356 | $ | 59,126,561 | $ | (49,375 | ) | $ | 2,356,330 | $ | (22,769,667 | ) | $ | 38,694,210 | ||||||||||||||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||||||||||||||||||||||||||||||
F-5
|
NewMarket Technology, Inc.
|
||||||||||||
|
Consolidated Statement of Cash Flows
|
||||||||||||
|
Year ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net Income (loss)
|
$ | 1,582,374 | $ | (30,340,220 | ) | $ | 7,348,832 | |||||
|
Adjustments to reconcile net income (loss) to net cash
|
||||||||||||
|
provided (used) by operating activities:
|
||||||||||||
|
Minority interest in consolidated subsidiary
|
1,410,235 | 1,387,465 | 595,775 | |||||||||
|
Loss on discontinued operations
|
641,067 | - | - | |||||||||
|
Depreciation and amortization
|
173,950 | 458,802 | 775,698 | |||||||||
|
Gain on sale of subsidiaries
|
- | (303,631 | ) | |||||||||
|
Forgiveness of debt
|
- | (4,293,000 | ) | |||||||||
|
Gain on capital contribution
|
- | - | ||||||||||
|
Impairment of other assets
|
2,852,608 | - | ||||||||||
|
Goodwill impairment
|
7,240,220 | 1,457,690 | ||||||||||
|
Investment impairment and notes receivable write-down
|
12,284,638 | - | ||||||||||
|
Bad debt expense
|
50,474 | 6,339,105 | - | |||||||||
|
Stock issued for services and amort. of deferred compensation
|
396,758 | 855,558 | 772,758 | |||||||||
|
Stock issued for settlement of lawsuit
|
1,020,953 | 200,000 | - | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
(Increase) decrease in accounts receivable
|
(10,670,359 | ) | 2,755,594 | (8,656,613 | ) | |||||||
|
(Increase) decrease in inventory
|
(918,675 | ) | 282,037 | (1,169,898 | ) | |||||||
|
(Increase) decrease in deposits and prepaid expenses
|
1,411,577 | 151,365 | (1,457,641 | ) | ||||||||
|
(Increase) decrease in interest receivable
|
(500,000 | ) | (500,000 | ) | (525,000 | ) | ||||||
|
Increase (decrease) in accounts payable
|
5,496,896 | 3,859,756 | 689,982 | |||||||||
|
Increase (decrease) in customer deposits
|
174,725 | 391,775 | 210,251 | |||||||||
|
Increase (decrease) in accrued expenses
|
(19,885 | ) | (445,592 | ) | 764,593 | |||||||
|
Increase (decrease) in income taxes and other payables
|
- | (4,038 | ) | 128 | ||||||||
|
Net cash provided/(used) by operating activities
|
250,090 | 7,769,073 | (3,790,076 | ) | ||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchase of property and equipment
|
(200,147 | ) | (35,059 | ) | (81,012 | ) | ||||||
|
Sale of property and equipment
|
- | 2,394,100 | ||||||||||
|
Notes receivable payments
|
743,273 | - | - | |||||||||
|
Funds advanced to affiliates
|
(180,784 | ) | (3,908,142 | ) | - | |||||||
|
Acquisition of intangible asset
|
- | (125,919 | ) | |||||||||
|
Net cash provided/(used) by investing activities
|
362,342 | (3,943,201 | ) | 2,187,169 | ||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds from short-term debt
|
751,621 | 180,815 | 1,900,000 | |||||||||
|
Payments on short-term debt
|
(2,368,514 | ) | - | |||||||||
|
Proceeds from long-term debt
|
- | 4,000,000 | ||||||||||
|
Payments on long-term debt
|
(664,000 | ) | (213,163 | ) | (1,647,680 | ) | ||||||
|
Net cash provided/(used) by financing activities
|
87,621 | (2,400,862 | ) | 4,252,320 | ||||||||
|
Effect of exchange rates on cash
|
(39,975 | ) | (1,666,386 | ) | (741,340 | ) | ||||||
|
Net increase in cash and equivalents
|
660,078 | (241,376 | ) | 1,908,073 | ||||||||
|
CASH, beginning of period
|
4,960,868 | 5,202,244 | 3,294,171 | |||||||||
|
CASH, end of period
|
$ | 5,620,946 | $ | 4,960,868 | $ | 5,202,244 | ||||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||||||
|
Interest paid in cash
|
$ | 1,484,910 | $ | 1,125,159 | $ | 608,928 | ||||||
|
Non-Cash Financing Activities:
|
||||||||||||
|
Common stock issued to settle debt
|
$ | 1,122,385 | $ | 1,009,608 | $ | 4,359,413 | ||||||
|
Preferred stock issued for acquisition of subsidiaries
|
$ | - | $ | - | $ | - | ||||||
|
Preferred stock issued to settle debt
|
$ | - | $ | - | $ | - | ||||||
|
See accompanying notes to consolidated financial statements.
|
||||||||||||
F-6
NEWMARKET TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 1 - NATURE OF OPERATION:
The Company
NewMarket Technology, Inc. (“NewMarket” or the “Company”), is a Nevada corporation which conducts business from its corporate 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 IT systems integration. The Company presently has operations in the United States, Latin America and Asia.
Significant Acquisitions
In June 2002, the Company acquired all of the assets of VergeTech Inc. (“VTI”) in exchange for a $3,000,000 promissory note convertible into 50% of the issued and outstanding shares of the Company as of the date of issuance. VTI was a privately held communications industry technology services firm founded in 1997 and headquartered in Dallas, Texas.
In 2003, the Company acquired all of the issued and outstanding stock of Infotel Technologies PTE, Ltd. ("Infotel"). The Company also acquired a majority of the issued and outstanding stock of IP Global Voice, Inc. ("IP Global Voice") as part of a strategy to accelerate business development. Infotel is a Singapore-based communications systems integration company engaged in the business of reselling and integrating specialty communication devices to various government agencies and commercial customers. IP Global Voice is a full feature voice-over-IP service provider to small and medium businesses in the San Francisco, California area.
In April 2004, the Company acquired RKM Suministros, Ltd. (“RKM”), a Venezuela-based computer systems integration company. Additionally, in July 2004, the Company expanded its telecommunications industry strategy with an equity investment in RedMoon Broadband, Inc. ("RedMoon"). RedMoon specializes in the engineering and management of municipal wireless broadband networks.
In January of 2005, the Company partnered with with Gaozhi Science and Technology in Shanghai China to establish NewMarket China, Inc. ("NewMarket China"), a wholly-owned subsidiary of NewMarket Technology. In 2005 NewMarket China formed a Chinese wholly-owned foreign entity (“WOFE”) that operates under the name Clipper Technology, Inc. (“CLPTEC”). CLPTEC is engaged in the development, implementation, integration and maintenance of technology software and supporting peripherals for computing, communications, and data exchanges. In October 2005, CLPTEC executed an agreement with Zhang Wei Lin, the Managing Director and legal representative of the Huali Group (“Huali”) which resulted in a 51% ownership in Clipper-Huali, Ltd. (“Clipper-Huali”) a newly-formed Chinese corporation. Clipper-Huali engages in the business of application software development, sale of proprietary software, value added reselling of leading business application software and the sale of system and network software. In August 2006, NewMarket China, Inc. executed an Agreement and Plan of Reorganization (the “Intercell Agreement") with Intercell International Corporation ("Intercell"). The Intercell Agreement provided for all of the issued and outstanding stock of NewMarket China, Inc., one thousand (1,000) shares held by the Company to be exchanged for two million (2,000,000) restricted common shares of Intercell. As a result of the Agreement, NewMarket China became a wholly-owned subsidiary of Intercell. Simultaneously, the Company purchased 250,000 shares of newly designated Series A Preferred Stock from Intercell for an aggregate purchase price of $250,000. The shares of Series A Preferred Stock may be converted into that number of authorized but unissued common shares of Intercell, which shall be equal to 60% ownership of the Company after giving effect to such issuance on and as of the date of conversion. In January 2007, Intercell’s name was changed to NewMarket China to reflect the new operations of the business. In June 2008, NewMarket China’s name was changed to China Crescent Enterprises, Inc. (“China Crescent”).
F-7
In 2005, NewMarket expanded a partnership with TekVoice Communications, Inc. (“TekVoice”) to include the acquisition of an equity interest in TekVoice. TekVoice is a Hispanic and Latin America VoIP service provider. In December 2007, TekVoice was acquired by AlterNet Systems, Inc. (“AlterNet”) through a reverse merger and the Company received 336,800 shares of AlterNet as a result of this transaction. (See Note 7).
In May 2005, NewMarket executed a stock purchase agreement to acquire 51% percent ownership of Vera Technology Inc (“Vera”). In a simultaneous agreement, Vera acquired Classified Information Inc. (“CI”). NewMarket exchanged $1.3 million in preferred stock for Vera preferred stock of equal value that includes fifty-one percent voting rights. CI provides a proprietary and patented, secure data exchange solution. In August 2006, the Company executed an agreement with Vera under which the Company sold its majority interest in Vera to the existing management of Vera in consideration for $5,000 in cash and a $1.3 million unsecured promissory note. The note matures in twenty years, however the principal repayment may be accelerated provided that Vera meets certain financial milestones.
In June 2005, NewMarket acquired substantially all of the assets of Corsa Networks Technologies, Inc. (“Corsa”), a five-year-old IP systems integration firm specializing in the construction of secure communication networks. These assets were being operated in conjunction with the operations of IP Global Voice. The Company decided to discontinue the operations of both IP Global Voice and Corsa effective November 1, 2009. (See Note 3).
In February 2006, the Company entered into a Quota Purchase and Sale Purchase Agreement with the founders of UniOne Consulting Ltda., a Brazilian limited liability company, (“UniOne”), to acquire the founders’ 100% interest in UniOne. The purchase price to be paid by the Company is $6,460,320. The purchase price is payable in tranches through the end of 2010. UniOne, located in Sao Paolo, Brazil, is a systems integrator, developer and business practice implementation company, providing support for the integration and maintenance of enterprise software applications.
In April 2009, China Crescent issued 750 shares of Series B Convertible Preferred Stock to Huali in connection with the acquisition by CLPTEC of an additional 25% interest in Clipper-Huali. In the fourth quarter of 2009, China Crescent acquired 100% of Dalian Aoyuan Electronic Technology Services Co., Ltd. (“DAETS”), a systems integration company located in Dalian, China and 100% of Shenzhen Newbao Technology Co., Ltd. (“Newbao”), a wireless equipment manufacturer located in Shenzhen, China
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements have been prepared by management in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), and include all assets, liabilities, revenues and expenses of the Company, its wholly-owned or majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation
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.
F-8
Principles of Consolidation
The Company accounts for its investments in affiliates and subsidiaries in accordance with Accounting Standards Codification (“ASC”) 810-10, Consolidation. The Company uses two different methods to report its investments in its 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.
Equity Method
The Company uses the equity method to report investments in businesses where it holds 20% to 50% equity 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 December 31, 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 of Financial Instruments
The fair values of the Company’s cash and cash equivalents, accounts receivable, accounts payable, and lines of credit approximate their carrying amounts due to the short maturities of these instruments.
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.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company evaluates the collectability of its accounts receivable based on a combination of factors. Collection risks are mitigated by (i) sales to well-established companies and governmental agencies (ii) ongoing credit evaluation of its customers; and (iii) frequent contact by the Company with its customers which enables the Company to monitor changes in business operations and to respond accordingly. The Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, the current business environment and historical experience.
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.
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.
F-9
Long-Lived Assets and Other Intangible Assets
Long-lived assets, such as property, plant and equipment and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.
Revenue Recognition
As a result of the multiple acquisitions from 2003 through 2009, 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 IT outsourcing, 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 maintains significant operations in The People's Republic of China, Brazil, Venezuela and Singapore. The local currency is the functional currency. Accordingly, gains and losses from the translation of the financial statements of the foreign subsidiaries are reported as a component of accumulated comprehensive income as a separate component of stockholders’ equity. Assets and liabilities denominated in currencies other that the U.S. dollar are remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities, and historical exchange rates for nonmonetary assets and liabilities. Net revenue, cost of sales and expenses are remeasured at average exchange rates in effect during each reporting period, and net revenue, cost of sales and expenses related to the previously reported periods are remeasured at historical exchange rates. The Company includes gains and losses from foreign currency in net earnings.
Stock-Based Compensation
The Company recognizes the cost of stock-based compensation plans and awards in operations on a straight-line basis over the respective vesting period (if applicable) of the awards. The Company measures and recognizes compensation expense for all stock-based awards made to employees and directors. The compensation expense for the Company’s stock-based payments is based on estimated fair values at the time of the grant.
The Company estimates the fair value of stock-based awards on the date of the grant using an options pricing model. These option pricing models involve a number of assumptions, including the expected lives of stock options, the volatility of the market price of our common stock and interest rates. The Company is using the Black-Scholes option pricing model.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period presented. Diluted net income (loss) per share for the period is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares (“dilutive securities”) that were outstanding during the period. Dilutive securities include stock warrants, convertible debt and convertible preferred stock.
F-10
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income (loss) consists of its net income (loss), the change in the currency translation adjustment and the change in unrealized gain (loss) on certain available-for-sale securities.
Derivative Instruments
ASC 815-10, Derivatives and Hedging, 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 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.
Intangibles
ASC 350-10, Intangibles-Goodwill and Other, requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provision of ASC 350. This standard also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.
Investment in Unconsolidated Subsidiaries
The Company’s investment in affiliates at December 31, 2009, is composed of an 8% equity position in Red Moon and de minimus investments in several other companies. 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 December 31, 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.
Recently Issued Accounting Pronouncements
In June, 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 105-10, Generally Accepted Accounting Principles (“GAAP”) (“ASC 105-10”) (the “Codification”). ASC 105-10 established the exclusive authoritative reference for U.S. GAAP for use in financial statements, except for SEC rules and interpretative releases, which are also authoritative for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. The Company has included the references to the Codification, as appropriate, in these consolidated financial statements.
In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements (“ASU 2009-13”) which established guidance for accounting for multiple-deliverable revenue arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable; eliminates the residual method of allocation and requires arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method; and requires a vendor to determine its best estimate selling price in a manner consistent with that used to determine the selling price of the deliverable on a stand-alone basis. This guidance also expands the required disclosures related to a vendor’s multiple-deliverable revenue arrangements. The guidance is effective beginning July 15, 2010 with early adoption permitted. The Company does not believe the adoption of this standard will have a material impact on its results of operations, financial condition, cash flows or disclosures.
F-11
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820-10”), to require additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. This guidance is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.
NOTE 3 – 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.
On November 1, 2009, the Company discontinued the operations of the IP Global Voice/Corsa subsidiary.
At December 31, 2009, the carrying values of those assets and liabilities (presented as assets and liabilities of discontinued operations) are as follows:
|
IPGV/
|
|||||||||
|
Brunetti
|
Corsa
|
||||||||
|
Cash
|
$ | 9,377 | $ | - | |||||
|
Prepaid expenses
|
- | 121,205 | |||||||
|
Accounts receivable
|
171,852 | ||||||||
|
Intangibles
|
208,426 | ||||||||
|
Fixed assets
|
- | 36,464 | |||||||
| Total assets | $ | 9,377 | $ | 537,947 | |||||
|
Accounts payable
|
$ | 179,473 | $ | 147,110 | |||||
|
Related party payable
|
25,035 | - | |||||||
|
Accrued expenses
|
93,440 | 424,186 | |||||||
|
Short-term debt
|
10,735 | - | |||||||
| Total liabilities | $ | 308,683 | $ | 571,296 | |||||
F-12
Brunetti reported no revenues or income during the year ended December 31, 2009.
NOTE 4 - STOCKHOLDERS’ EQUITY:
Preferred Stock
The Company has authorized 10,000,000 shares of $0.001 par value preferred stock. The rights and privileges of the preferred stock are to be determined by the Board of Directors prior to issuance.
In April 2009, the Company entered into a Debt Restructure and Equity Reorganization Comprehensive Agreement ("Debt Restructure") with GreenShield Management Company ("GreenShield"), 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 GreenShield and 500 shares of the newly authorized Series K Preferred Stock to ES Horizon.
Additionally, pursuant to the Debt Restructure, in the third quarter of 2009 GreenShield 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 Convertible Preferred Stock.
In October 2009, the Company entered into a Debt Restructure Agreement ("Second Debt Restructure") with GreenShield and Timeless Investments, Ltd. ("Timeless"). Timeless held $2.0 million in debt (the "Note Participation") purchased in October 2009 from Valens Offshore SPV II Corp. and Valens Offshore SPV I, Ltd. (see Note 7). Timeless assigned $500,000 of the Note Participation to GreenShield in October 2009. The $2.0 million of total debt had a maturity date of November 10, 2010.
Pursuant to the Second Debt Restructure, Timeless agreed to convert $1.5 million of the Note Participation into 1,500 shares of the Company’s Series J Convertible Preferred Stock. In addition, GreenShield also agreed to convert $500,000 of Note Participation into 500 shares of the Company's Series J Preferred Stock. Both GreenShield and Timeless waived any rights to and forgave any unpaid interest, fees or penalties that may have been due under the Note Participation.
In the fourth quarter of 2009, the Company issued 1,000 shares of Series J Convertible Preferred Stock pursuant to a legal settlement. (See Note 12).
For the year ended December 31, 2009, the Company issued 12,921,475 shares of common stock pursuant to the conversion of 355 shares of Series F Preferred Stock and 934 shares of Series J Convertible Preferred Stock.
The following is a summary of the shares of preferred stock outstanding as of December 31, 2009:
|
|
·
|
The Company had 4,417 shares of Series J Convertible Preferred Stock outstanding at December 31, 2009. Each share of Series J preferred stock has a stated value of $1,000 per share, has no voting rights, and is convertible into common stock of the Company at an effective conversion price of the VWAP of the common stock for the twenty consecutive trading days prior to the date of conversion. The shares do not pay a dividend and there is no mandatory conversion feature.
|
|
|
·
|
The Company had 500 shares of Series K Preferred Stock outstanding at December 31, 2009. These shares were issued in April 2009 in conjunction with the Company entering into the Debt Restructure.
|
The shares of preferred stock represented approximately 3,029,542 shares of common stock, had they been elected to be converted on December 31, 2009.
F-13
Common Stock
The Company has authorized 300,000,000 shares of $0.001 par value common stock. The Company had 30,356,128 shares of common stock issued and outstanding at December 31, 2009. In June 2009, the Company filed a Definitive Information Statement on Schedule 14C indicating that the Company had authorized a reverse split of the common stock issued and outstanding on a one new share for twenty old shares basis. This action was effective in July, 2009 and the Consolidated Balance Sheet and Statement of Shareholder’s Equity has been adjusted to reflect the effect of the reverse stock split.
During the year ended December 31, 2009, the Company issued 18,357,674 shares of common stock for the following:
|
|
·
|
The Company issued 720,782 shares of common stock pursuant to the conversion of 355 shares of Series F Preferred Stock.
|
|
|
·
|
The Company issued 12,200,693 shares of common stock pursuant to the conversion of 934 shares of Series J Convertible Preferred Stock.
|
|
|
·
|
The Company issued 400,000 shares of common stock pursuant to consulting agreements with two firms to provide investor relations services for a one-year period. The shares were issued at various prices with a total value of $197,500 and the expense is being amortized over the period of the contract.
|
|
|
·
|
The Company issued 252,323 shares of common stock to two parties for payment of legal services rendered. The shares were valued at $134,163.
|
|
|
·
|
The Company issued 4,783,876 shares of common stock to service convertible debt and accrued interest. The shares were valued at $1,122,385.
|
NOTE 5 - 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 7). Pursuant to the terms of this financing, the Company issued five year warrants to purchase a total of 608,656 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 option valuation model. These warrants had a value of $0 at December 31, 2009 using the Black-Scholes option valuation model.
NOTE 6 - AVAILABLE FOR SALE SECURITIES:
As of December 31, 2009, the Company owns 1.4 million shares of common stock of VirtualHealth Technologies, Inc. (“VirtualHealth”) and 336,800 shares of AlterNet. These shares have been classified as available for sale securities in which unrealized gains (losses) are recorded to shareholders’ equity. At December 31, 2009, all shares held by the Company of VirtualHealth and AlterNet common stock are tradable. Based upon the closing price of $0.20 per share, the market value of the VirtualHealth common shares at December 31, 2009 was $280,000. Based upon the closing price of $0.07 per share, the market value of the AlterNet common shares at December 31, 2009 was $23,576.
NOTE 7 - INDEBTEDNESS:
2007 Financing
On November 30, 2007, the Company and certain of its subsidiaries 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 committed to advance up to $3,000,000 to the Company (the “Revolving Note”).
F-14
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.
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 3,825,840 shares of common stock of the Company to Valens Offshore and warrants to purchase 8,347,287 shares of common stock of the Company to Valens US which are exercisable at a price of $0.22 per share (see Note 4).
In October, 2008, the Revolving Note was cancelled by the Company and the amount outstanding under the Revolving Note was $0.
In April 2009, a third party purchased $1.25 million in principal value of the Notes from the Creditor Parties. In October 2009, two parties purchased the remaining principal balance of the Notes from the Creditor Parities. The debt, inclusive of accrued interest, was exchanged for the issuance of certain preferred securities. (See Note 4). Pursuant to this transaction all security interests previously granted to the Creditor Parties was released.
For the year ended December 31, 2009, the Company issued 4,783,876 shares of common stock pursuant the conversion of principal and accrued interest.
Revolving Lines of Credit
As of December 31, 2009, the Company’s Unione subsidiary had a revolving line of credit with a local financial institution:
F-15
|
Annual
|
Amount
|
||||||||||||
|
Credit
|
Interest
|
Due
|
Outstanding
|
||||||||||
|
Institution
|
Line
|
Rate
|
Date
|
at 12/31/09
|
|||||||||
|
Banco Itau
|
1,153,200 | (1 | ) |
6/30/10
|
1,071,449 | ||||||||
|
Total:
|
$ | 1,153,200 | $ | 1,071,449 | |||||||||
(2) The interest rate for this line of credit varies monthly. At December 31, 2009, the annual interest rate was approximately 19.1%.
This line of credit is secured by the accounts receivable of the operating subsidiary.
Short-Term Debt
As of December 31, 2009, the Company’s China Crescent Enterprises and RKM subsidiaries had several unsecured promissory notes outstanding with different local financial institutions:
|
Annual
|
Amount
|
||||||||
|
Interest
|
Maturity
|
Outstanding
|
|||||||
|
Institution
|
Rate
|
Date
|
at 12/31/09
|
||||||
|
Shanghai Pudong Development Bank
|
5.78 | % |
12/4/10
|
$ | 395,662 | ||||
|
Shanghai Pudong Development Bank
|
5.31 | % |
12/14/10
|
$ | 952,520 | ||||
|
Guangdong Development Bank
|
(2 | ) |
1/31/10
|
$ | 548,887 | ||||
|
National Bank of Credit, VZ
|
24 | % |
3/09/10
|
$ | 69,712 | ||||
|
National Bank of Credit, VZ
|
24 | % |
6/01/10
|
$ | 69,713 | ||||
|
Total:
|
$ | 2,036,494 | |||||||
(2) The interest rate for these notes is variable based on an official government rate. At December 31, 2009, the annual interest rate was approximately 6%.
NOTE 8 - EARNINGS PER SHARE:
Basic and diluted net income (loss) per share (“EPS”) is computed by dividing net income (loss) (the numerator) by the weighted average number of common shares outstanding (the denominator), during the period. Diluted EPS gives effect to potentially dilutive common shares outstanding during the period, except in periods where it is anti-dilutive.
The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share for the periods presented below (in thousands, except per share data):
|
Year ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net income (loss), as reported
|
$ | 1,582,374 | $ | (30,340,220 | ) | |||
|
Basic earnings per share:
|
||||||||
|
Basic weighted average shares outstanding
|
15,557,148 | 10,869,655 | ||||||
|
Basic earnings per common share
|
$ | 0.10 | $ | (2.79 | ) | |||
|
Diluted earnings per share:
|
||||||||
|
Basic weighted average shares outstanding
|
15,557,148 | 10,869,655 | ||||||
|
Effective of dilutive instruments
|
1,555,715 | - | ||||||
|
Diluted weighted average shares outstanding
|
17,112,863 | 10,869,655 | ||||||
|
Diluted earnings per common share
|
$ | 0.09 | $ | (2.79 | ) | |||
F-16
NOTE 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 $3,195,700 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 December 31, 2009, is approximately $5,496,000, 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 $5,496,000, as the Company has no long-term history of profitable operations at the parent company level, in substantive amount necessary to utilize this asset. The significant components of the net deferred tax asset as of December 31, 2009 are:
|
Net operating losses
|
$ | 0 | ||
|
Goodwill amortization
|
5,496,000 | |||
|
Valuation allowance
|
(5,496,000 | ) | ||
|
Net deferred tax asset
|
$ | 0 |
NOTE 10 - FAIR VALUE MEASUREMENT:
The Company has adopted the provisions of ASC 820-10, Fair Value Measurements and Disclosures, with respect to its non-financial assets and liabilities effective January 1, 2009. The adoption of ASC 820-10 did not have a material impact on the Company’s consolidated financial statements.
NOTE 11 - OTHER COMPREHENSIVE INCOME:
Balances of related after-tax components comprising accumulated other comprehensive income, included in stockholders’ equity, at December 31, 2009 was as follows:
|
Foreign Currency
|
(Loss) on
|
Gain on
|
||||||||||
|
Translation
|
For-Sale
|
Derivative
|
||||||||||
|
Adjustment
|
Securities
|
Liability
|
||||||||||
|
Balance at January 1, 2007
|
$ | 779,736 | $ | - | $ | - | ||||||
|
Change for the year ended December 31, 2007
|
536,390 | - | - | |||||||||
|
Balance at January 1, 2008
|
1,316,126 | - | - | |||||||||
|
Change for the year ended December 31, 2008
|
984,973 | (581,000 | ) | 536,540 | ||||||||
|
Balance at December 31, 2008
|
2,301,099 | (581,000 | ) | 536,540 | ||||||||
|
Change for the year ended December 31, 2009
|
276,227 | (176,536 | ) | - | ||||||||
|
Balance at December 31, 2009
|
$ | 2,577,326 | $ | (757,536 | ) | $ | 536,540 | |||||
F-17
NOTE 12 - SEGMENT INFORMATION:
The Company is primarily engaged in one operating segment: IT systems integration. Based on the geographic location of the Company’s customers, the following table presents revenues attributable to the United States and revenues attributable to foreign countries, as a percentage of total revenue:
|
Years ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
United States
|
29 | % | 30 | % | ||||
|
China
|
46 | % | 44 | % | ||||
|
Singapore
|
3 | % | 3 | % | ||||
|
Brazil
|
14 | % | 18 | % | ||||
|
Venezuela
|
8 | % | 5 | % | ||||
| 100 | % | 100 | % | |||||
NOTE 13 - 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, 2010. 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.
We have incurred expenses related to the settlement of lawsuits of $1,020,953 and $286,914 for the years ended December 31, 2009 and 2008, respectively.
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following interim financial information presents the 2009 and 2008 results of operations on a quarterly basis (in thousands, except per share amounts):
F-18
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||
|
2009:
|
||||||||||||||||
|
Revenues
|
$ | 19,335 | $ | 24,539 | $ | 31,707 | $ | 22,573 | ||||||||
|
Operating income
|
(159 | ) | 2,025 | 1,592 | 847 | |||||||||||
|
Net income (loss)
|
(474 | ) | 1,209 | 1,555 | (708 | ) | ||||||||||
|
Income (loss) per share, basic
|
$ | (0.04 | ) | $ | 0.09 | $ | 0.11 | $ | (0.06 | ) | ||||||
|
Income (loss) per share, diluted
|
$ | (0.04 | ) | $ | 0.09 | $ | 0.10 | $ | (0.06 | ) | ||||||
|
2008:
|
||||||||||||||||
|
Revenues
|
$ | 20,922 | $ | 22,769 | $ | 32,379 | $ | 19,035 | ||||||||
|
Operating income
|
1,342 | 1,235 | 2,203 | (3,878 | ) | |||||||||||
|
Net income (loss)
|
1,161 | 843 | 1,754 | (34,098 | ) | |||||||||||
|
Income (loss) per share, basic
|
$ | 0.08 | $ | 0.07 | $ | 0.15 | $ | (3.09 | ) | |||||||
|
Income (loss) per share, diluted
|
$ | 0.08 | $ | 0.07 | $ | 0.15 | $ | (3.09 | ) | |||||||
15. SUBSEQUENT EVENTS (UNAUDITED):
In the first quarter of 2010, the Company issued 51,128,543 shares of common stock pursuant to the conversion of 1,171 shares of Series J Convertible Preferred Stock.
F-19