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EX-31.1 - EXHIBIT 31.1 - NewMarket Technology Inca6697527ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
 
Commission File Number: 000-27917

NEWMARKET TECHNOLOGY, INC.
(Exact name of Registrant as Specified in Its Charter)
 
NEVADA
 
65-0729900
(State or other Jurisdiction of
 
(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
 
 
(Registrant’s Telephone Number, Including Area Code)
 
 
 
 
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 oNo 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 oNo 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 oNo o
 
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):
 
 
Large Accelerated Filer o
 
Accelerated Filer o
 
Non-Accelerated Filer  o
 
Smaller Reporting Company þ
 
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, 2010:     $1,290,958

DOCUMENTS INCORPORATED BY REFERENCE:

None
 
 
 

 
 
NewMarket Technology, Inc.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
 
PART I
3
 
Item 1.
Description of Business
3
 
Item 1A.
Risk Factors
9
 
Item 1B.
Unresolved Staff Comments
14
 
Item 2.
Description of Properties
14
 
Item 3.
Legal Proceedings
14
 
Item 4.
(Removed and Reserved)
14
       
PART II
14
 
Item 5.
Market for Common Equity and Related Stockholder Matters
14
 
Item 6.
Selected Financial Data
15
 
Item 7.
Management’s Discussion and Analysis of Financial Condition
 
   
And Results of Operations
15
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
18
 
Item 8.
Financial Statements and Supplementary Data
18
 
Item 9.
Changes in and Disagreements with Accountants on
 
   
Accounting and Financial Disclosure
18
 
Item 9A.
Controls and Procedures
19
 
Item 9B.
Other Information
19
       
PART III
20
 
Item 10.
Directors and Executive Officers of the Registrant
20
 
Item 11.
Executive Compensation
21
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management
22
 
Item 13.
Certain Relationships and Related Transactions
23
 
Item 14.
Principal Accountant Fees and Services
23
       
PART IV
24
 
Item 15.
Exhibits and Financial Statement Schedules
24
 
Signatures
28
 
Index to Financial Statements
F-1
 
 
 

 
 
PART I

ITEM 1.                      DESCRIPTION OF BUSINESS

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 was 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 IT Suministros, SA (“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 domestic economic and credit climate at that time 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. (“UniOne”), a Brazilian limited liability company, to acquire the founders’ 100% interest in UniOne.  The purchase price paid by the Company was $6,460,320.   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 2009.

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 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 Shenzhen Nubao Technology Co., Ltd. (“Nubao”), an original design manufacturer (“ODM”) of wireless products located in Shenzhen, China and 100% of Dalian Aoyuan Electronic Technology Services Co., Ltd. (“DAETS”), a systems integration company located in Dalian, China.

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 have been a re-seller of Greenfield Partnership Program participant company technologies and provided basic back office support to the companies as they establish and grow their operations. Additionally, we provided cross-selling channels for participant companies with complementary technologies. Greenfield Program participant companies included Alternet, Savannah East Africa, Inc. (“Savannah”), World Series of Golf, Inc. and NuMobile, Inc. (“NuMobile”). During 2010 we further implemented the program with multiple initiatives in several developing economic regions, including India and Vietnam.  After analyzing the program, we decided to discontinue the Greenfield Partnership Program at the end of the first quarter of 2011.

In February 2010, Philip Verges, the founder of the Company, resigned as Chief Executive Officer.  He remains Chairman of the Board.  Bruce Noller, previously the President of our Managed Services division, was appointed President and Chief Executive Officer by our Board of Directors, effective February 1, 2010.

In March 2010, General Hugh G. Robinson (ret.), a member of our Board of Directors since 2006, passed away.  His Board position has not been replaced.  We are currently considering potential replacement candidates.

In the second quarter of 2009, we announced an agreement under which Worldwide Strategies, Inc. (“Worldwide”) would acquire our Latin American operations through a proposed reverse merger transaction.  In June 2010, we ended discussions with Worldwide as we were unable to successfully negotiate the terms of a definitive agreement for the proposed transaction.
 
In October 2010, we entered into a stock purchase agreement (the “TuneIn Agreement")  with  TuneIn Media, Inc.  ("TuneIn") under which TuneIn acquired from us all of the outstanding capital stock of Infotel, such that Infotel became a wholly-owned subsidiary of TuneIn, and TuneIn issued to us 2,000 shares of their Series B Preferred Stock. As the holder of the Series B Preferred Stock, we own 51% of the voting power of TuneIn’s shareholders.  TuneIn’s name was subsequently changed to SEA-Tiger, Inc. (“SEA-Tiger”) to reflect the new operations of the business.

In October 2010, we entered into a non-binding letter of intent with an India-based firm to enter into a business development agreement as part of our plan to expand our operations into India. India is a recognized global technology services outsourcing resource, and we have been developing plans to expand our outsourcing services, established in 2009, through geographic expansion into India.

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 committed to advance up to $3,000,000 us (the “Revolving Note”).  The unpaid principal and accrued interest under the Notes and the Revolving Note were due and payable on November 30, 2010 (the "Maturity Date"). The interest on the Notes and the Revolving Note were payable monthly, in arrears, commencing on December 1, 2007.
 
 
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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 had to option to convert a portion of the Monthly Amount into shares of the Company’s common stock.

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 $44.00 per share.

In 2008, at our request, the Revolving Note was cancelled.

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:

Our business model has evolved over several years in an effort to ultimately achieve an optimal approach to continuously introduce new technology products and services to the market.  However, our management came to the conclusion that the increasing complexity of our model was not advancing the company closer to its ultimate objective, so in 2010 we began to simplify our business model and narrow our objectives.  We ended our previous plan of continuously acquiring early stage technology companies.  We also terminated the corresponding development of marketing strategies for those technologies. Alternatively, we began a ‘partnering’ approach to developing these emerging technology opportunities.

In 2009 we launched an initiative to implement a ‘partnering’ approach under which we assisted early stage companies in delivering their particular offerings to market. We branded this new strategy “The Greenfield Partnership Program” and it was our intention to offer integration and support services that would enhance our partner’s ability to execute their respective business plans.  During 2010 we implemented the program with multiple initiatives in several developing economic regions, including India and Vietnam.  Our management subsequently concluded that the partnership approach did not sufficiently reduce complexity or substantially improve performance.  At the end of the first quarter of 2011, we terminated the Greenfield Partnership Program.

Currently, we are applying our resources more narrowly on increasing revenue and profit through improved localized operational efficiencies in our core systems integration and information technology support services.  We have succeeded in building a substantial systems integration and information technology support services organization with operations in China, Southeast Asia, South America and North America.  However, the global IT systems integration and support services market has become dominated by large corporations such as IBM and Hewlett-Packard.  Considering the commodity pricing nature of the products in the current market environment, it is becoming more challenging for smaller companies to compete effectively as scale is critical to long-term success.  Based on our relative size, we believe it will be increasingly more difficult to access the level of financing required to support the Company in transitioning from a small to medium size firm.  Management has concluded that our global operations are likely to be more valuable to our shareholders by pursuing a strategy that concentrates on developing each regional operation into a niche systems integration and technology support services provider within their respective operational regions.

Our business strategy will continue to evolve.  Our current direction is aimed at simplifying our overall strategy by concentrating on building shareholder value through positioning each regional operation as a more significant niche provider within its specific area of operation.  We anticipate updating and refining our business strategy throughout the year as our new direction progresses.
 
 
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Our Principal Products/Services:

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. Our various competitors include IBM, Hewlett-Packard 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 becoming the recognized go-to local niche provider in the geographic regions in which we operate.  Our systems integrations services include:
 
Customer Resource Management (CRM)
Enterprise Resource Planning (ERP)
Business intelligence
Financial management, including accounting, budgeting and financial reporting
Network security
 
Revenue/Products Breakdown:

To date, our revenues have come primarily in the following product areas:
 
software licensing
technical consulting
systems integration products and services
 
Our Customers:

We have two major types of customers: large and small national and international corporations, such as Petrobras, 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 both domestically and internationally in developing economies, including Asia and Latin America.

Major Suppliers:

Our principal suppliers are provided below:
 
Microsoft
SAP
Cisco Systems
Sun Microsystems
Oracle
Juniper Networks
Hewlett-Packard
Lenovo
Dell
 
Although there can be no assurances, management believes that we have good relations with each of our principal suppliers.

Patents, Trademarks and Licenses:

We no longer hold a provisional patent for a previous RFID shipping management product. 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:
 
IPVoice
MultiCom
AuditRite
TrueConnect
TruePartner
4Com
ICB Connect
IP Jack-in-the-Box (stylized mark)
COMMUNICATIONS OUT OF THE BOX
IPVoice.net
IPVoice.com
FLAT5
FLAT25
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.

Future Regulation:

Due to the increasing popularity and use of the Internet, it is possible that additional laws and regulations, both domestically and internationally, may be adopted with respect to the Internet, covering issues such as:
 
content
privacy
access to adult content by minors
pricing
bulk e-mail
encryption standards
consumer protection
electronic commerce
taxation
copyright infringement
other intellectual property issues
 
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, foreign or domestic, 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 may be 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, 2010 and 2009, respectively.
 
 
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Employees:

We currently have over 500 employees, the majority of whom reside and work regionally at one of our subsidiary operations in Asia and Latin America. 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 a link on our website under ‘Investor Relations’, 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.


ITEM 1A.                      RISK FACTORS

This Annual Report contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those discussed in this Annual Report.  These risks and uncertainties include, but are not limited to, the following:

Risks Related to Our Company

While we have been profitable over the last few years, we cannot be certain that we will not incur monthly and/or quarterly operating losses from time to time in the future.

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.

Given our operating history, it will be difficult to predict our future results. You should consider the uncertainties that we may encounter as a technology company in a rapidly evolving market. These uncertainties include:
 
Market acceptance of our products or services
Consumer demand for, and acceptance of, our products, services and follow-on products
Our ability to create user-friendly applications
Our unproven and evolving business model
 
We will need to achieve greater revenues, better margins, and/or reduce operating expenses in order to maintain profitability. There can be no assurance that we will be successful in increasing revenues, generating acceptable margins and reducing operating expenses.  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. These fluctuations may be attributed to several factors, including the introduction of new products by competitors, pricing pressures, the timing of the completion and/or the cancellation of projects, the evolving and unpredictable nature of the markets in which our products and services are sold and economic conditions in general 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 give any assurances 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.. 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
to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis
 
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.

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.
 
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. 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 may 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:
 
is not complementary to the business
is difficult to assimilate into the business
subjects the Company to possible liability for technology or product defects
involves substantial additional costs exceeding estimated costs
 
In addition, we also face the following risks in connection with acquisitions:
 
we may spend significant funds conducting negotiations and due diligence regarding a potential acquisition that may not result in a successfully completed transaction
we may be unable to negotiate acceptable terms of an acquisition
if financing is required to complete the acquisition, we may be unable to obtain such financing on reasonable terms, if at all
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
 
From time to time, we evaluate the various components of our portfolio of businesses and may, as a result, decide to acquire or divest businesses or enter into joint ventures or strategic alliances. These acquisitions, divestitures, joint ventures and alliances affect our costs, revenues, profitability and financial position. We may also consider the acquisition of specific assets or businesses that fall outside our traditional lines of business if we deem such properties sufficiently attractive. If we fail to manage the risks associated with acquisitions, divestitures, joint ventures or other alliances, our business, financial condition, and results of operations could be materially and adversely affected.
 
 
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Divestitures have inherent risks, including possible delays in closing transactions (including potential difficulties in obtaining regulatory approvals), the risk of lower-than-expected sales proceeds for the divested business, unexpected costs associated with the separation of the business to be sold, and potential post-closing claims for indemnification.  In addition, adverse economic or market conditions may result in fewer potential bidders and unsuccessful sales efforts.  Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize due to our fixed cost structure.

Acquisitions also involve risks, including difficulties in integrating acquired operations, diversions of management resources, debt incurred in financing these acquisitions (including the related possible reduction in our credit ratings and increase in our cost of borrowing), differing levels of management and internal control effectiveness at the acquired entities and other unanticipated problems and liabilities. Competition for certain types of acquisitions is significant. Even if successfully negotiated, closed and integrated, certain acquisitions or investments may prove not to advance our business strategy and may fall short of expected return on investment targets.

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.

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. Our various competitors include IBM, Hewlett-Packard 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.

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 ongoing global economic issues have led in some cases 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
 
Recently, U.S. public companies that have substantial operations in China, particularly companies like ours that have completed so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the United States Securities and Exchange Commission. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of such scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed China-based companies has sharply decreased in value and, in some cases, has become virtually worthless. Furthermore, many of these companies are conducting internal and external investigations into such allegations and in the interim are subject to trading halts, SEC investigative and enforcement actions and shareholder lawsuits. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. Such a development would be costly and time consuming and would distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations will be severely harmed and your investment in our stock could be rendered worthless.
 
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 majority of our 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.

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 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.
 
 
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Substantially all of our revenues in China are generated from China Crescent’s subsidiary, Clipper Technology, Ltd. (“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 or NewMarket 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 business activities in 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.

Substantially all of the sales of our RKM subsidiary are generated from business activities in Venezuela. We anticipate that sales of our products and services in Venezuela will continue to represent a substantial majority of RKM’s total sales in the near future. Any significant decline in the condition of the Venezuelan economy or changes in governmental stability, rules and regulations there 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.
 
 
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Risks Related to Our Capital Stock

The public market for our common stock may be volatile and you could lose all or part of your investment.

In the recent past, stocks, specifically those traded on the over-the counter (“OTC”) markets, generally have experienced high levels of volatility.  Our common stock is traded on the OTC market under the symbol “NMWT” and is not eligible for trading on any national or regional securities exchange or the Nasdaq National Market.   A more active trading market for our common stock may never develop, or if such a market develops, it may not be sustained.

The market price of our common stock has been and is likely to continue to be significantly affected by various factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.  These fluctuations could cause you to lose all or part of your investment in our common stock as you may be unable to sell your shares at or above the price you paid.  Factors that could cause fluctuations in the trading  price of our stock include but are not limited to:
 
 
Price and volume fluctuations in the overall stock market from time to time
 
Significant volatility in the market prices and trading volume of technology stocks
 
Significant volatility in the market prices and trading volume of OTC stocks
 
Actual or anticipated fluctuations in our quarterly or annual operating results
 
Actual or anticipated changes in the expectations of investors or the recommendations of any securities analysts who follow our stock
 
The public’s reaction to our press releases, other public announcements and filings
 
Litigation involving the Company, our industry or both or investigations by regulators into our operations or those of our competitors
 
New laws or regulations or new interpretations of existing laws or regulations applicable to our business or operations
 
Changes in accounting standards policies, guidelines, interpretations or principles
 
Discontinued operations, layoffs or corporate actions
 
General economic conditions or industry conditions or trends
 
Limited market making activity and research coverage
 
Changes in our management team
 
Issuances of additional shares of common stock or other securities
 
In the past, many companies that have experienced volatility in the market price of their stock have become subject to securities class action litigation.  We may be the target of this type of litigation in the future.  Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

The Securities and Exchange Commission (“SEC”) has adopted regulations which generally define a “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” and is subject to the “penny stock” rules of the SEC.  The trading market in our securities is limited which makes transactions in our stock cumbersome and may reduce the value of an investment in our common 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.

Our Company is controlled by a single majority shareholder that is beneficial controlled by our Chairman of the Board.  As a result, for the foreseeable future this majority shareholder will be able to control our overall direction.  This majority shareholder could conceivably control the outcome of matters requiring stockholder approval and could be able to elect all of our officers and directors. Such control, which may have the effect of delaying, deferring or preventing a change of control, significantly diminishes control and influence which existing and future shareholders may have in our Company.

Our stock has frequently been on the Regulation SHO threshold list.  Regulation SHO requires the stock exchanges to publish daily a list of companies whose stock has failures-to-deliver above a certain threshold. It also requires mandatory close-outs for open fail-to-deliver positions in threshold securities persisting for over 13 days, with the aim that no security would appear on the threshold for any extended period. Despite that aim, our common stock has frequently appeared on the Regulation SHO threshold list for extended and continuous periods and we are currently on the Regulation SHO threshold list.

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 issued and outstanding preferred stock has certain preferences over our common stock with regard to liquidation, dividends and election of directors.  Our preferred stock holds a preference in liquidation over our common stock. Certain classes of our outstanding preferred stock and outstanding convertible debt are subject to conversion into common stock at the option of the holder upon the occurrence of certain enumerated events and may contain provisions that may limit our ability to raise additional capital if needed. In addition, any such conversionof either preferred stock or debt will dilute our existing and future 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.
 
 
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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.
 
Any investment in our securities involves a high degree of risk. Investors should consider carefully the risks and uncertainties described above, and all other information in this Form 10-K and in any reports we file with the SEC after we file this Form 10-K, before deciding whether to purchase or hold our securities. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business. The occurrence of any of the risks described in this Form 10-K could harm our business. The trading price of our securities could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.
 
 
ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.                      DESCRIPTION OF PROPERTY

Principal Executive Offices

As of December 31, 2010, 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 expired on December 31, 2010 and we continue to rent the location on a month-to-month basis.  Our monthly rental payments are $3,100. We have a number of leases for office space associated with our subsidiary operating companies in China, Southeast Asia and Latin America.

ITEM 3.                      LEGAL PROCEEDINGS

From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. 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.
 
In January 2010, Ingram Micro, Inc. (“Ingram”), a supplier to our IP Global Voice operating subsidiary, obtained a judgment in California Superior Court for approximately $730,000 against IP Global Voice for payment of past due invoices.  As the operations of this subsidiary were discontinued in November 2009, Ingram moved to enforce a corporate guarantee we had previously provided them in conjunction with a line of credit they had provided IP Global Voice.  In the second quarter of 2010, we executed a settlement agreement with Ingram under which a third party agreed to pay Ingram in full settlement of all claims related to this action in exchange for (i) our issuance to the third party of a $715,000 8% unsecured convertible promissory note, and; (ii) a release by Ingram from all claims and judgments related to this action.
 
We have incurred expenses related to the settlement of lawsuits of $715,000 and $1,020,953 for the years ended December 31, 2010 and 2009, respectively.

We are not aware of any contemplated legal proceeding by a governmental authority in which we may be involved.

ITEM 4.                      (REMOVED AND RESERVED)


PART II

ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is presently traded on the over-the-counter market maintained by the OTC Markets Group, Inc. under the symbol “NWMT.”  The following table summarizes the high and low prices for our common stock of each of the calendar quarters of 2010 and 2009:
 
 
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2010
   
2009
 
   
High
   
Low
   
High
   
Low
 
First Quarter
    10.80       2.22       168.00       80.00  
Second Quarter
    3.80       1.02       128.00       84.00  
Third Quarter
    0.84       0.08       122.00       80.00  
Fourth Quarter
    0.22       0.12       84.00       12.00  
 
On December 27, 2010, we effected a 200-for-1 reverse split of our common stock.  The numbers above have been adjusted to reflect this action.

Number of Shareholders:

As of December 31, 2010, there were 169 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.

Dividend Policy

We have not declared any cash dividends on our common stock during our fiscal years ended on December 31, 2010 or 2009.  Our Board of Directors has made no determination to date to declare cash dividends during the foreseeable future, but is not likely to do so.  There are no restrictions on our ability to pay dividends.


ITEM 6.                 SELECTED FINANCIAL DATA

Not applicable.


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The majority of our revenue since inception has been through sales of IT systems integration products and services. Our business model has evolved over several years in an effort to ultimately achieve an optimal approach to continuously introduce new technology products and services to the market.  However, our management came to the conclusion that the increasing complexity of our model was not advancing the company closer to its ultimate objective, so in 2009 we began to simplify our business model and narrow our objectives. We began a ‘partnering’ approach to developing these emerging technology opportunities.   In early 2010, we ended our previous plan of continuously acquiring early stage technology companies.  We also terminated the corresponding development of marketing strategies for those technologies.

In 2009 we began to implement this ‘partnering’ approach under which we assisted early stage companies in delivering their particular offerings to market. We branded this new strategy “The Greenfield Partnership Program” and it was our intention to offer integration and support services that would enhance our partner’s ability to execute their respective business plans.  During 2010 we further implemented this program with multiple initiatives in several developing economic regions, including India and Vietnam.  Our management subsequently concluded that the partnership approach did not sufficiently reduce complexity or substantially improve performance.  At the end of the first quarter of 2011, we terminated the Greenfield Partnership Program.
 
 
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Currently, we are applying our resources more narrowly on increasing revenue and profit through improved localized operational efficiencies in our core systems integration and information technology support services.  We have succeeded in building a substantial systems integration and information technology support services organization with operations in China, Southeast Asia, South America and North America.  However, the global IT systems integration and support services market has become dominated by large corporations such as IBM and Hewlett-Packard.  Considering the commodity pricing nature of the products in the current market environment, it is becoming more challenging for smaller companies to compete effectively as scale is critical to long-term success.  Based on our relative size, we believe it will be increasingly more difficult to access the level of financing required to support us in transitioning from a small to medium size firm.  Management has concluded that our global operations are likely to be more valuable to our shareholders by pursuing a strategy that concentrates on developing each regional operation into a niche systems integration and technology support services provider within their respective operational regions.

Our business strategy will continue to evolve.  Our current direction is aimed at simplifying our overall strategy by concentrating on building shareholder value through positioning each regional operation as a more significant niche provider within its specific area of operation.  We anticipate updating and refining our business strategy throughout the year as our new direction progresses.

Revenue in fiscal year 2010 was $118,315,613 which resulted in net income of $2,588,298.  We expect that additional capital will be required to support our business objectives; however, no specific capital plan exists.  Current considerations entail raising capital directly to our operating subsidiaries and reducing or eliminating the use of our common stock for future capital plans.

Results of Operations

Fiscal Years Ended December 31, 2010 and 2009

Net sales increased 21% from $98,154,494 for the year ended December 31, 2009 to $118,315,613 for the year ended December 31, 2010.  Sales of systems integration products and services and wireless networking equipment through our Chinese subsidiaries increased 71% in 2010, primarily as a result of the acquisition of two new subsidiaries in the fourth quarter of 2009.   As a result of domestic economic conditions, sales of systems integration products and services domestically were essentially flat in 2010. Sales of systems integration products and services through our Latin American subsidiaries increased 9% in 2010, primarily in Brazil.

Cost of sales increased 29% from $78,504,378 for the year ended December 31, 2009 to $101,040,691 for the year ended December 31, 2010. 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 85% and 80% for the years ended December 31, 2010 and 2009, respectively.  Competitive economic conditions domestically and internationally put pricing pressure on our product and service offerings which resulted in a lower gross margin in 2010

General and administrative expenses for the year ended December 31, 2010 were $11,202,813 compared to $15,171,433 for the year ended December 31, 2009, a decrease of 26%.  The decrease in general and administrative expenses was primarily due to a reduction in headcount in our Brazilian operating subsidiary, offset by an increase in expenses associated with the acquisition of the two new CLPTEC subsidiaries in Dalian and Shenzhen, China.

Other expenses for the year ended December 31, 2010 were $1,777,110 compared to other expenses of $1,218,299 for the year ended December 31, 2009, an increase of 46%. This increase is primarily attributable to a loss on the disposition of available-for-sale securities, the write-off of a note receivable and a 64% decrease in other income, offset by a 63% decrease in interest expense.

Depreciation and amortization expense decreased 5% from $173,950 for the year ended December 31, 2009 to $164,905 for the year ended December 31, 2010. 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 $2,588,298 for the year ended December 31, 2010 compared to net income of $1,582,374 for the year ended December 31, 2009, after accounting for the non-controlling interest in consolidated subsidiaries. Comprehensive net income, which is adjusted to compensate for the risk associated with foreign profits and the potential conversion of foreign currency, as well as the change in value of available-for-sale securities held by us, decreased from comprehensive income of $1,682,065 for the year ended December 31, 2009 to comprehensive income of $881,253 for the year ended December 31, 2010.

Liquidity and Capital Resources

Cash Flow Activities

Our cash balance decreased $1,616,840 from $5,620,946 as of December 31, 2009, to $4,004,106 as of December 31, 2010.  The decrease was the result of cash used by investing activities of $9,234,667 and the effect of exchange rates on cash of $1,598,468, offset by cash provided by operating activities of $3,439,039 and cash provided by financing activities of $5,777,256.  Operating activities for the year ended December 31, 2010 exclusive of changes in operating assets and liabilities provided $4,256,723, as well as a decrease in inventory of $1,615,016, an increase in accounts payable and accrued expenses of $1,240,902 and an increase in customer deposits of $83,285, offset by an increase in accounts and interest receivable of $2,703,721, and an increase in prepaid expenses of $1,053,166.
 
 
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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.

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, 2010.
 
 
17

 

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, 2010 and 2009, we recorded impairment charges of $0 and $0, 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).

Recent Accounting Pronouncements

(See “Recently Issued Accounting Pronouncements” in Note 2 of Notes to the Consolidated Financial Statements.)


ITEM 7A.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Exchange Rate Risk

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.

ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The full text of our audited consolidated financial statements as of December 31, 2010 and 2009 begins on page F-1 of this annual report.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISLCOSURE

None.
 
 
18

 

ITEM 9A.                      CONTROLS AND PROCEDURES

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, 2010.
 
(b) Management’s Report on Internal Control over Financial Reporting
 
 Our management is responsible for establishing and maintaining adequate internal control over financial reposting and the assessment of the effectiveness of internal control over financial reporting.  As defined by the SEC, internal control over financial reporting is a process designed by, or under the supervision of our principal executive officer and principal financial officer and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles.

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.

As of December 31, 2010, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework.   Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

A material weakness is defined within the Public Company Accounting Oversight Board’s Auditing Standard No. 5 as 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. Based upon this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2010.

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 of the SEC that permit the Company to provide only management’s report in this annual report.

(c)   Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.                      OTHER INFORMATION

None.
 
 
19

 

PART III

ITEM 10.                      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth information with respect to the sole executive officer and directors of NewMarket Technology, Inc. as of April 26, 2011:
 
Name
 
Age
 
Position
Philip M. Verges
 
46
 
Chairman of the Board
Philip J. Rauch
 
50
 
Chief Financial Officer, Director
James Mandel
 
58
 
Director
Bruce Noller
 
54
 
Chief Executive Officer, Director
 
Biographical Information on Officers and Directors

PHILIP VERGES, Chairman of the Board, previously managed the Company since June 2002. He was the Chief Executive Officer of the Company until February 1, 2010.  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") employee. 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.. 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. He was appointed Chief Executive Officer of the Company on February 1, 2010.  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.

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., a gaming company.  Mr. Mandel also serves on the Board of Directors of GeoSpan Corporation, a geospatial imaging company and Independent Multi-Family Communications Council, a national trade group for the private cable industry.  Among other attributes, skills and qualifications, the Board believes that Mr. Mandel is qualified to serve as a Director based on his long service to Multiband both as its Chief Executive Officer and as a Director, and his resulting deep familiarity with Multiband’s operations and its industry.  In addition, his prior executive management experience in the casino industry and his current experiences as a private company director of companies in industries different than Multiband’s industry provide the Board with a broad range of knowledge regarding management and operational strategies.

Committees of the Board of Directors

We  presently  do not  have an  audit  committee,  compensation  committee, nominating  committee,  an executive committee of our board of directors,  stock plan committee or any other committees.

Code of Ethics

Our Board of Directors has adopted a Code of Business Conduct and Ethics.  A copy of the code of ethics is filed as an exhibit to this Form 10-K.

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.
 
 
20

 

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.

ITEM 11.                      EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by our named Executive Officers during the last three fiscal years and other officers who received compensation in excess of $100,000 during any of the last three fiscal years. In accordance with Item 402(a)(5), we have omitted certain columns from the table required by Item 402(c).
 
Summary Compensation Table
                           
                 
Stock or
       
Name &
   
Salary
   
Bonus
   
Option Grants
   
Total
 
Position
Year
 
($)
   
($)
   
($)
   
($)
 
                           
Philip Verges
2010
  $ 200,000     $ 0     $ 0     $ 200,000  
Chairman (1)
2009
  $ 250,000     $ 0     $ 0     $ 250,000  
 
2008
  $ 250,000     $ 0     $ 0     $ 250,000  
                                   
Philip J. Rauch
2010
  $ 200,000     $ 0     $ 0     $ 200,000  
CFO
2009
  $ 200,000     $ 0     $ 0     $ 200,000  
 
2008
  $ 200,000     $ 0     $ 0     $ 200,000  
                                   
Bruce Noller
2010
  $ 218,750     $ 0     $ 0     $ 218,750  
CEO (2)
2009
  $ 150,000     $ 0     $ 0     $ 150,000  
 
2008
  $ 150,000     $ 0     $ 0     $ 150,000  
 
(1)  Mr. Verges resigned as Chief Executive Officer effective February 1, 2010.
(2)  Mr. Noller was appointed as President and Chief Executive Officer effective February 1, 2010.
 
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.

Option Grants in 2010

We maintain no stock option plan or long-term incentive plans at this time.

Option Exercises in 2010 and 2010 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 2010.

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.
 
 
21

 

This table summarizes the before-tax compensation for the non-employee Board of Directors during fiscal 2010:
 
Name of
 
Fees Earned
   
Stock Awards
   
Option Awards
   
All Other
 
Director
 
($)
   
($)
   
($)
   
Compensation ($)
 
                         
Hugh G. Robinson (1)
  $ -     $ -     $ -     $ -  
James Mandel
  $ 12,000     $ -     $ -     $ -  
 
 
(1)
General Robinson was a director of the Company since 2006 and passed away unexpectedly on March 1, 2010.

ITEM 12.                      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of December 31, 2010, 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.
 
 
22

 
 
Name of Beneficial Owner
 
Number of
Shares of
Common
Stock
   
% of
Common
Stock Issued and
Outstanding
(1)
   
Number
of Shares
of Series
K
Preferred
Stock (2)
   
% of Series
K Preferred
Stock
Issued and
Outstanding
   
% of All
Voting
Shares
(3)
 
                               
Philip Verges  (4) (7) (8)
    5,570    
<0.01%
      500       100 %     51.00 %
Bruce Noller  (5)
    -       -       -       -       -  
Philip J. Rauch  (6)
    -       -       -       -       -  
                                         
All current officers and directors
    5,570    
<0.01%
      500       100 %     51.00 %
                                         
ES Horizons, Inc. (9)
    -       -       500       100 %     51.00 %
 
(1)
Based on 10,964,272 shares of common stock outstanding on December 31, 2010 and the conversion of Series J Convertible Preferred shares and convertible debt eligible for conversion on that date for a total issued and outstanding on a fully diluted basis of 12,605,623 shares.
(2)
Based on 500 shares of Series K Preferred Stock issued and outstanding,  which are deemed to be the equivalent of 51% of all shares of Common Shares represented at and entitled to vote at any shareholder meeting of the Company.
(3)
Based on 10,964,272 shares of common stock outstanding on December 31, 2010 and the conversion of Series J Convertible Preferred shares and convertible debt eligible for conversion and the Series K Preferred Stock being able to vote 51% of all shares of common stock issued and outstanding, the Series K Preferred Stock is equal to 13,120,138 shares of voting common stock.
(4)
Mr. Verges' address is c/o NewMarket Technology, Inc., 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
(5)
Mr. Noller’s address is c/o NewMarket Technology, Inc., 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
(6)
 Mr. Rauch’s address is c/o NewMarket Technology, Inc., 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
(7)
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.
(8)
Mr. Verges’ owns 99% of ES Horizons, Inc. and as such has the ability to vote the 500 shares of the Series K Preferred Stock.
(9)
ES Horizon, Inc.’s address is 14860 Montfort Drive, Suite 210, Dallas, Texas 75254.
 
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

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 Ccommon 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.

Director Independence

Our Board of Directors currently consists of four directors.  James Mandel was the only “independent” director during 2010 as such term is defined by a national securities exchange or an inter-dealer quotation system.

ITEM 14.                      PRINCIPAL ACCOUNTANT FEES AND SERVICES

Summarized below is the aggregate amount of various professional fees billed by our principal accountants, Hamilton, PC in 2010 and 2009, respectively:
 
 
 
2010
   
2009
 
 
           
             
Audit fees
  $ 95,500     $ 91,500  
Audit-related fees
    0       0  
Tax fees
    0       0  
All other fees
    0       0  
Total:
  $ 95,500     $ 91,500  
 
23

 
 
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.


PART IV


ITEM 15.                      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(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:
 
Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2010 and 2009
 
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
 
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2010 and 2009
 
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
 
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.)
 
 
24

 
 
   
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.)
   
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.)
 
 
25

 
 
   
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.)
   
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.)
 
 
 
26

 
 
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.)
 
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

 


Signatures

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 26, 2011
 
 
 
By: /s/ Bruce Noller
 
Bruce Noller
 
Chief Executive Officer
   
Date:   April 26, 2011
 
   
   
 
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
   
Philip M. Verges
Chairman of the Board
April 26, 2011
 
   
     
/s/ Bruce Noller
   
Bruce Noller
Chief Executive Officer and
April 26, 2011
 
Director
 
     
/s/ Philip J. Rauch
   
   Philip J. Rauch
Chief Financial Officer and
April 26, 2011
 
Director
 
     
/s/ James Mandel
   
   James Mandel
Director
April 26, 2011
     
     
 
 
29

 
 

INDEX TO FINANCIAL STATEMENTS



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 consolidated balance sheets of NewMarket Technology, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2010. These consolidated 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.

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.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NewMarket Technology, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of operations and cash flows for each of the two years ended in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.


 
/s/  Hamilton, PC
 
Hamilton, PC



Denver, Colorado
April 26, 2011

 
F-2

 
 

NewMarket Technology, Inc.
Consolidated Balance Sheet
December 31,
 
             
ASSETS
 
2010
   
2009
 
CURRENT ASSETS
           
Cash and cash equivalents
  $ 4,004,106     $ 5,620,946  
Accounts receivable
    32,290,112       30,644,855  
Inventory
    1,978,203       3,593,219  
Prepaid expenses, deposits and other current assets
    3,417,234       2,364,068  
Total current assets
    41,689,655       42,223,088  
                 
PROPERTY AND EQUIPMENT, NET
    618,795       829,412  
                 
OTHER ASSETS
               
Notes receivable including accrued interest
    6,039,239       4,715,183  
Investment in unconsolidated subsidiaries
    2,551,447       1,492,013  
Available for sale securities, net of reserve of $125,500
    60,624       303,576  
Goodwill
    20,966,352       13,569,463  
Intangible property, net of accumulated amortization
    2,201       2,597  
Total other assets
    29,619,863       20,082,832  
Total assets
  $ 71,928,313     $ 63,135,332  
                 
                 
LIABILITIES AND EQUITY
               
CURRENT LIABILITIES
               
Accounts payable
  $ 12,848,563     $ 12,683,296  
Accrued expenses
    2,845,850       2,424,000  
Liabilities of discontinued operations
    52,872       342,033  
Customer deposits
    266,919       183,634  
Short-term debt
    10,614,148       3,107,943  
Long-term debt, current portion
    -       983,680  
Total current liabilities
    26,628,352       19,724,586  
                 
Long-term debt
    386,414       1,131,683  
                 
Total liabilities
    27,014,766       20,856,269  
                 
                 
EQUITY
               
Preferred stock; $.001 par value; 10,000,000 shares authorized;
               
Series C 925 and 925; Series E 41 and 41; Series J 2,108 and 4,417;
               
Series K 500 and 500 shares issued and outstanding
               
at December 31, 2010 and 2009, respectively
    4       5  
Common stock; $.001 par value; 2,000,000,000 shares authorized;
               
10,964,272 and 151,781 shares issued and outstanding
               
 at December 31, 2010 and 2009, respectively
    10,964       30,356  
Deferred compensation
    -       (49,375 )
Additional paid-in capital
    59,914,798       59,126,561  
Accumulated comprehensive income
    649,285       2,356,330  
Accumulated deficit
    (20,181,369 )     (22,769,669 )
Total NewMarket Technology, Inc. stockholders' equity
    40,393,682       38,694,208  
Noncontrolling interest
    4,519,865       3,584,855  
Total equity
    44,913,547       42,279,063  
                 
Total liabilities and  equity
  $ 71,928,313     $ 63,135,332  
                 
See accompanying notes to consolidated financial statements.
               

 
F-3

 

NewMarket Technology, Inc.
Consolidated Statement of Operations
Year ended December 31,
 
             
   
2010
   
2009
 
REVENUE
  $ 118,315,613     $ 98,154,494  
                 
COST OF SALES
    101,040,691       78,504,378  
                 
Gross Margin
    17,274,922       19,650,116  
                 
OPERATING EXPENSES
               
General and administrative expenses
    11,202,813       15,171,433  
Depreciation and amortization
    164,905       173,950  
Total expenses
    11,367,718       15,345,383  
                 
Income from operations
    5,907,204       4,304,733  
                 
OTHER INCOME (EXPENSE)
               
Interest income
    530,602       523,476  
Interest expense
    (553,666 )     (1,484,910 )
Foreign currency transaction gain (loss)
    (149,462 )     5,549  
Bad debt expense
    (558,464 )     (50,474 )
Lawsuit settlement expense
    (715,000 )     (1,020,953 )
Loss on discontinued operations
    -       (641,067 )
Loss on sale of investment securities
    (763,000 )        
Other income
    585,818       1,646,968  
Other expense
    (153,938 )     (196,888 )
Total other income (expense)
    (1,777,110 )     (1,218,299 )
                 
Net income before income tax (credit) and
               
minority interest
    4,130,094       3,086,434  
Foreign income tax
    (606,786 )     (93,825 )
Non-controlling interest in consolidated subsidiary
    (935,010 )     (1,410,235 )
                 
Net income
    2,588,298       1,582,374  
Other comprehensive income
               
Gain/(loss) on available-for-sale securities
    632,048       (176,536 )
Foreign currency translation gain/(loss)
    (2,339,093 )     276,227  
                 
Comprehensive income
  $ 881,253     $ 1,682,065  
                 
Income  per weighted-average common share-basic
  $ 0.95     $ 20.34  
Income  per weighted-average common share-diluted
  $ 0.59     $ 18.49  
                 
Number of weighted average common shares o/s-basic
    2,714,942       77,786  
Number of weighted average common shares o/s-diluted
    4,356,293       85,564  
                 
See accompanying notes to consolidated financial statements.
               

 
F-4

 
 
NewMarket Technology, Inc.
   
Consolidated Statement of Stockholders' Equity
 
                                             
Retained
       
                           
Additional
         
Accumulated
   
Earnings/
   
Total
 
   
Number of Shares
   
Par Value of Stock
   
Paid-In
   
Deferred
   
Comprehensive
   
(Accum.
   
Stockholders'
 
   
Preferred
   
Common
   
Preferred
   
Common
   
Capital
   
Compensation
   
Income
   
Deficit)
   
Equity
 
BEGINNING BALANCE, December 31, 2008
    2,922       59,993     $ 3     $ 60     $ 53,452,811     $ (226,333 )   $ 2,256,639     $ (24,352,041 )   $ 31,131,139  
Conversion of preferred stock
    (1,289 )     64,607       (1 )     64       (64 )                             (1 )
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
      23,919               24       1,122,361                               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
            2,000               2       197,498       (197,500 )                     -  
Issuance of common stock for
trade payables
      1,262               1       134,162                               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  
BALANCE, December 31, 2009
    5,883       151,781       6       151       59,156,764       (49,375 )     2,356,330       (22,769,667 )     38,694,209  
Conversion of preferred stock
    (2,309 )     6,498,198       (2 )     6,498       (6,496 )                             0  
Conversion of debt and interest
to common stock
      2,840,319               2,840       407,160                               410,000  
Issuance of common stock for
trade payables
      1,473,974               1,474       357,370                               358,844  
Amortization of deferred compensation
                                            49,375                       49,375  
Other comprehensive income
                                                    (1,707,045 )             (1,707,045 )
Net income
                                                            2,588,298       2,588,298  
ENDING BALANCE, December 31, 2010
    3,574       10,964,272     $ 4     $ 10,964     $ 59,914,798     $ -     $ 649,285     $ (20,181,369 )   $ 40,393,682  
                                                                         
See accompanying notes to consolidated financial statements.
                                                 
 
F-5

 

NewMarket Technology, Inc.
Consolidated Statement of Cash Flows
Year ended December 31,
 
             
   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 2,588,299     $ 1,582,374  
Adjustments to  reconcile net income to net cash
               
provided (used) by operating activities:
               
Minority interest in consolidated subsidiary
    945,055       1,410,235  
Loss on discontinued operations
    -       641,067  
Depreciation and amortization
    164,905       173,950  
Bad debt expense
    558,464       50,474  
Stock issued for services and amort. of deferred compensation
    -       396,758  
Stock issued for settlement of lawsuit
    -       1,020,953  
Changes in operating assets and liabilities:
               
(Increase) decrease in accounts receivable
    (2,203,721 )     (10,670,359 )
(Increase) decrease in inventory
    1,615,016       (918,675 )
(Increase) decrease in deposits and prepaid expenses
    (1,053,166 )     1,411,577  
(Increase) decrease in interest receivable
    (500,000 )     (500,000 )
Increase (decrease) in accounts payable
    819,052       5,496,896  
Increase (decrease) in customer deposits
    83,285       174,725  
Increase (decrease) in accrued expenses
    421,850       (19,885 )
Net cash provided by operating activities
    3,439,039       250,090  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    -       (200,147 )
Sale of property and equipment
    45,712       -  
Notes receivable payments
    -       743,273  
Funds advanced for unconsolidated subsidiaries
    (1,059,434 )        
Funds advanced to affiliates
    (824,056 )     (180,784 )
Acquisition of intangible asset
    (7,396,889 )        
Net cash provided/(used) by investing activities
    (9,234,667 )     362,342  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from short-term debt
    7,506,205       751,621  
Payments on long-term debt
    (1,728,949 )     (664,000 )
Net cash provided by financing activities
    5,777,256       87,621  
                 
Effect of exchange rates on cash
    (1,598,468 )     (39,975 )
                 
Net increase/(decrease) in cash and equivalents
    (1,616,840 )     660,078  
                 
CASH, beginning of period
    5,620,946       4,960,868  
                 
CASH, end of period
  $ 4,004,106     $ 5,620,946  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
         
Interest paid in cash
  $ 553,666     $ 1,484,910  
                 
Non-Cash Financing Activities:
               
Common stock issued to settle debt
  $ 410,000     $ 1,122,385  
Preferred stock issued for acquisition of subsidiaries
  $ -     $ -  
Common stock issued to settle trade payables
  $ 358,844     $ -  
                 
See accompanying notes to consolidated financial statements.
               


 
F-6

 

NEWMARKET TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010

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 was 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.  UniOne’s stockholders were issued a note payable by the Company for the purchase price of approximately $6.5 million.  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 Shenzhen Nubao Technology Co., Ltd. (“Nubao”), an original design manufacturer (“ODM”) of wireless products located in Shenzhen, China and 100% of Dalian Aoyuan Electronic Technology Services Co., Ltd. (“DAETS”), a systems integration company located in Dalian, China.

 In October 2010, the Company entered into a stock purchase agreement (the “TuneIn Agreement")  with  TuneIn Media, Inc.  ("TuneIn") under which TuneIn acquired from the Company all of the outstanding capital stock of Infotel, such that Infotel became a wholly-owned subsidiary of TuneIn, and TuneIn issued to the Company 2,000 shares of Series B Preferred Stock. As the holder of the Series B Preferred Stock, the Company owns 51% of the voting power of TuneIn’s shareholders.  TuneIn’s name was subsequently changed to SEA-Tiger, Inc. (“Sea- Tiger”) to reflect the new operations of the business.

 
F-8

 
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.

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, 2010, 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.

 
F-9

 
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.

 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.

 
F-10

 
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.

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, 2010, 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, 2010, 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.

 
F-11

 
Recently Issued Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements.  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 adoption of this guidance did not have a material impact on the Company’s financial statements.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  ASU No. 2010-20 requires companies that hold financing receivables, which include loans, lease receivables, and the other long-term receivables to provide more information in their disclosures about the credit quality of their financing receivables and the credit reserves held against them.   The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In December 2010, the FASB issued ASU 2010-28 which amends “Intangibles- Goodwill and Other” (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances changes that would more likely than not reduce the faire value of a reporting unit below its carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In December 2010, the FASB issued ASU 2010-29 which address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s financial statements.

NOTE 3 – DISCONTINUED OPERATIONS:

As of result of the Intercell Agreement (see Note 1), China Crescent assumed the assets and liabilities of Intercell which included the discontinued operations of its Brunetti, LLC subsidiary (“Brunetti”).  These operations were discontinued in October 2004 and in March 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 its IP Global Voice/Corsa subsidiary.

At December 31, 2010, the carrying values of those assets and liabilities (presented as assets and liabilities of discontinued operations) are as follows:
 
 
 
F-12

 
     
China
   
IPGV/
 
     
Crescent
   
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
    -       424,186  
Short-term debt
    10,735       -  
                   
 
Total liabilities
  $ 215,243     $ 571,296  
 
NOTE 4 – NON-CONTROLLING INTEREST:

Non-controlling interest represents the minority stockholders’ proportionate share of equity in our China Crescent and SEA-Tiger subsidiaries.  As of December 31, 2010, we owned 60% of the capital stock of China Crescent and 51% of the capital stock of SEA-Tiger, representing voting control and a majority interest.  Our controlling ownership interest requires that the operations of those subsidiaries be included in the Condensed Consolidated Financial Statements contained herein.  The equity interest that is not owned by us is shown as “Non-controlling interest in consolidated subsidiary” in the Consolidated Statement of Operations and the Consolidated Balance Sheet.  As of December 31, 2010, our minority interest shareholders held a $4,519,865 interest in the net asset value of our China Crescent and SEA-Tiger subsidiaries.

NOTE 5 - 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. ES Horizon is a Nevada corporation which the Company's Chairman, Mr. Philip Verges, is a 99% owner.

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.

 
F-13

 
 
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.

For the year ended December 31, 2010, the Company issued 6,498,198 shares of common stock pursuant to the conversion of 2,309 shares of Series J Convertible Preferred Stock.

The following is a summary of the shares of preferred stock outstanding as of December 31, 2010:

·  
The Company had 925 shares of Series C preferred stock outstanding at December 31, 2010.  The shares were issued in 2003 in conjunction with the Company’s acquisition of Infotel (see Note 1).  Each share of Series C 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 volume-weighted average closing price (“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 41 shares of Series E preferred stock outstanding at December 31, 2010.  The shares were issued in 2004 in conjunction with the Company’s acquisition of RKM (see Note 1). Each share of Series E 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 2,108 shares of Series J Convertible Preferred Stock outstanding at December 31, 2010.  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 holders of the Series J Preferred Stock can only convert a portion of those shares such that at no time does their beneficial ownership exceed 4.99% of the outstanding shares of common stock.  At December 31, 2010, such a conversion would have represented 1,094,234 shares of common stock.
·  
The Company had 500 shares of Series K Preferred Stock outstanding at December 31, 2010.  These shares were issued in April 2009 in conjunction with the Company entering into the Debt Restructure (see above).  The Series K  Preferred  Stock has a par  value of  $0.001  and does not bear a dividend or a have a liquidation preference or any conversion rights.  The Series K Preferred Stock  provides the holder of the shares a right to vote in any matters with the holders the Common  Stock voting  together as one class.  The 5,000 shares of Series K Preferred  Shares have a number of votes equal to the  number  of shares  of  Common  Stock  that is not less than 51% of the vote required to approve any action.  In addition, as long as the Series K Preferred Stock is outstanding, the Company cannot without the holders' change or alter the rights of the Series K Preferred Stock as to adversely  affect the Series K  Preferred  Stock and create any new class or series of stock with preferences over the Series K Preferred Stock with respect to distributions or authorized numbers of prior preferred series.

 
F-14

 
Common Stock

The Company has authorized 2,000,000,000 shares of $0.001 par value common stock.  The Company had 10,964,272 shares of common stock issued and outstanding at December 31, 2010.  In June 2010, the Company filed a Definitive Information Statement on Schedule 14C indicating that the Board of Directors had authorized an amendment to the Company’s Articles of Incorporation increasing the number of authorized common shares from three-hundred million (300,000,000) to two billion (2,000,000,000).  This action was effective on June 28, 2010.   In October 2010, the Company filed a Definitive Information Statement on Schedule 14C indicating that the Board of Directors had authorized a reverse split of the common stock issued and outstanding on a one new share for two-hundred old shares basis. This action was effective on December 27, 2010 and the Consolidated Balance Sheet, Consolidated Statement of Operations and the Statement of Shareholder’s Equity have been adjusted to reflect the effect of the reverse stock split.

During the year ended December 31, 2010, the Company issued 10,812,491 shares of common stock for the following:

·  
The Company issued 6,498,198 shares of common stock pursuant to the conversion of 2,309 shares of Series J Convertible Preferred Stock.
·  
The Company issued 1,473,974 shares of common stock pursuant to several agreements to exchange $358,118 in trade payables for equity.
·  
The Company issued 2,840,319 shares of common stock to exchange $410,000 of debt and accrued interest for equity.


NOTE 6 - 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, 2010 using the Black-Scholes option valuation model.

NOTE 7 - AVAILABLE FOR SALE SECURITIES:

As of December 31, 2010, the Company owns 336,800 common shares of AlterNet Systems, Inc. (“AlterNet”).  These shares have been classified as available for sale securities in which unrealized gains (losses) are recorded to shareholders’ equity.  At December 31, 2010, all shares held by the Company of AlterNet common stock are tradable.  Based upon the closing price of $0.18 per share, the market value of the AlterNet common shares at December 31, 2010 was $60,624.

At December 31, 2009, the Company owned 1.4 million common shares of VirtualHealth Technologies, Inc. (“VirtualHealth”).  In August 2010, the Company sold all 1.4 million shares of VirtualHealth for net proceeds of $112,000.

NOTE 8 -  INDEBTEDNESS:  

Revolving Lines of Credit

As of December 31, 2010, the Company’s Unione and China Crescent subsidiaries had revolving lines of credit with several financial institutions:

 
F-15

 
   
Annual
         
Amount
 
   
Interest
   
Maturity
   
Outstanding
 
Institution
 
Rate
   
Date
   
at 12/31/10
 
                   
Banco Itau
    (1 )     (2 )     910,324  
Bank of Ningo
    5.31 %  
6/24/11
      293,384  
Shanghai Pudong Development Bank
    5.58 %  
11/27/11
      1,466,920  
Shanghai Pudong Development Bank
    5.31 %  
11/27/11
      953,646  
                         
Total:
                  $ 3,624,274  
 
(1)  
The interest rate for this line of credit varies monthly.  At December 31, 2010, the annual interest rate was approximately 30%.
(2)  
This revolving line of credit has no specific maturity date.

These lines of credit are secured by the accounts receivable of the respective operating subsidiary.
 
China Crescent Short Term Debt

As of December 31, 2010, the Company’s China Crescent subsidiary had several unsecured promissory notes outstanding with several different investors:

     
Annual
     
Principal
 
     
Interest
 
Maturity
 
Outstanding
 
Note
   
Rate
 
Date
 
at 12/31/10
 
                 
  1       10%  
   7/7/11
  $ 37,500