Letter to Shareholders August 11, 2011

Dear NewMarket Investors –

On June 19, 2002 my family sold the assets of the family business we started in 1997 to IPVoice, Inc.  I became the Chairman and Chief Executive Officer (CEO) and the Company’s name was later changed to NewMarket Technology. I always remember the closing date because it was my son’s 11th birthday.  He is a Persian Gulf War baby, born while I was serving in the 4th Infantry Division. Sadly, I also have a picture of him on top of the World Trade Center from a 10th birthday trip to New York during the time when I first started working on the deal with NewMarket.   My son is now 20.     

First Public Financing ‘Attempt’ – An Education in Hedge Fund Strategy

Much can happen in ten years.  The last ten years have provided opportunity for a number of lessons to be learned – many, if not most, the hard way.  My thirty-six-year-old business perspective is notably different than my now forty-six-year-old perspective.  I came into the micro-cap public markets perhaps a bit starry-eyed and overly optimistic that aggressive revenue growth would drive price per share (PPS) appreciation.  After all, it had worked for technology companies in the nineties.  NewMarket grew through acquisition and aggressive organic sales and the Company’s share price went from pennies to over a dollar.  Then I went to New York and signed a letter of intent (LOI) on $3 million in convertible debt financing.  In 2004, after almost two years of steady share price increase, the PPS dropped from $1.35 to well below a dollar the same day the LOI was executed.  I lost a few stars in my eyes that day.

My three million dollar financing attempt and first notable financing attempt of my career, made me skeptical of so called ‘institutional’ financing firms concentrating on the micro-cap public markets.  Many of these ‘institutional’ firms are referred to as ‘hedge’ funds.  A quick Internet search will provide a definition along the following lines:

“A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.”

The definition begs the question as to what ‘companion’ investment the ‘institutional’ investor is engaging to offset the potential of loss in the primary investment.  After my first New York experience, I did not trust micro-cap market ‘institutional’ investment firms, but I remained confident in the micro-cap public market itself.  I believed that over time and with ongoing operational expansion, NewMarket’s PPS would recover from the damage I contend resulted when the would be three million dollar investor ‘hedged’ immediately upon execution of the  LOI and well before the timeframe when funds would actually be forthcoming to NewMarket.  However, my confidence in the micro-cap pubic market to support sustainable PPS appreciation would not last much longer.

Award Winning Sales and Development of Operational Efficiency

NewMarket’s corporate culture has always included a strong sense of sales leadership.  We even have a few notable awards to laud our exceptional growth.  NewMarket was recognized three consecutive years as one of the top 25 fastest growing technology companies in North American in the Deloitte Fast 500. We have been fortunate to have the mentorship of exceptional board members to include the late Major General Hugh Robinson (a former Chairman of the Federal Reserve Bank of Dallas) and James Mandel, the CEO of NASDAQ listed Multiband Corporation (MBND).  We have also been fortunate to be joined by Philip Rauch and Bruce Noller, both with exceptional experience and credentials to respectively include an education at the Wharton School of Business and international senior management experience as the Vice President of Integrated Control Systems.  With the guidance of both an exceptional board and management team, NewMarket evolved its operation over time to substantially balance aggressive sales growth with improved operational performance.  By the end of 2007, the Company was well on its way to shedding all marginally performing operations and executing the acquisition of a North American firm with highly developed operational systems and processes anticipated to be implemented NewMarket-wide.   Then we encountered the global financial crisis of 2008.

OTC Limitations Become More Apparent in Global Financial Crisis

At the same time NewMarket was recruiting the management and director experience to refine and enhance the Company’s operational performance, we were also coming to grips with the limitations of the over-the-counter (OTC) market.  Sales growth, margin improvements and notable benchmark events only produced temporary PPS improvements.  My belief that the micro-cap public market would support NewMarket’s PPS recovering from the damage encountered in conjunction with the three million dollar LOI began to slip from bold confidence, to guarded optimism to an altogether completely different perspective on the strengths and limitations of the micro-cap OTC market than had been my expectation when I began this journey on my son’s 11th birthday in 2002.

In 2008, instead of executing on the anticipated strategic acquisition and proceeding with sweeping operational upgrades, NewMarket faced a year of write-offs and reduced customer contracts and entered into a long struggle with an investment firm that had provided the Company with a seven million dollar investment in December of 2007 and then promptly ran into their own solvency issues.  We managed to operationally get back on our feet and pay down a substantial portion of the 2007 investment.  By the end of 2009, we had found investors to purchase the remaining balance from the now insolvent investors.  In conjunction with the clean up of the 2007 investment, NewMarket executed a capital restructuring as part of a strategy that included an attempt to list under the OTC Markets' new OTCQX standard.  Unfortunately, we were unable to overcome the prevailing market conditions to maintain the minimum $0.25 PPS required for listing under the OTCQX standard.  Once the PPS dropped below the listing minimum it continued to drop precipitously, falling in line with the less than $0.01 average PPS performance of the other top 100 most actively traded OTC issuers.

In 2007 the number of market makers trading OTC Bulletin Board (OTCBB) stocks exceeded 200.  Today that number is barely over 100.  In July, the OTCBB reported an average of less than two market makers per security.  Also since 2007, over 1,000 OTCBB issuers have been delisted from the OTCBB for rules unrelated to the issuer’s compliance with financial reporting standards.  OTCBB average daily dollar trading volumes in 2008, 2009 and 2010 never reached 50% of the daily dollar trading volumes in 2007.  In a 2010 mid-year study of the top 100 most actively traded firms on the OTCBB, we found that the increase in issued and outstanding shares over the previous year exceeded 5,000%.  On the OTC Markets the average increase was about 15,000%.  Over the past three years, the OTC environment has been less than conducive to PPS appreciation for any micro-cap OTC issuer. 

Investor Reaction to PPS Performance

Even though NewMarket is in good company in regard to suffering a sub-penny PPS and corresponding dramatic increases in the number of issued and outstanding shares, that is little comfort to NewMarket investors looking for sustainable PPS appreciation.  Investors are concerned, if not outright scared.  That is not an emotion unique to NewMarket investors or even the OTC market.  The recent economic events surrounding debt ceilings and credit ratings add to investor stress.  Anger is a typical reaction to stress and fear.  Following your Internet search on ‘hedge fund,’ type in ‘stress,’ ‘fear’ and ‘anger’ and see what you get for results.  It comes as no surprise that NewMarket management is facing a fair amount of investor anger. 

Since my entre into the micro-cap public markets 10 years ago, I have traded my starry-eyed outlook for what I consider a stone cold sober objectivity.  While I remain an advocate of the micro-cap OTC market as a sound environment for early stage, high growth oriented, small and medium businesses to access investment while delivering attractive returns to retail investors, I do not advocate a buy and hold investment strategy that is not supplemented by an active trading discipline and I am not holding out hope for a micro-cap ‘institutional’ investor movement that prioritizes its buy-low-sell-high ‘primary’ investment instrument over its ‘corresponding’ sell-high-buy-low ‘hedge’ instrument.  

Social Media To Enhance The Hedge Strategy

Similarly, I am not surprised by the undertakings of parties utilizing various social media tools to exploit investor stress, fear and anger in order to enhance a sell-high-buy-low ‘hedge’ strategy.  Such a social media campaign is known as a ‘short and distort’ strategy.  It is my opinion that at this time, NewMarket is the victim of such a strategy and the Company is researching the issue and looking into appropriate legal responses.  We suspect participants in the current campaign include individuals that contributed to the damage that resulted in conjunction with the three million dollar LOI. We also suspect participants include parties that were affiliates of NewMarket/IPVoice prior to the acquisition of the assets of the family’s business.  We are further suspicious that participants may include individuals that have been featured on Deep Capture (www.deepcapture.com).  The suspicions of specific individuals may be unfounded, but regardless of the true identities of the individuals making fallacious claims, I remain of the opinion that fallacious claims are being promoted via social media for the specific purpose of exploiting investor stress, fear and anger in order to enhance a sell-high-buy-low ‘hedge’ strategy.

As illogical as it sounds for the rants of anonymous message board posts to influence investors buy and sell decisions, social media is nonetheless a powerful influencer today that should not be underestimated.  Even I have elected not to stay at a reputable brand name hotel, due to an anonymous post I read on a travel site claiming the hotel was infested with bed bugs.  Other posts discredited the bed bug post, but I still elected not to make a reservation anyway.  For fun, after you search ‘hedge fund,’ ‘stress,’ ‘fear’ and ‘anger,’ then search on the brand name of any major hotel line you can think of with the words ‘bed’ and ‘bugs’ and see what you get.  You may never want to stay in a hotel again.  The issues surrounding bed bug claims are mild compared to the social media fueled riots earlier this year in North Africa and the Middle East and now in London.  A virtual idea, genuine or fabricated, can today rapidly attract an angry mob building momentum that propels a digital concept into a real world impact boycotting a hotel chain, throwing Molotov cocktails or pushing the sell button.

Time For A Town Hall

It's time to openly address the concerns – the stress, the fear and the anger.  NewMarket has made a practice for many years of conducting an annual town hall.  While we conducted live town halls for many years, for the last three years we have conducted virtual town halls via the Internet in an effort to reach more shareholders.  Given the increased anxiety this year and the apparent increased volume of questions and complaints, we feel a live town hall would be most conducive venue for facilitating a ‘dialogue’ by which to address investor stress, fear and anger.  We have scheduled a town hall in Dallas for Tuesday, September 13th from 3-5 pm.  The invitation is open to all – NewMarket investors, China Crescent investors or any participant in the micro-cap OTC market interested in a dialogue pertaining to capital formation for early stage, high growth oriented small and medium businesses.  Put it on your calendar.  Come prepared with your questions or complaints.  Come with the contribution of your personal experiences – good or bad.  Come angry.  Come eager.  Come loaded for bear – or bull.  Just come. Open minded if possible.

We will start the town hall with an overview of NewMarket’s most recent business plan updates as presented in the management discussion and analysis (MD&A) section of the 2010 annual report.  We will elaborate on the MD&A strategy and present the most recent developments as well as the milestones anticipated by year-end.  We will include in the business plan update presentation NewMarket’s plans to simplify NewMarket and China Crescent’s capital structure.  We will also include in the presentation, NewMarket’s developing strategy for alleviating, if not eliminating, the use of financing facilities that can result in the issue of common stock while the OTC environment remains less than conducive to PPS appreciation.

Old News – Fresh Perspective – Some Additional Resources

This letter is not the first time that autobiographical aspects conveying my experiences and evolving beliefs regarding the micro-cap public market have found their way into print.  I have prolifically journaled my lessons learned over the past ten years in the micro-cap public market in numerous and regularly published white papers, letters to shareholders and Webcast presentations.  Three recent and still relevant journal entries include (these are currently available on the NewMarket Investor Relations webpage):

Sex Lies and Pipes
Are You Sitting Down?
OTC Investment Strategy Tutorial

Those of you familiar with my often autobiographical publications will likely recall my own educational background.  My service in the U.S. Army was preceded by my attendance and graduation for the United States Military Academy at West Point.  I have continued to serve in a variety of civilian capacities since leaving military service.  My motivation and the motivation of the core of NewMarket founders and management for persevering the various difficulties NewMarket has faced over the years has been driven in part by commitment to public service.  The hurdles NewMarket has faced and that my family faced in business before NewMarket are hurdles common to early stage small and medium businesses worldwide and most relate to accessing financial resources.  Our experiences addressing financial resource issues at NewMarket have enabled us to contribute to a larger and more comprehensive initiative addressing the importance of improving financial resources for small and medium businesses worldwide. 

Lessons Learned That Can Improve SME Financial Services Market

The small and medium enterprise (SME) financial services marketplace is underserved.  The market for both commercial and investment banking services is fragmented and sparse and where available, generally less than accommodating.

The SME sector is by far the largest business sector.  It is very diverse in terms of represented industry segments.  It is global.  The SME sector makes up the majority of the global GDP and the majority of worldwide employment.   Even in the United States, the SME sector is well over 50% of the GDP and by far the largest provider of jobs. 

In the United States, venture capital funds less than 0.1% of all start-ups.  Government agencies, angel investors and institutions combined fund less than 3% of all start-ups.  Entrepreneurs themselves fund over 82% of all start-ups in the United States.  

Currently, the number of annual business failures in the United States is exceeding the number of business start-ups.  Bankruptcies are at a record high.  At the same time, the 1,000 largest non-investment banks are sitting on $853 billion of cash.   A number that is up 75% from the on hand cash reported prior to the recession and larger than the $700 billion issued to banks by the United States Treasury Department under the Trouble Asset Relief Program (TARP).

The SME sector is a vital segment of the global economy.  In fact, it is the largest segment of the global economy, yet it has access to only a small fraction of available commercial and investment banking resources.  The SME sector has access to an even smaller fraction of overall government program funds.  NewMarket’s experience navigating this SME financial service void can be of value to SMEs across markets worldwide.

SME Financial Services Advocacy vs. NewMarket Growth and Development

I appreciate not all NewMarket investors share a passion for global public service commitments and some may consider my personal passion a possible distraction to the ongoing development of NewMarket.  I believe all SME organizations have a vested cooperative interest in taking action to improve the SME financial services market.  Nevertheless, we have separated efforts to improve the global SME financial services market from efforts to continue NewMarket’s development.

Early last year I stepped down as the CEO of NewMarket, and I was replaced by Bruce Noller.  I have dedicated more time over the last year to an organization called the Small Equity Initiative.  In the last year and a half through my role at the Small Equity Initiative, I have been named as a private sector adviser to a United Nations organization and conducted international trade missions into emerging markets to include East Africa, Vietnam, the Philippines and Central America.  I have presented at United Nations events and met with elected government leaders of multiple nations.  At the same time, I have worked with the NewMarket management team to wind down any seemingly related SME emerging market financial services advocacy efforts that might create confusion with NewMarket investors regarding the Company’s mission.  At the upcoming town hall, we will address any questions that might arise from possible confusion regarding NewMarket’s mission and my separate mission to address the overall SME financial services resource void.
 
All of us at NewMarket remain enthusiastic and optimistic about the future of the Company.  However, please don’t interpret our enthusiasm and optimism as all rosy times for NewMarket.  We are certainly no less vulnerable to the macroeconomic issues facing the world than any other individual or organization.  In addition to the macroeconomic issues we are also dealing with issues specific to the micro-cap OTC market.  I hope you might find time to attend the upcoming town hall to participate in a dialogue about NewMarket’s past as it relates to our future opportunity and of course to learn more about and provide feedback on management’s go forward plans to create the best future opportunity for all NewMarket investors within the current economic conditions.

Best Regards,
Philip

Philip M. Verges
Founder
NewMarket Technology and China Crescent Enterprises

"SAFE HARBOR STATEMENT" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This letter to shareholders contains forward-looking statements that involve risks and uncertainties. The statements in this release are forward-looking statements that are made pursuant to safe harbor provision of the Private Securities Litigation Reform Act of 1995. Actual results, events and performance could vary materially from those contemplated by these forward-looking statements. These statements involve known and unknown risks and uncertainties, which may cause NewMarket's or China Crescent’s actual results in future periods to differ materially from results expressed or implied by forward-looking statements. These risks and uncertainties include, among other things, product demand and market competition. You should independently investigate and fully understand all risks before making investment decisions.