Earlier today New Visual Corporation's President & CEO, Brad Ketch released the President's Letter for the Second Quarter of 2003. He outlined several important topics about the Company in the letter which includes some of the following:
1) The Balance Sheet.
Decreasing operating expenses, clearing up debt & interest payments.
(Note, with these progresses being made here, it is quite possible that this will make NVEI look more appealing for more traditional financing).
2) The Embarq Technology.
Mr. Ketch stated the following about the Embarq Technology: "As I reported to you with the Dispatch from Supercomm, and now reiterate, we are not aware of a semiconductor on the market today anywhere in the world that performs to the level of speed and distance that Embarq performs to in its prototype form."
3) Step Into Liquid.
It is opening in August and they will be receiving funds from the theatrical and home market releases.
As always I urge you to read the text of the President's Letter in full as it has important information about NVEI contained throughout.
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The President's Letter
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President's Letter - Second Quarter 2003
This week we filed with the Securities and Exchange Commission our quarterly report for our second quarter, which is the period February 1 through April 30, 2003. We made a lot of progress this quarter, and I want to tell you about it. I am now more confident that when we go to market with our strong technology, we will also have the strong finances to be successful.
Let's start with the bottom line: earnings per share. One year ago(1) , we lost $0.14 per common share. Now(2) our loss is $0.02 per common share - an 86% reduction
Our operating expenses decreased over these periods as well, from $4.2 million for to $2.4 million for the same period this fiscal year - a 42% decline. Revenues remained zero in both periods while we continued our technology development and completed our film project. "Other expenses" were $973,000, compared to "other income" of $1.3 million(3) ,. Interest expense declined by 72%, from $449,000 to $124,000, and amortization of unearned financing costs decreased by 60%, from $523,000 to $210,000.
We also made significant progress in strengthening our balance sheet over the last six months. While total assets declined slightly - from $8.3 million to $8.2 million, our liabilities and shareholders' equity showed marked improvement. Total liabilities declined over 23%, from $4.9 million to $3.8 million. At the same time, stockholders' equity - our "net worth" as a company - improved by 438%, increasing from $233,000 to $1,254,000.
Let's look more closely at specifically how we are reducing our short-term debt so that we can spend more on developing our technology. Before I dive into the mind-numbing numbers, let's take a step back and relate our corporate finances to your home finances. All of us at home have goals - buying a house, sending a child to college - which we save for. What gets in our way is the credit card balance, the car loan, and bills. Sometimes, the interest payments on our credit cards alone add up to our whole month's payment! When we get into this awful situation, saving for the future just cannot happen. Our "get well" plan, then, becomes a disciplined but simple one: stop getting into more debt, pay off the existing debt, and then start investing in the future. If we stay focused, we eventually get well and accomplish our long-term goals.
New Visual is in a similar way on a plan, and it is working. We stopped spending as much, we paid off some bills, and now we are able to invest more in our future. To some, the progress seems slow. But to me, our progress is remarkable, and I am proud of our team. And as a result, I am sticking with the plan to accelerate our investment in Embarq in the quarter that we are currently in, and on into the future.
Here is some of the evidence that we made progress on reducing our spending, debt and bills in the second quarter:
Overhead(4) expenses dropped 33% to $491,000 from $738,000 one year ago.
Interest expense dropped 79% to $61,000 from $291,000 one year ago.
Short-term debt(5) dropped 9% from the 1st to the 2nd quarter, from $4,100,000 to $3,800,000.
Our ending cash balance improved dramatically from $3,000 at the end of January to $184,000 at the end of April.
We said that we would invest more in research and development(6). We did. In our fourth quarter 2002 and first quarter 2003, we invested about $231,000 in each quarter. But now in our second quarter, we invested $300,000, which is a 30% improvement.
So, what is left to do on the plan? I am looking forward to the day when we can
increase the level of investment in technology. Though we did increase it 30% from previous quarters, I want to go much faster.
have more options in raising capital than just selling stock. We have sold one-year restricted stock privately to qualified investors domestically and to investors internationally at a discount(7) to our market price on the OTCBB. . Though it has been necessary for us to raise capital this way, we would like to get to the point where restricted shares are just "one tool in the toolbox".
reduce our short-term debt to more sustainable levels. Though we made progress in reducing it from $4,100,000 to $3,800,000, we need to reduce it further.
I believe that these items on the plan are within our reach. We are working now to raise additional funds through convertible long-term debt, or an equity investment, or both. I am optimistic that one or all of these deals will close and that we will at last have achieved our financial goals.
Keep in mind that "Step Into Liquid" will open nationwide in North America in August, and that we will receive funds from its theatrical and home market releases. Our distribution partner, Artisan, has booked many initial theaters, and these are listed on www.stepintoliquid.com. The list of theaters would expand as the film achieves box-office success. As an added note, Dateline NBC has scheduled a segment called "Monster Waves" for Sunday, June 22nd that promotes "Step Into Liquid".
So, that leads me to the final area, achieving our product goal. Embarq continues in its development, and I am pleased with its progress. Of course, while we move forward slowly, our competition is not standing still. As I reported to you with the Dispatch from Supercomm, and now reiterate, we are not aware of a semiconductor on the market today anywhere in the world that performs to the level of speed and distance that Embarq performs to in its prototype form. And, we know of no technical reason why the final form of Embarq will not equal the speeds and distances achieved in prototype form. Our next major goal is releasing the FPGA version of our prototype. I have not yet made a commitment to you of when this product will be released, but will make this commitment when I have the cash in hand to hire more engineers. As in the paragraph above, I believe that I will have this cash to work with.
In conclusion(8), we have made remarkable progress towards financial health, and are planning to continue on the same plan that we have been on since December 2002. All of us who own common shares of New Visual have been strengthened for a strong future.
Sincerely,
Brad Ketch
President and CEO
1 - the six months ended April 30, 2002. Loss was $5.12 million
2 - the six months ended April 30, 2003. Loss was $1.26 million
3 - due to the $1.5 million gain we recorded when we cancelled 2.2 million shares of common stock we reacquired in a litigation settlement, coupled with significant reductions in financing-related expenses
4 - termed "Selling General and Administrative" on our Income Statement
5 - termed "Current Liabilities" on the Balance Sheet
6 - termed "Research and Development" on the Income Statement and also "License and development fees payable" on the Balance Sheet.
7 - In the second quarter we sold this stock for around $0.16 per share, and in the current quarter so far, for around $0.15
8 - With the exception of historical information contained in this Letter, this Letter includes forward-looking statements made under the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including but not limited to the following: financing difficulties; product development difficulties; market demand and acceptance of products; the impact of changing economic conditions; business conditions in the Internet and telecommunications industries; reliance on third parties, including potential suppliers, licensors, and licensees; the impact of competitors and their products; risks concerning future technology; and other factors detailed in this letter and in our Securities and Exchange Commission filings.
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AI
