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New Visual fends off shareholder criticism
Aliza Earnshaw
Business Journal staff writer
http://www.bizjournals.com/portland/stories/2004/02/16/story8.html?t=printable


Some investors in New Visual Corp., a small publicly traded company that is moving its headquarters to Portland from San Diego, are unhappy about what they see as failure to deliver promised results.

The company says it is developing a new microchip for the telecommunications market.

"As time goes by, they come up with new revelations, new funding, they sell stock, and here we are still, with no concrete funding to build the hardware to give to telcos to see if it works," said Marty Goldstein, a Virginia investor who sold all of his New Visual (OTCBB: NVEI) stock recently after holding it for more than three years.

The company's top executive, however, says product development is stalled while the company waits for cash.

"Over the last couple of years, we haven't had as much cash to put into R&D [research and development] as we'd like," said CEO Brad Ketch. "We've made clear that when the cash comes in, we can accelerate investment in R&D. We've made that abundantly clear."

Investors are betting their stakes that the new chip will turn around a company that has struggled to find a niche or bring in any revenue. New Visual has not reported revenue from operations since 2000, when it reported revenue of just over $12,000, and has consistently lost money since it first began filing with the Securities and Exchange Commission in 1996.

The company has financed its operations almost entirely through private sales of common stock, loans and by issuing convertible notes. New Visual's stock price has declined steadily, from a split-adjusted high of more than $12 in 2000 to a recent trading level of around 25 cents.

What irks investors as much as their losses on New Visual's stock is what investors describe as the company's practice of releasing positive news and then failing to perform as the company has led investors to expect.

At last year's annual shareholders' meeting, held in Portland in August, Ketch told investors that New Visual required $10 million over the next 12 to 14 months "to accomplish our vision for this company." At that meeting, investors were told that the surfing film the company had financed, "Step Into Liquid," would bring in some $7 million of revenue to New Visual, according to documents on New Visual's Web site.

Now, the company has scaled back its expectations and is saying film revenues are "projected to meet or exceed our invested capital of $2.25 million," according to New Visual's recently filed annual report.

Investors say the company's overpromising and underdelivering have been consistent since 2000. At that time, many investors bought into the stock because of a promising telecommunications technology, said Goldstein. But that effort lasted less than a year, he said, only to be replaced by other technology ventures that have also yielded no salable products.

Nine other current and former shareholders contend that New Visual management has a pattern of declaring its new technology has been proven to work, that the technology is being tested by target customers and that the market for it is strong. Then months pass, and investors are never given any more information about the product, they say.

Despite the frustration of some investors, others are happy with New Visual's progress and its management team.

Sherman Ober, an investor and financial planner in Salem, said he has complete faith in the company and its executives. "I know Ray Willenberg [chairman], John Howell [former CEO] and Brad Ketch," he said. "A lot of investors complain, but they don't take the time to call [executives]. They say that because something doesn't happen when expected, management lies. Certain investors want to find fault."

Another shareholder, Jim Zenere, a lawyer in San Jose, Calif., agrees.

"In my talks with Brad Ketch -- and I think I'm a relatively good judge of character -- he's never said anything false to me, or given me false hopes," said Zenere. "He knows the [telecom] industry, he seems to be forthright and doesn't seem to be a salesman, so to speak."

Still, some investors point to several instances that make them wary.

In 2002, press releases shifted the focus to a new technology to be developed in partnership with Adaptive Networks Inc. of Newton, Mass. Since 2002, New Visual has paid $5.57 million to Adaptive Networks to develop the technology it hopes to market.

At New Visual's 2003 shareholders' meeting, Ketch said that the company was planning to release a prototype of Embarq by the end of the year, and that the final product would be ready for market in 2004. However, by the end of 2003, the Embarq prototype had not yet been announced.

Some investors were also rattled by the resignation in 2002 of Thomas Cooper, an executive with more prior experience in the telecom industry than any other New Visual officer or director. He joined New Visual's board in 2002 and a month later was appointed CEO. Eight months later, Cooper resigned as CEO but remains on New Visual's board.

Ketch, who became CEO after Cooper resigned, said that Cooper left for "personal reasons unrelated to the company or the technology," and that Cooper had signed a document saying so. Cooper had not responded by press time to a request made through Ketch to speak with him directly.

Dissatisfied investors also complain that an expected $6 million loan hasn't come together, despite being heavily publicized.

Ketch said that New Visual has not unduly publicized plans for a $6 million loan from Mercatus & Partners LLC, an unregistered United Kingdom company that has made loan agreements with a number of bulletin-board companies over the last year.

"We didn't say that it took place, or even raise it to the level of referring to it in a 'management discussion' [portion of a quarterly SEC filing]," Ketch said. "We just threw it on to the 10Q as an exhibit. On purpose, we did not signal to shareholders that we thought this was a pending event." The loan contract has not been funded, Ketch said.

New Visual has released information about the deal in seven separate SEC filings. In a letter to shareholders, Ketch urged a "yes" vote for increasing New Visual's total share count to 500 million in order to help bring about the Mercatus loan and other possible fundings.

"If the Mercatus loans close, we will also introduce ourselves to the world with a strong balance sheet and enough cash to finish the technology and ramp up the hiring of key staff," the letter reads.

Ketch said at last year's shareholder meeting that New Visual needed $10 million to reach its technology development goal. The company has recently announced commitments for $2 million in funding. According to a paper document filed with the SEC, New Visual will ultimately receive about $1.7 million after expenses and a $200,000 finder's fee.

Contact Aliza Earnshaw at [e-mail].