WTMHouston: OK, I'll take a shot.
This company has cash flow problems (actually no real cash flow) -- the only way they have been able to raise money and pay bills is to sell stock or issue convertible notes. Their goal is to develop a last mile DSL solution.
No argument there. You hit the nail right on the head.
In the midst of all this, they manage to find $2.25 million to produce a film? This doesn't raise red flags for everyone? They are supposed to make money off this by getting 50 percent of the "net profits?" I'll admit that it has been a few years since I negotiated a movie deal, but unless Hollywood has changed its way of doing business in the last few years, no one (who knows anything) cuts deals for a share of "net profits." This "deal" is a joke, right?
Your timeline is a bit off. The movie began production long before NVEI entered the broadband business. If you have truly been in the film business before, then you know that the actual profit made depends of gross receipts and the distribution deal. I do not know the details of the distribution deal, but I will ask. However, if the movie had production costs of 2.25 Million, and it grosses 20 to 30 Million, and a decent distribution deal is struck, there should be some decent cash flow from this. My research shows that net profit share, otherwise known as "Producer's Net" or "Points" is a very common method of returning profits to the producers. Apparently, by your measure, there are a lot of people out there who do not know anything because this seems to be a common practice.
And to top it off, someone is actually saying that it could gross $20 to $30 million? Aside from the fact that this has nothing to do with GAAP "net" much less Hollywood's definition of "net profits," if it were this easy to make this much money is the movies, wouldn't everyone would be doing it?
You are right. The 20 to 30 million figure has nothing to do with GAAP. Why would it? That figure is a projection of gross revenue. What has that do do with GAAP? Your statement is a complete non sequitur. There is some basis for that figure, though. "The Endless Summer" did well over 150 million, if I recall correctly. There is precedent.
Such "predictions" are inconsistent with reality and the going concern disclosure; specifically:
<<Our continued existence is dependent upon our continued ability to raise funds through the issuance of our securities or borrowings, and our ability to acquire assets or satisfy liabilities by the issuance of stock.>>
The predictions of potential movie gross is completely unrelated to the going concern statement. How is it that you connect the two?
It certainly is a concern that NVEI has cash flow problems. The only solution before revenues start coming in is more dilution of shareholder equity. That is a very real risk.
This movie deal smells very similar to the guy who in a desperate effort to keep his personal financial situation from going bust, begs and borrows whatever he can to come up with $$ for the deal that cannot miss. It is desperation at its best and worst.
I have to disagree with you there. The movie is fully funded, and has a potential to produce some revenue when it might be needed most. Again, your lack of understanding of the timeline is clouding your judgement.
<<We agreed to pay the principal and an amount equal to 50% of the principal if we reach certain milestones from the distribution of our feature length film currently in production. The promissory notes are convertible at any time, in whole or in part, into shares of our common stock at a conversion price of $0.40 per share. In December 2001, we raised an additional $250,000 through the issuance of convertible notes on these terms.>>
They agreed to pay 50% "interest" to get the money to try and get illusory "net profits." This does not raise red flags?
The "interest" is payable only upon reaching a distribution milestone. I do not know what that milestone is, but I must assume that it is sufficient to ensure that NVEI makes money before the "interest" is due. That is worth looking into. I wil ask the company.
notes are convertible at any time at $0.40 share. Price recently went to 1.00+ for a short time and is still above .80. If you are an investor and have a choice of making 50% (and only 50%) by doing nothing or doubling (or better) your money by exercising and selling, which do you do? I'd be surprised if the notes had not been converted and most, if not all, of the stock sold. Of course, that means a bit over 2 million more shares issued.
This is certainly possible. Again, dilution is certainly a concern.
Based on the disclosures, this company has to raise more money NOW in order to even think about making it to the end of summer. Of course, this comes at an ever increasing dilution to existing holders.
The one valid point that you have, in my opinion, is a concern about dilution. However, let's keep everything in perspective. The current market cap is about 30 Million. If the technology is truly commercializable, it could be worth hundreds of millions annually. The market cap is sufficiently low, in my opinion, to be able to absorb some further dilution if necessary. It won't do any wonders for the short-term share price, but short-term price does not interest me. It is the long-term prospects that I am interested in.
And, in the face of all this, one employees gets $600K a year in salary? I now know who is making money off this company. Is anyone else?
You really lose a lot of credibility when you clearly have not done your homework. As many have pointed out, this is not correct. The figure you give is the total aggregate salaries of officers, not the salary of one employee. If you read the recent 10K, you will find that the CEO actually gave back some salary.
What am I missing in this picture? If I am missing something important, I sure wish someone would fill me in.
You are missing a lot. I suggest you fill yourself in. You are clearly misinformed on several issues.
I would also like to point out that this is clearly a speculative investment. I am not invested here because of the company's current financial strength (or lack thereof). Rather, I am invested here because of the potential for a very large gain in the future. You, as an investor, have to judge the likelihood of the future gain, and balance that against your tolerance for risk while taking into account what you have learned through due diligence. I, and most of the longs here, have done so. It seems fairly obvious that you have not. I suggest that you take advantage of the copious links for DD posted here by some of the regulars. I also suggest that you read recent PRs and SEC filings. After all of that, if you still have serious doubts, then it may be that your tolerance for risk is too low for this kind of investment. In any case, I wish you luck in your investing.
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