Replies to post #2724 on Rim Semiconductor Company (fka RSMI)

[WTMHouston]

Excel, I appreciate your attempt at answering my questions. But, that said, most of your answers did not seem to address the points.

<<Excel says..................................................
The on going concern was said company didn't have enough money for beyond 3 months. That three months is long gone. They had a financing package available but it would have caused to much dilution. This statement can be verified by calling company.>>

And this has what to do with my statement of fact that this company has (some would say serious) cash flow problems and that the only way they have been able to raise money and pay bills is to sell stock or issue convertible notes?

<<In fact they still do have the Entertainment division but their FOCUS is on the technology.>>

If their focus is on technology, then why have they in the last few (maybe 12) months spent three times as much on producing a movie as they have on R&D for the technology? Something does not add up.

I understand that the movie "deal" was in place before the technology "came to them," but, so what? What does this have to do with the price of tea in China, or more appropriately, the price (value) of NVEI?

<<If you don't want to believe the details of the way the profit will come to NV then why not go to the company with that?
You have any FACTS available to prove it is not true?>>

I never said it was not true or that I did not believe it -- those were your words not mine. What I queried was whether the "net profit" was typical Hollywood "net profit," which is generally illusory, or whether it was GAAP "net profit." Do you know? Unless they have an unusual deal, it is the former not the later. Might it be GAAP "net profit?" Sure, but I would be surprised.

<<Excel says.................................................
You want to say it can't make 20 to 30 million. Guess we will have to wait and see now won't we. Marketing is the key.>>

Again, what does that have to do with what I said. There is a HUGE difference between a movie "grossing" something (even $20 to $30 million) and it producing a "net profit" of anything. NVEI makes nothing off of the gross. The movie could gross $100 million and the definition of "net profit" in the JV agreement could be such that there would never be any net profit. One has little to nothing to do with the other. You "answer" had little to nothing to do with my point that:

"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? Such "predictions" are inconsistent with reality and the going concern disclosure; specifically."

Marketing typically has a lot to do with gross, but little to do with Hollywood "net profits."

<<Two years ago we would be having money thrown at us. Different market now.>>

We agree on that.

<<In this type of market you get the money the best way you can giving the best value to shareholders you can in the quest of the funds to continue.>>

While I agree with the literal statement, it means little in the real world if shareholder value gets so diluted that it ends up with substantially less (little) value. I doubt most folks would buy this or any other stock with the expectation that they will lose 90 percent (an arbitrarily chosen number for explanation) of their value to dilution before they have any chance of making any money.

<<NV will tell you they have NO fear of running out in order to bring tech to market. Call and verify!>>

I will accept that they would say that if I called. Frankly, I would be surprised to hear them say otherwise. Enron would have said the same thing as well. The fact that someone or anyone at the company would say that has little to no meaning to anything. The accountants, and I am assuming that they are objective, see it differently. There is enough question about it in their minds that they need to issue a going concern warning. Shouldn't the going concern warning raise red flags for everyone? If not, then what would and should raise red flags and make someone suspect?

<<WTM says........................................................
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.

Excel says..................................................
Your opinon [sic] is NOT based on DD as if it was you WOULDN'T be making this statement! This subject is also talked about above for your education. You sure like to repeat yourself. Hmmmmmmm.>>

First, my opinion is based on DD and a knowledge of how the movie industry typically operates. Frankly, that is, in my opinion, more reliable than blindly relying on what company folks have to say. I repeat myself only when necessary to make sure someone understands the point. Unfortunately, it does not appear to have worked in this case. Hmmmmmmmmm.

For example, most folks would (and accurately so in my opinion) think it was desperate for someone to have to agree to 50% as a return on an investment in order to get the investment. Yet, that seems to be exactly what NVEI had to do to get the money for the movie JV.

<<WTM says....................................................
<<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 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.

Excel says..................................................
I suggest before you SUGGEST items as FACT you bring something here to back up the above statement.
All of my statements are backed up by past PRs or you can call John Howell at 877 610 0333.>>

Just what in my point do you dispute? That they agreed to pay 50%? That the profits may only be illusory? That they issued convertible debt to finance the project? That any prudent holder of the convertible debt could have made a lot more money by exercising and selling during the runup than by holding the convertible?

I suggest that if you are going to criticize that you specify what you are critical of: it is hard to have an intelligent conversation otherwise.

<<Excel says.................................................... What are you missing you ask? 600k salary? >>

If that is all I am missing, then I get the picture. I also said "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."

Is this not true? Is this not a valid reason for folks to not only not buy this stock but to seriously consider shorting it?

The price of dilution is the value of the existing shareholders' ownership. Here, that looks to me to be substantial.

Maybe my final question should have been a bit more direct: Why is this company a good investment long rather than short? Why is one likely to make more money long than short? What is there about this company's history that should make one comfortable that the dilution will end and that value will be added rather than drained?

If all it is is their PR releases and what they say and promise on the phone, then save your breath. I got that much from your reply.

In my opinion, the value of these discussions comes not from blind reliance on what a company says, but rather on an attempted objective evaluation of whether what they say is reasonable, likely, and consistent with good old common sense and our life experiences.

In this case, NVEI's claims do not seem to me to be "reasonable, likely, and consistent with good old common sense and our [my] life experiences."

Troy

[WTMHouston]

I have done some more (but not complete) looking at NVEI.

You asked me:

"How much DD did you do before jumping all over NV?"

and then said:

"3D and movies was their goal before technology came along. During that time a financing deal was made for the up coming movie. THIS WAS MADE BEFORE THE TECH!!!"

Actually, the movie financing deal (April 2000) was AFTER the merger (completed in February 2000) that brought the tech. Thus, I cannot resist asking, how much DD you did before jumping on me? Just in case, that question is rhetorical and does not seek or require an answer.

That said, I have also looked at the JV agreement for the movie and it does appear to define net profit in a more traditional manner, rather than in typically evasive Hollywood fashion. Thus, assuming the movie generates sufficient revenue, discussed below, there appears to at least be a possibility of potential profit, at least in the sense that the definition of profit does not wholly exclude it.

It is now within 5 months of the "end of summer 2002" and I wonder whether there is a distribution agreement in place for the film? This really is a question and not an accusation that there is not.

Finally, having read the convertible agreements more closely, I will be shocked if they have not all been converted. The conversion privilege allows the holder to convert not only the principal, but also the 50% "interest" into stock at $0.40 a share. As I recall, and I would have to look it up again to be certain, there is about $1.9 million in convertible financing so far. The additional 50% raises this to $2.85 million, at $0.40 a share = 7.125 million shares.

Lets assume that I loaned NVEI $125K under these terms. I have a convertible option to get $187,500 of NVEI stock at $0.40 a share. Thus, by accepting 468,750 shares, NVEI no longer owes me any money. At the recent $1.00 price, my initial investment of $125,000 can be liquidated for $468,750. Under the note, the most I could ever be paid in cash is $187,500, but if I exercise I can now get more than $450K. It is a no brainer. Frankly, it is a no brainer for an immediate 50% return at ANY price at or above $0.40. Since the note provides that I get NO money (principal or "interest") unless NVEI collects money from the movie, I have NO assurance that the note will ever be paid. I would be taking the production risk. However, since I can immediately and at any time convert the note into 1.5 times as many shares of stock, the ONLY prudent financial move is to convert. It makes NO sense to wait to get paid back in cash.

Thus, before stockholders of NVEI get even, NVEI must get 150% of whatever NVEI ultimately invested by way of the convertibles. If they get the full $2.25 million for such notes, they will need $3.375 million in revenue to NVEI before the owners of NVEI are even. Of course, to get to this $3.375 million, and assuming that the JV never has any expenses above the $2.25 million, which is unlikely, the JV (not the movie) must gross at least $4.50 million. The movie's gross will have to be MUCH greater than $4.5 million for this to happen.

And before anyone tells me that this "could" gross $20 or $30 or $100 million, save your breath: there is NO objective basis that you are aware of (nor that I have been able to find in any public information of NVEI) for making such a prediction. I doubt that there is any such public prediction by anyone from NVEI. Merely because some other movie grossed some amount means NOTHING about what this one "might" do.

One final question, has anyone ever asked how much money would flow through to NVEI if this movie "grossed" $20 million? Has anyone ever asked what this "feature length" film has to "gross" before NVEI stockholders get even? When you (used generically) have an objective basis to answer those questions, then you can tell me that a $20 million gross has any meaning or is sufficient for NVEI to make money.

There is nothing wrong with speculative investments -- so long as those speculating understand all of and the real risks and just do not assume based on the way things appear to be because of how they are worded.

All for now. I'll discuss tech and other issue(s) next time.

Troy