New Visual Sees `Billions,' Shifts From 3-D Films to Broadband
San Diego, Sept. 19 (Bloomberg) -- New Visual Entertainment Inc. has lost $22.7 million since 1996 on 3-D movies like ``Miss Hawaiian Tropic '99'' and the still-unreleased surfing film ``A Day at the Beach.''
Then, in February, the San Diego-based production company ventured beyond short films with three-dimensional effects. It swapped shares it valued at $6 million for a process that it claims will provide ultra-fast Internet connections through the ordinary copper wires of local phone companies.
Within days, New Visual stock that was trading at $2.64 soared tenfold, giving the company a market valuation of more than $500 million. The stock lately, which has lately hovered at about $12, fell 1 3/4 to 10 today.
``We're very confident this technology is worth several billions of dollars,'' said Ray Willenberg, New Visual's chief executive. ``I think it's a cheap stock.''
While Willenberg won't provide specifics, New Visual says its technology extends the reach of VDSL, or very-high-speed digital- subscriber lines, and will enable local phone companies to compete better with cable companies by offering Internet service, cable-TV and telephone connections to homes and offices.
The company has formed a unit, New Wheel Technology, hired the two engineers who developed its process, and applied for patents. The company said it expects to begin selling the technology next year.
Mission Impossible?
While New Visual says its technology permits VDSL to send 51 million bits of data per second over 8,500 feet of copper wire -- more than eight times farther than now possible -- specialists and potential customers are dubious.
``The laws of physics as we know them would suggest this isn't possible,'' said John Cioffi, professor of electrical engineering at Stanford University, and an expert on VDSL.
``We're extremely skeptical,'' said Pat Pachynski, senior vice president of marketing at Next Level Communications Inc.
Next Level makes VDSL equipment for U S West, a Denver phone company recently acquired by Qwest Communications International Inc. Next Level says it hasn't been approached by New Visual.
Another skeptic is Tom Starr, a senior member of the technical staff at Chicago-based Ameritech Corp., a unit of SBC Communications Inc., also a local phone-service provider.
Companies in the past have made similar claims and have even given lab demonstrations, he said. ``Ultimately, they haven't been able to provide working products,'' said Starr, chairman of an industry group that's developing VDSL standards in the U.S. Starr said he hasn't been contacted by New Visual.
`Intellectual Property'
New Visual's hopes are riding on technology being developed by two engineers, Allan Blevins and Michael Shepperd, both 50. Blevins and Shepperd were working in Pleasanton, California, when their claims for providing high-speed digital transmission over telephone wires captured Willenberg's interest.
``It was intellectual property on paper,'' said Blevins. ``It needed to be developed.''
Blevins said he graduated from Buscher High School in Santa Clara while Shepperd has an associate's degree in electronics from Monterey Peninsula Junior College. ``We're self-taught,'' he said.
Aside from stock, worth more than $30 million on paper, Blevins and Shepperd are each being paid $208,000 a year to head the New Wheel unit, which has about six employees.
While anticipating riches from hitting a technology jackpot, New Visual has scrambled to stay afloat. It raised cash by selling some shares at below-market prices, set up a costly line of credit with five offshore trusts -- and hired a stock promoter with a background in securities fraud.
Raising Cash
In March, two months after New Visual's outside auditor warned of ``substantial doubt'' about the company's ability to continue as a going concern, it sold 236,284 shares at an average price of $5.21 -- a discount of 65 percent to 82 percent from a share price that fluctuated between 15 and 29 that month.
Why did New Visual sell shares at such a steep discount? In retrospect, concedes Willenberg, ``that doesn't make any sense.''
New Visual also paid 1.5 million shares, which it valued at about $3 million, to establish a $1.5 million line of credit with five offshore trusts. It has since borrowed $529,000.
Again, why did the company pay an advance fee amounting to twice the amount it was seeking to borrow? ``Of course it was expensive, but at that time we didn't have much going for us,'' said Willenberg.
Last week, New Visual repeated its outside auditor's January warning about the company's viability. The company's revenue for the nine months ended July 31 amounted to $7,700.
In June, New Visual hired Continental Capital & Equity Corp. to provide financial public relations. Continental subsequently sent out 120,000 copies of a publication called ``Inside Wall Street'' to promote New Visual to brokers and investors.
Lab Tests
As part of an agreement in which he signed a six-month contract for his company to represent New Visual, Continental founder John Manion agreed to resign as its president. Manion stepped down one month later in July.
Manion, 52, is to be sentenced Sept. 22 on prior federal charges of securities fraud. Manion, who'd pleaded guilty in April, faces 21 to 27 months in prison, said Assistant U.S. Attorney Patricia Notopoulos. Sean O'Shea, Manion's attorney, didn't return calls to comment.
In 1996, Continental and Manion settled fraud charges filed by the Securities Exchange Commission by agreeing not to violate securities laws in the future.
So now, with a cash crunch looming, New Visual's future may be riding on independent tests of its process by engineers from Lucent Technologies Inc. Those tests, scheduled for this week, today were delayed until next month because the company said it discovered unspecified ``additional technical innovations.''
Will the laboratory tests confirm that New Visual has struck Internet gold -- in effect hot-wiring copper to send data faster and farther than ever before?
Even if the technology passes outside muster, Blevins says problems remain to be overcome in the real world, where copper wires face interference from cross talk, bad splices and line noise.
``There's a whole slew of issues,'' said Blevins. ``It's much easier to do it in the lab.''
Sep/19/2000 12:02 ET
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