INTERVU INC, S-1, 1997-08-13

INTERVU INC
S-1, 1997-08-13

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1997

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

INTERVU INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 7371 33-0680870
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

201 LOMAS SANTA FE DRIVE
SOLANA BEACH, CA 92075
(619) 350-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

HARRY E. GRUBER
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
INTERVU INC.
201 LOMAS SANTA FE DRIVE
SOLANA BEACH, CA 92075
(619) 350-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
SCOTT N. WOLFE, ESQ. PETER LILLEVAND, ESQ.
DAVID A. HAHN, ESQ. IAIN MICKLE, ESQ.
ROBERT E. BURWELL, ESQ. BRETT E. COOPER, ESQ.
LATHAM & WATKINS ORRICK, HERRINGTON & SUTCLIFFE LLP
701 "B" STREET, SUITE 2100 OLD FEDERAL RESERVE BANK BUILDING
SAN DIEGO, CALIFORNIA 92101 400 SANSOME STREET
(619) 236-1234 SAN FRANCISCO, CALIFORNIA 94111
(415) 392-1122
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
===========================================================================================================
PROPOSED
AMOUNT MAXIMUM OFFERING PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value......... shares $ $25,300,000 $7,667
===========================================================================================================
</TABLE>

(1) Includes shares subject to the Underwriters' option to cover
over-allotments.

(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457 under the Securities Act of 1933.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
- --------------------------------------------------------------------------------

SHARES
LOGO

INTERVU INC.

COMMON STOCK
- --------------------------------------------------------------------------------

InterVU Inc. ("InterVU" or the "Company") hereby offers shares of
Common Stock, $.001 par value per share (the "Common Stock"). Prior to the
offering (the "Offering"), there has been no public market for the Common Stock
and there can be no assurance that such a market will develop after completion
of the Offering, or if developed, that it will be sustained. It is presently
anticipated that the initial public offering price will be between $ and
$ per share. See "Underwriting" for information relating to the
determination of the initial public offering price. The Company has applied to
have the Common Stock approved for listing and trading, subject to official
notice of issuance, on the American Stock Exchange ("AMEX") under the symbol
IVU.
- --------------------------------------------------------------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED
HEREBY.
- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
=================================================================================================
</TABLE>

(1) Does not include a non-accountable expense allowance payable to Josephthal
Lyon & Ross Incorporated ("Josephthal") and , representatives of
the several underwriters (the "Representatives"). In addition, see
"Underwriting" for further information concerning indemnification and
contribution arrangements with, and other compensation payable to, the
Underwriters.

(2) Before deducting offering expenses estimated to be $850,000, including the
Representatives' non-accountable expense allowance.

(3) The Company has granted the Underwriters an option (the "Over-Allotment
Option"), exercisable for a period of 30 days after the date of this
Prospectus, to purchase up to an additional shares of Common Stock
upon the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
- --------------------------------------------------------------------------------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering without notice and to reject any order in whole or in part. It is
expected that delivery of the Common Stock offered hereby will be made against
payment therefor at the offices of Josephthal Lyon & Ross Incorporated, New
York, New York, on or about , 1997.

JOSEPHTHAL LYON & ROSS

The date of this Prospectus is , 1997.
<PAGE> 3

------------------------

Information contained in the Company's Web site shall not be deemed to be a
part of this Prospectus.
------------------------

InterVU(TM), InstaVU(TM), V-Banner(TM), All Eyes(TM), Fast Track(TM),
EyeQ(TM), Get Smart(TM), Smart Seek(TM), InterVU Player(TM), InstaVU Player(TM),
InterVU Network(TM), Smart Mirror(TM), SmartVU(TM), Virtual URL(TM), Virtual
Hop(TM) and the InterVU logo are trademarks of the Company. The Company has
filed applications for trademark registration on the following trademarks: All
Eyes, InstaVU, InterVU, Smart Mirror, SmartVU, Virtual Hop and Virtual URL. The
Company has applied for servicemark registration on VUTOPIA. This Prospectus
also includes trademarks of companies other than the Company.
------------------------

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Investors
should carefully consider the information set forth under the heading "Risk
Factors." Except as otherwise indicated, all information in this Prospectus (i)
assumes that the Over-Allotment Option will not be exercised; (ii) assumes no
exercise of the warrants to be issued by the Company to the Representatives to
purchase up to shares of Common Stock (the "Advisors' Warrants");
(iii) has been adjusted to give effect to the two-for-one stock split in July
1997 and the -for-one reverse stock split in 1997
(the "Stock Splits"); and (iv) reflects the automatic conversion of all
outstanding shares of the Company's Preferred Stock into Common Stock upon the
closing of the Offering.

THE COMPANY

InterVU Inc. is a specialized service company seeking to establish a
leadership position in the Internet video delivery market. The Company utilizes
a proprietary software system for routing and distributing high quality video
over the Internet at rapid speeds. Unlike traditional Web site based video
delivery solutions, the Company's system moves the video delivery mechanism away
from the owner's Web site and on to the Company's network of specialized video
servers strategically situated on the Internet (the "InterVU Network"). The
InterVU Network allows the Company to deliver video quickly to end-users and
allows Web site owners and advertisers to provide video on the Internet without
having to invest in costly hardware and software or to maintain a staff of
employees with video delivery expertise.

The Company's target customers are the increasing number of Web site owners
that seek a means of adding video presentations to their Web pages in an easily
implemented and cost effective manner and advertisers that wish to incorporate
video into banners and other Internet advertisements. The Company believes that
multimedia-rich Web sites, capable of delivering high quality video content
quickly to the end-user, can generate significant marketing differentiation and
"top of mind" awareness in consumer buying decisions. Web site owners that have
used the Company's services include Major League Baseball, the Lifetime
Television Network (Hearst/ABC-Viacom Entertainment Service), Yachting Magazine
(Times Mirror Magazines), Turner Classic Movies (Turner Broadcasting System),
Court TV, Speedvision Online (Cable Network Services) and NET-Political Talk.
The Company currently has a video banner advertisement promoting Goldwin Golf
and, on the Yahoo! Web site, a video banner advertisement for the recently
released Columbia Pictures movie "Air Force One."

The Internet and most Internet software, hardware and service providers
have experienced dramatic growth over the last three years. Unprecedented
commercial and end-user interest in the Internet has been spurred by the
introduction of key technologies, including Web browsers and powerful search
engines. These technologies, along with consistent usage of Universal Resource
Locators ("URLs"), have enabled end-users of the Internet to quickly and
smoothly navigate to sites around the world. International Data Corporation has
estimated that as of the end of 1996 there were approximately 35 million
end-users of the Internet and that there would be approximately 175 million
end-users by the year 2001. According to a Netcraft survey, as of July 1997
there were approximately 1.2 million Web sites.

Traditional Internet video delivery mechanisms have been adversely affected
by traffic congestion on the Internet and the limitations of video server
storage and delivery resources, desktop storage capabilities and desktop
processing power available for video decoding and playback. In addition, many
Web site owners and advertisers have been reluctant to make the significant
investments in hardware and software necessary to deliver video over the
Internet from their own sites. As a result, most Web site owners and advertisers
have been slow to utilize video on the Internet.

The Company's network solution, by contrast, provides high throughput
delivery of video messages to end-users over the Internet and allows Web site
owners and advertisers to use video on the Internet without incurring
substantial start-up costs. Video messages are hosted on the InterVU Network but
accessed from customers' Web sites. Upon the request of an end-user at a
participating Web site, the InterVU Network

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<PAGE> 5

transmits video messages directly to the viewer. In the case of video banner
advertisements, the video is displayed automatically to end-users with video
player capability that visit the Web site containing the advertisement. The
InterVU Network is designed to be platform, browser and software player
independent, allowing Web site owners and advertisers to use a variety of
digital video encoding formats with the assurance that such formats will be
compatible with most platforms, browsers and software players an end-user may be
utilizing. The InterVU Network utilizes a number of proprietary technologies,
including the Company's Smart Mirror technology, All Eyes software, InstaVU
video player and EyeQ software, which together are designed to deliver video to
the end-user from the "electronically closest" server, provide Web site owners
or advertisers with the ability to reach an increased number of end-users with
their video content and improve end-users' video viewing experience.

The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees or for a
combination thereof. The Company expects to generate additional revenues in the
future from selling advertising space on Web pages when Web site owners offer
such space on their pages in exchange for a sharing of fees or for video
encoding and delivery services performed by the Company. In addition, the
Company generally charges its customers fees for encoding analog video into
digital form for transmission over the Internet. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

InterVU was incorporated in Delaware in August 1995. The Company's
principal executive offices are located at 201 Lomas Santa Fe Drive, Solana
Beach, California 92075, and its telephone number is (619) 350-1600.

THE OFFERING

Common Stock offered.................... shares

Common Stock to be outstanding after the
Offering................................ shares(1)

Use of proceeds......................... Expansion of marketing and sales
efforts, additional research and
development expenditures, capital
expenditures and working capital
and other general corporate
purposes. See "Use of Proceeds."

Risk factors............................ The securities offered hereby are
speculative in nature and involve a
high degree of risk. See "Risk
Factors."

Proposed AMEX symbol.................... IVU
- ---------------

(1) Excludes shares of Common Stock issuable upon exercise of the
Advisors' Warrants and shares of Common Stock issuable upon
exercise of outstanding options under the 1996 Stock Plan of InterVU Inc.
(the "1996 Stock Plan").

4
<PAGE> 6

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS ENDED
(AUGUST 2, 1995) YEAR ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, -----------------
1995 1996 1996 1997
---------------- ------------ ----- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ -- $ -- $ -- $ 31
Operating expenses:
Research and development.................. 33 1,420 497 891
Selling, general and administrative....... 16 910 231 1,364
---- ------ ----- ------
Total operating expenses..................... 49 2,330 728 2,255
Loss from operations......................... (49) (2,330) (728) (2,224)
Interest income.............................. 3 52 19 42
---- ------ ----- ------
Net loss..................................... (46) (2,278) (709) (2,182)
Pro forma net loss per share (1)............. $ $
====== ======
Shares used in computing pro forma net loss
per share (l).............................
====== ======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------ ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $3,453 $ 5,773 $
Working capital........................................... 3,230 5,550
Total assets.............................................. 3,860 6,180
Long-term debt............................................ 2,024 14
Total stockholders' equity................................ 1,583 5,913
</TABLE>

- ---------------

(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.

(2) Gives effect to the conversion of $2.0 million in stockholder advances at
June 30, 1997, and additional proceeds of $2.3 million received in July and
August 1997, related to the issuance of an aggregate of shares of
Series F Convertible Preferred Stock in July and August 1997.

(3) As adjusted to reflect the sale by the Company of shares of Common
Stock at an assumed initial public offering price of $ per share,
and the receipt of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."

5
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RISK FACTORS

An investment in the shares of Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to the other
information contained in this Prospectus, the following factors should be
considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby. This Prospectus contains,
in addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed in the forward-looking statements as a result of certain
factors, including, but not limited to, those discussed below as well as those
discussed elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES

The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. Accordingly, the Company has a limited operating
history on which to base an evaluation of its business and prospects. The
Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets such as
the delivery of video over the Internet. Such risks for the Company include, but
are not limited to, an evolving and unproven business model and the management
of growth. To address these risks, the Company must, among other things,
maintain and significantly increase its customer base, implement and
successfully execute its business and marketing strategy, continue to develop
and upgrade its technology, provide superior customer service, respond to
competitive developments, and attract, retain and motivate qualified personnel.
There can be no assurance that the Company will be successful in addressing
these risks, and the failure to do so could have a material adverse effect on
the Company's business, prospects, financial condition and results of
operations.

Since inception, the Company has incurred significant losses and, as of
June 30, 1997, the Company had an accumulated deficit of approximately $4.5
million. To date, the Company has not generated any significant revenues and, as
a result of the significant expenditures that the Company plans to make in sales
and marketing, research and development and general and administrative
activities over the near term, the Company expects to continue to incur
significant operating losses on both a quarterly and annual basis for the
foreseeable future. For these and other reasons, there can be no assurance that
the Company will ever achieve or be able to sustain profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy."

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF
FUTURE REVENUES

The Company's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include the future adoption rate of video content by Web site owners,
the Company's ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction, the level of use of the Internet
and the growth of the market for video advertising on the Internet, the amount
and timing of costs and expenditures relating to the expansion of the Company's
business, the introduction or announcement of new Internet services by the
Company and its competitors, price competition or pricing changes in the
Internet, cable and telecommunications industries, technical difficulties or
network downtime, general economic conditions and economic conditions specific
to the Internet, Internet media, corporate intranet and cable industries. As a
result of the Company's limited operating history and the emerging nature of the
markets in which it competes, the Company is unable to accurately forecast its
revenues. In addition, the Company plans to increase operating expenses to fund
additional sales and marketing, research and development and general and
administrative activities. To the extent that these expenses are not accompanied
by an increase in revenues, the Company would have to decrease or cease such
expenditures or the Company's operating results and financial condition could be
materially adversely affected. Due to all of the foregoing factors, it is
possible that the Company's operating results in one or more future quarters
will fail to meet or exceed the expectations of securities analysts or
investors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

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UNPROVEN ACCEPTANCE OF THE COMPANY'S FEE STRUCTURE

The Company's business plan calls for it to generate revenues primarily
from fees charged to customers for the volume of video content delivered. To
date, however, the Company has generated most of its revenues from flat rate
monthly fees charged to customers based upon video delivery and encoding
services. In addition, certain of the Company's Web site customers have traded
advertising space on their Web pages for video delivery services provided by the
Company. Although monthly fees charged by the Company typically are based on
estimates of the amounts such customers would pay under the pay-per-delivery
approach, flat rate billing exposes the Company to the risk that end-users will
download customers' video content at higher-than-anticipated rates, causing the
Company to incur bandwidth expenses in excess of revenues. Likewise, trading
video delivery services for advertising space exposes the Company to the risk
that it will not generate sufficient proceeds from sales of advertising to cover
its costs of supplying video delivery services. The Company does not currently
have the expertise or staffing necessary to liquidate significant amounts of
Internet advertising inventory through the direct sale of advertising to clients
or the sale of advertising space to a reseller of such space, and there can be
no assurance that the Company will develop such expertise and staffing or that
the Company will establish a strategic relationship with a company having such
capacities. There can be no assurance that the Company's pay-per-delivery fee
structure will become widely accepted by Web site owners and advertisers, and
the failure of the Company to successfully implement its pay-per-delivery fee
structure or a profitable monthly fee equivalent would have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

UNCERTAIN ACCEPTANCE OF THE COMPANY'S SERVICES

The Company's ability to achieve and maintain a leadership position in
Internet video delivery will depend, among other things, on the Company's
success in providing high-speed, high-quality video over the Internet, the
Company's marketing efforts and the reliability of the Company's networks and
services, none of which can be assured. If Web site owners and advertisers do
not perceive the Company's services to be of high quality, or if the Company
introduces new services or enters into new business ventures that are not
favorably received, the Company's business, prospects, financial condition and
results of operations would be materially adversely affected.

In order to attract early customers and achieve penetration of the market
for Internet video delivery, the Company initially provided up to 90 days of
free trial service to certain customers. Of the 20 customers who received such
discounts, eight customers have emerged from the free trial period and are
currently paying for the Company's video delivery services, 11 customers remain
in the trial period, and one customer discontinued the Company's video delivery
service. There can be no assurance that the Company's customers will continue to
utilize the Company's services or that the Company will be able to attract and
retain new customers. The failure of the Company to retain customers after the
free trial period or the inability of the Company to attract and retain new
customers could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.

Use of the Internet by consumers is at a very early stage of development,
and market acceptance of the Internet as a medium for information,
entertainment, commerce and advertising is subject to a high level of
uncertainty. The Company's success will depend in large part on the development
and acceptance of the Internet as an advertising medium and, specifically, the
use of advertising and Web sites which incorporate video. The Company's
customers have only limited experience, if any, with the Internet as a marketing
and advertising medium, and neither its customers nor their advertising agencies
have devoted a significant portion of their advertising budgets to
Internet-based marketing and advertising activities in the past. In order for
the Company to generate revenues from Web site owners and advertising customers,
Web site owners, advertisers and advertising agencies must direct a portion of
their budgets to Internet-based marketing and advertising activities which
incorporate video. There can be no assurance that Web site owners, advertisers
or advertising agencies will be persuaded to allocate or continue to allocate
portions of their budgets to Internet-based marketing and advertising activities
or, if so persuaded, that they will incorporate video in such marketing and
advertising activities. If Internet-based marketing and advertising activities
incorporating video are not widely

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accepted by advertisers and advertising agencies, the Company's business,
prospects, financial condition and results of operations would be materially
adversely affected. See "Business -- Marketing and Sales."

COMPETITION

The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. In addition, the Company expects
the market for the delivery of video over the Internet, to the extent it
develops, to be intensely competitive. The Company faces substantial competition
from companies that provide the hardware, digital video encoding software and
know-how necessary to allow Web site owners and advertisers to utilize video in
their Internet marketing and advertising activities. Several companies offer
services that compete with those offered by the Company, including, among
others, Progressive Networks, Inc. (RealVideo), VDOnet Corp. (VDOLive), VXtreme,
Inc. (Web Theater), AudioNet Inc. (AudioNet) and At Home Corporation (@Home
Experience). In August 1997, Progressive Networks and MCI Communications
Corporation ("MCI") announced a strategic alliance involving the introduction of
a service, called "RealNetwork," that will deliver audio and video broadcasts
over the Internet. The RealNetwork will reportedly permit end-users to
simultaneously receive video broadcasts by distributing copies of digital video
programs to multiple points on MCI's Internet backbone. The strategic alliance
between Progressive Networks and MCI appears to be a service-based marketing
strategy similar to that being implemented by the Company. In addition,
Microsoft Corporation ("Microsoft") has made significant investments in Internet
video delivery technologies and has disclosed a multimedia strategy of
broadening the market for video compression solutions. In August 1997, Microsoft
announced (i) the release of its NetShow 2.0 multimedia server which
incorporates technology for video and audio delivery over the Internet and
corporate intranets, (ii) an agreement with leading video compression software
companies, including Progressive Networks and VDOnet Corp., to cooperate in
defining future standards based on the Microsoft Active Streaming Format and
(iii) the acquisition of VXtreme, Inc. Microsoft also holds significant equity
positions in Progressive Networks and VDOnet Corp. In addition, as was the case
with VXtreme, Inc., Progressive Networks and VDOnet Corp., providers of Internet
delivery video services may be acquired by, receive investments from or enter
into other commercial relationships with, larger, well-established and
well-financed companies, such as Microsoft and MCI. Greater competition
resulting from such relationships could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Because the operations and strategic plans of existing and future competitors
are undergoing rapid change, it is extremely difficult for the Company to
anticipate which companies are likely to offer competitive services in the
future.

The bases of competition in markets for video delivery include transmission
speed, reliability of service, ease of access, price/performance, ease-of-use,
content quality, quality of presentation, timeliness of content, customer
support, brand recognition and operating experience. The Company believes that
it compares favorably with its competitors with respect to each of these
factors, except brand recognition and operating experience, both of which have
been limited as a result of the Company's early stage of development. However,
many of the Company's competitors and potential competitors have substantially
greater financial, technical, managerial and marketing resources, longer
operating histories, greater name recognition and/or more established
relationships with advertisers and content and application providers than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to developing Internet services or online content than the Company.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect the Company's business, prospects,
financial condition and results of operations. Further, as a strategic response
to changes in the competitive environment, the Company may make certain pricing,
service or marketing decisions or enter into acquisitions or new ventures that
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.

8
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DEPENDENCE ON KEY PERSONNEL

The Company's future performance and development will depend, in large
part, upon the efforts and abilities of certain members of senior management,
including Harry E. Gruber, its Chief Executive Officer and Chairman of the
Board, and Brian Kenner, its Vice President and Chief Technology Officer. Dr.
Gruber is also serving as the Company's Chief Financial Officer until the
Company determines to retain an individual for that position. The Company has
not entered into any employment agreements. The loss of service of one or more
members of senior management could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations. In
addition, the Company believes that its future success will depend upon its
continuing ability to identify, attract, motivate, train and retain other highly
skilled managerial, financial, engineering, sales and marketing and other
personnel. Competition for such personnel is intense. There can be no assurance
that the Company will be successful in identifying, attracting, motivating,
training and retaining the necessary personnel, and the failure to do so could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Management."

DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET

The future of the Internet as a center for information exchange,
advertising, entertainment and commerce will depend in significant part on
continued rapid growth in the number of households and commercial, educational
and government institutions with access to the Internet, in the level of usage
by individuals and businesses, and in the number and quality of products and
services designed for use on the Internet. Because usage of the Internet as a
medium for on-line exchange of information, advertising, entertainment and
commerce is a recent phenomenon, it is difficult to predict whether the number
of users drawn to the Internet will continue to increase. There can be no
assurance that Internet usage patterns will not decline as the novelty of the
medium recedes or that the quality of products and services offered on-line will
improve sufficiently to continue to support user interest.

Moreover, critical issues regarding the stability of the Internet's
infrastructure remain unresolved. The rapid rise in the number of Internet users
and increased transmission of audio, video, graphical and other multimedia
content over the Web has placed increasing strains on the Internet's
communications and transmission infrastructures. Continuation of such trends
could lead to significant deterioration in transmission speeds and reliability
of the Internet and could reduce the usage of the Internet by businesses and
individuals. Any failure of the Internet to support the ever-increasing number
of users due to inadequate infrastructure, or otherwise, could materially and
adversely affect the acceptance of the Company's products and services which
would, in turn, materially and adversely affect the Company's business,
prospects, financial condition and results of operations.

RISKS OF TECHNOLOGICAL CHANGE

The markets for Internet services are characterized by rapid technological
developments, frequent new product introductions and evolving industry
standards. The emerging nature of Internet products and services and their rapid
evolution will require that the Company continually improve the performance,
features and reliability of the InterVU Network and the Company's customer
service, particularly in response to competitive offerings. There can be no
assurance that the Company will be successful in responding quickly, cost
effectively and sufficiently to these developments. There can be no assurance
that the Company will be successful in achieving widespread acceptance of its
services before competitors offer products and services with speed and
performance similar to the Company's current offerings. In addition, the
widespread adoption of new Internet or telecommunications technologies or
standards could require substantial expenditures by the Company to modify or
adapt its video delivery service and could fundamentally affect the character,
viability and frequency of Internet-based advertising, either of which could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. In addition, new services or

9
<PAGE> 11

enhancements offered by the Company may contain design flaws or other defects
that could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations. See "Business -- Technology
Overview" and "-- Customer Services."

SECURITY RISKS

Despite the implementation of security measures, the Company's networks may
be vulnerable to unauthorized access, computer viruses and other disruptive
problems. Internet Service Providers ("ISPs") and On-line Service Providers
("OSPs") have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Although the Company
intends to continue to implement industry-standard security measures,
industry-standard security measures have been circumvented in the past, and
there can be no assurance that measures implemented by the Company will not be
circumvented in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
the Company's customers and end-users, which could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.

RISKS OF ENCODING AND DISTRIBUTING ADULT VIDEO CONTENT

While the Company does not currently provide its services to Web sites that
host adult videos, the Company may in the future provide services to such sites.
In determining whether to encode and/or deliver adult video content through the
InterVU Network, the Company intends to take into account the overall costs of
providing such services, including possible negative reaction from its existing
and potential Web site and advertising customers. The loss of customers as a
result of the Company's becoming associated with adult Web sites could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. In addition, the Company could be exposed
to liability for encoding and hosting adult content deemed to be indecent or
obscene. Although the United States Supreme Court has upheld lower court
decisions declaring the anti-indecency provisions of the Telecommunications Act
of 1996 unconstitutional, the law relating to liability for transmitting obscene
or indecent material over the Internet remains unsettled.

INTELLECTUAL PROPERTY

The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and other methods. In addition, the Company has filed seven United States patent
applications and one international patent application and is in the process of
preparing additional patent applications with respect to its technology. There
can be no assurance that any patent will issue from these applications or that,
if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection to the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent or superior to the Company's technology. The Company also generally
enters into confidentiality and non-disclosure agreements with its employees and
consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's services or technology without authorization, or to develop similar
technology independently. There can be no assurance that the steps taken by the
Company will prevent misappropriation or infringement of its technology. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. The Company believes
that, due to the rapid pace of technological innovation for Internet products
and services, the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology.

10
<PAGE> 12

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws could discourage potential
acquisition proposals, could delay or prevent a change in control of the Company
and could make removal of management more difficult. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers that are priced above the then current market value of
the Common Stock. The provisions also may inhibit increases in the market price
of the Common Stock that could result from takeover attempts. These provisions
include a Board of Directors consisting of three classes; a limitation which
permits only the Board of Directors, the Chairman or the President of the
Company to call a special meeting of stockholders; a prohibition against the
stockholders acting by written consent; and certain advance notice procedures
for nominating candidates for election to the Board of Directors and for
proposing business before a meeting of stockholders. Additionally, the Board of
Directors of the Company, without further stockholder approval, may issue up to
shares of Preferred Stock, in one or more series, with such terms as
the Board of Directors may determine, including rights such as voting, dividend
and conversion rights which could adversely affect the voting power and other
rights of the holders of Common Stock. Preferred Stock may be issued quickly
with terms which delay or prevent the change in control of the Company or make
removal of management more difficult. Also, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock. See
"Description of Capital Stock -- Preferred Stock" and "-- Delaware Law and
Certain Charter and Bylaw Provisions."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public
market following the Offering could materially adversely affect the prevailing
market price of the Company's Common Stock. Upon completion of the Offering, the
Company will have shares of Common Stock outstanding. The
shares offered hereby (plus any shares issued upon exercise of the
Over-Allotment Option) will be freely tradeable. Of the remaining shares,
will be eligible for sale under Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), subject to certain volume and other
limitations. In addition, following expiration of the nine-month lockup
agreements with Josephthal, approximately additional shares will
become eligible for sale, subject in most cases to compliance with certain
volume limitations under Rule 144. Josephthal may, in its sole discretion, and
at any time without notice, release all or any portion of the shares subject to
such lock-up agreements. In addition, the Company intends to register on Form
S-8 following the effective date of the Offering, a total of shares of
Common Stock reserved for issuance or subject to outstanding options granted
under the Company's 1996 Stock Plan. The Company has agreed to sell to the
Representatives, for nominal consideration, the Advisors' Warrants to purchase
from the Company shares of Common Stock. The Advisors' Warrants are
initially exercisable at a price per share equal to 120% of the initial public
offering price for a period of four years commencing one year after the date of
this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of the Representatives. The Advisors' Warrants also provide for
adjustment in the number of shares of Common Stock issuable upon the exercise
thereof as a result of certain subdivisions and combinations of the Common
Stock. The Advisors' Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise of the Advisors'
Warrants. See "Management," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."

MANAGEMENT'S DISCRETION OVER USE OF PROCEEDS OF THE OFFERING

The Company expects to use the net proceeds of the Offering for expansion
of sales and marketing efforts, additional research and development expenditures
and general corporate purposes, including working capital and capital
expenditures. The Company may, if an opportunity arises, use an unspecified
portion of the net proceeds to acquire or invest in complementary businesses,
products and technologies. From time to time, in the ordinary course of
business, the Company expects to evaluate potential acquisitions of such
businesses, products or technologies. However, the Company has no present
understandings, commitments or agreements

11
<PAGE> 13

with respect to any material acquisition or investment. Accordingly, management
will have significant flexibility in applying the net proceeds of the Offering.
The failure of management to apply such funds effectively could have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. See "Use of Proceeds."

GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES

The Company is not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to the Internet. However,
due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet or
other online services covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. Furthermore, the growth and development of Internet markets may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on companies conducting business online. The adoption of any additional
laws or regulations may decrease the growth of Internet use, which could, in
turn, decrease the demand for the Company's services or increase the cost of
doing business, or otherwise have an adverse effect on the Company's business,
prospects, financial condition and results of operations. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.

REQUIREMENTS FOR ADDITIONAL CAPITAL

The Company believes that the net proceeds from the Offering, together with
existing cash, cash equivalents, short-term cash investments and capital lease
financing, will be sufficient to meet its working capital and capital
expenditure requirements through at least the end of 1998. However, the Company
may need to raise substantial additional funds if its estimates of working
capital and/or capital expenditures change or prove inaccurate or in order for
the Company to respond to unforeseen technological or marketing hurdles or to
take advantage of unanticipated opportunities. Over the longer term, it is
likely that the Company will require substantial additional funds to continue to
fund expansion of the InterVU Network, product development, marketing, sales and
customer support needs. There can be no assurance that any such funds will be
available at the time or times needed, or available on terms acceptable to the
Company. If adequate funds are not available, or are not available on acceptable
terms, the Company may not be able to continue to develop new technologies and
services or otherwise respond to competitive pressures. Such inability could
have a material adverse effect on the Company's business, prospects, financial
condition and result of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

The trading price of the Common Stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in quarterly operating results, announcements of
technological innovations, new sales formats or new products or services by the
Company or its competitors, changes in financial estimates by securities
analysts, conditions or trends in Internet markets, changes in the market
valuations of other Internet companies, announcements by the Company or its
competitors of significant acquisitions, strategic partnerships, joint ventures
or capital commitments, additions or departures of key personnel, sales of
Common Stock and other events or factors, many of which are beyond the Company's
control. In addition, the stock market in general, and the market for
Internet-related and technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. The trading prices of many
technology companies' stocks are at or near historical highs and reflect price
earnings ratios substantially above historical levels. There can be no assurance
that these trading prices and price earnings ratios will be

12
<PAGE> 14

sustained. These broad market and industry factors may materially and adversely
affect the market price of the Common Stock, regardless of the Company's
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such company. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which would have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.

IMMEDIATE AND SUBSTANTIAL DILUTION

Investors participating in the Offering will incur immediate, substantial
dilution in the amount of $ per share, based on an assumed initial public
offering price of $ per share. To the extent that options and warrants to
purchase the Company's Common Stock are exercised, there may be further
substantial dilution. See "Dilution."

13
<PAGE> 15

USE OF PROCEEDS

The net proceeds to be received the Company from the sale of the
shares of Common Stock offered hereby, assuming an initial public offering price
of $ per share, are estimated to be $ ($ if the
Over-Allotment Option is exercised in full), after deducting the underwriting
discounts, the non-accountable expense allowance and other estimated expenses of
the Offering payable by the Company.

The Company anticipates that the net proceeds will be used for increased
marketing and sales efforts, additional research and development expenditures
and capital expenditures. The balance of the net proceeds will be used for
working capital and other general corporate purposes. Furthermore, from time to
time the Company expects to evaluate possible acquisitions of or investments in
businesses, products and technologies that are complementary to those of the
Company, for which a portion of the net proceeds from the Offering may be used.
While the Company engages from time to time in discussions with respect to
potential investments or acquisitions, the Company has no plans, commitments, or
agreements with respect to any such investments or acquisitions. Pending such
uses, the Company intends to invest the net proceeds of the Offering in
short-term, investment-grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all future earnings, if any, for
use in the operation and development of its business and, therefore, does not
expect to declare or pay any cash dividends on its Common Stock in the
foreseeable future.

14
<PAGE> 16

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1997
was $1,582,778 or $ per share after giving effect to the Stock Splits
and the conversion of all outstanding shares of Preferred Stock into Common
Stock upon the closing of the Offering. Pro forma net tangible book value per
share represents the amount of total tangible assets of the Company reduced by
the amount of its total liabilities, divided by the total pro forma number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of the shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share (after deducting estimated
underwriting discounts, the non-accountable expense allowance and other
estimated expenses of the Offering), the pro forma net tangible book value of
the Company as of June 30, 1997 would have been $ , or $ per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates the per share dilution in net tangible book value to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $
Pro forma net tangible book value per share as of June 30, 1997.... $
Increase per share attributable to new investors...................
-------
Pro forma net tangible book value per share after the Offering.......
-------
Dilution per share to new investors.................................. $
======
</TABLE>

The following table summarizes as of June 30, 1997 on a pro forma basis
after giving effect to the Stock Splits and the conversion of all outstanding
shares of preferred stock into Common Stock upon the closing of the Offering,
the differences in total consideration paid and the average price per share paid
by existing stockholders and new investors with respect to the number of shares
of Common Stock purchased from the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- -------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... % $ % $
New investors(1)................................
------- ------- ---------- -------
Total(1).............................. 100.0% $ 100.0%
======= ===== ========= ======
</TABLE>

- ---------------

(1) If the Over-Allotment Option is exercised in full, the Company will issue an
additional shares to new investors ( % of the total of
shares outstanding) and the total consideration from new investors
will be $ ( % of the total of $ consideration paid for
all shares outstanding).

The information presented with respect to existing stockholders assumes no
exercise of the Advisors' Warrants to purchase shares of Common Stock
and no exercise of outstanding options to purchase shares of Common
Stock granted under the 1996 Stock Plan. The issuance of Common Stock upon
exercise of the Advisors' Warrants and options granted under the 1996 Stock Plan
will result in further dilution to new investors. See "Management" and Note 4 of
Notes to Financial Statements.

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<PAGE> 17

CAPITALIZATION

The following table sets forth as of June 30, 1997, (i) the actual
capitalization of the Company (as if the Stock Splits had occurred prior to June
30, 1997); (ii) the pro forma capitalization as of such date after giving effect
to the conversion of all convertible preferred shares outstanding at June 30,
1997, and the conversion of $2.0 million in stockholder advances at June 30,
1997, and additional proceeds of $2.3 million received in July and August 1997,
related to the issuance of an aggregate of shares of Series F
Convertible Preferred Stock in July and August 1997; and (iii) the pro forma
capitalization as adjusted to give effect to the sale of shares of
Common Stock offered hereby (at an assumed initial public offering price of
$ per share and after deducting the underwriting discounts, the
non-accountable expense allowance and other estimated expenses of the Offering)
and the receipt of the net proceeds therefrom. The table should be read in
conjunction with the financial statements and the related notes appearing
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- ----------
<S> <C> <C> <C>
Lease commitments...................................... $ $ $
Advances to stockholders...............................
Stockholders' equity:
Preferred Stock, $.001 par value; shares
authorized, shares issued and outstanding,
actual; shares authorized and no shares
outstanding, pro forma and as adjusted............
Common Stock, $.001 par value;
shares authorized, shares
issued and outstanding, actual;
shares authorized, shares
issued and outstanding, pro forma;
shares authorized, shares
issued and outstanding as adjusted(1).............
Additional paid-in capital...........................
Deferred compensation................................
Deficit accumulated during the development stage.....
---------- ---------- ----------
Total stockholders' equity.............................
---------- ---------- ----------
Total capitalization......................... $ $ $
========== ========== ==========
</TABLE>

- ---------------

(1) Excludes shares of Common Stock issuable upon exercise of the
Advisors' Warrants and shares of Common Stock issuable upon
exercise of outstanding options under the 1996 Stock Plan.

16
<PAGE> 18

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data for the period from the date
of inception (August 2, 1995) through December 31, 1995 and for the year ended
December 31, 1996 and the balance sheet data as of December 31, 1995 and 1996
are derived from the Company's financial statements audited by Ernst & Young
LLP, independent auditors, included elsewhere in this Prospectus. The statement
of operations data for the six months ended June 30, 1996 and 1997 have been
derived from unaudited financial statements of the Company and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the financial data for such
periods and as of such date. The results for the six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full fiscal
year.

<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION ENDED
(AUGUST 2, 1995) YEAR ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, ---------------
1995 1996 1996 1997
---------------- ------------ ----- -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................... $ -- $ -- $ -- $ 31
Operating expenses:
Research and development...................... 33 1,420 497 891
Selling, general and administrative........... 16 910 231 1,364
---- ------- ----- -------
Total operating expenses......................... 49 2,330 728 2,255
Loss from operations............................. (49) (2,330) (728) (2,224)
Interest income.................................. 3 52 19 42
---- ------- ----- -------
Net loss......................................... (46) (2,278) (709) (2,182)
Pro forma net loss per share..................... $ $
======= =======
Shares used in computing pro forma net loss per
share(1)......................................
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $509 $2,508 $3,453
Working capital...................................... 509 2,365 3,230
Total assets......................................... 521 2,776 3,860
Long-term debt....................................... 411 27 2,024
Total stockholders' equity........................... 110 2,597 1,583
</TABLE>

- ---------------

(1) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing pro forma net loss per share.

17
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
but are not limited to, the risks detailed in the "Risk Factors" section of this
Prospectus.

OVERVIEW

The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company began recognizing revenue during the first
six months of 1997 through the delivery of video content over the InterVU
Network and the provision of related services to the Company's initial
customers.

The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees based on estimates
of video to be delivered or for a combination thereof. The Company expects to
generate additional revenues in the future from selling advertising space on Web
pages when Web site owners trade such space on their pages for video encoding
and delivery services performed by the Company. The Company also generally
charges its customers fees for encoding analog video into digital form for
transmission over the Internet. See "Risk Factors -- Unproven Acceptance of the
Company's Fee Structure."

The Company has incurred net losses in each fiscal period since its
inception and, as of June 30, 1997, had an accumulated deficit of $4.5 million.
The Company currently intends to increase its sales and marketing and research
and development expenditures to increase market share. As a result, the Company
expects to incur additional significant net losses for the foreseeable future.
The Company is in the early stages of executing its business model, and the
profit potential of the Company's fee based model for the delivery of video
content or advertising is unproven in the Internet industry. Because its success
is dependent on the growth of the video market on the Internet, as well as the
growth of the Internet industry, the Company must, among other things, develop
services that are widely accepted by Web site owners, advertisers and end-users
at prices that will yield a profit. There can be no assurance that the Company's
services will achieve broad commercial or consumer acceptance. See "Risk
Factors -- Limited Operating History; Accumulated Deficit; Anticipated Losses,"
"-- Potential Fluctuations in Quarterly Operating Results; Unpredictability of
Future Revenues," "-- Unproven Acceptance of the Company's Fee Structure" and
"-- Uncertain Acceptance of the Company's Services."

The Company's economic model is predicated upon achieving significant
economies of scale relative to variable and, to a lesser extent, fixed
telecommunications costs. The Company has developed a series of software tools
and a software system to analyze Internet performance, specifically related to
congestion points on the Internet. The Company's operating strategy is to reduce
the number of congestion points experienced by end-users through the redirection
of an individual's request for video content to the optimal server location. To
date, the Company has contracted for telecommunications capacity and services
primarily from major Internet Service Providers ("ISPs"). It is the Company's
intention to continue to contract with selected ISPs in the future for Internet
services as well as to procure and install selected servers over a variety of
Internet backbones and regional Points of Presence ("POPs"). In addition, the
Company may incur significant capital equipment expenditures and lease
commitments for additional servers to expand the InterVU Network, although these
expenditures would be less significant than those required of ISPs. The Company
believes that as customer adoption rates for the Company's service increases,
the corresponding levels of video delivery volumes will allow the Company to
generate economies of scale relative to the expenses it incurs with ISPs as well
as the expenses emanating from the maintenance and amortization of its servers.
To the extent that such economies of scale are not realized, the Company's
business, prospects, financial condition and results of operations will be
materially adversely affected.

18
<PAGE> 20

RESULTS OF OPERATIONS

The financial results for the period from August 2, 1995 (inception) to
June 30, 1997 reflect the Company's initial organizational efforts, research and
development activities, capital raising activities and initial deployment of the
Company's video delivery service. The Company believes that its limited
operating history makes prediction of future results of operations difficult
and, accordingly, that its operating results should not be relied upon as an
indication of future performance. The Company began to recognize revenue during
the first six months of 1997. As such, the Company believes that any comparison
of the results of operations for the period from August 2, 1995 (inception) to
December 31, 1995 with the results for the year ended December 31, 1996 or of
the results for the six months ended June 30, 1996 with the results for the six
months ended June 30, 1997 is not meaningful.

Total revenues consist of fees for delivery of video content over the
InterVU Network and related customer services. Revenues from fees from video
delivery are recognized at the time of delivery. Revenues from related customer
services are recognized during the period in which services are provided. Total
revenues were $31,000 for the six months ended June 30, 1997, most of which was
derived from delivery fees and customer services provided to the Company's
initial customers. In order to attract early customers and achieve penetration
of the market for Internet video delivery, the Company initially provided up to
90 days of free trial service to certain customers. Of the 20 customers who
received such discounts, eight customers have emerged from the free trial period
and are currently paying for the Company's video delivery services, 11 customers
remain in the trial period, and one customer discontinued the Company's video
delivery service. There can be no assurance that the Company's customers will
continue to utilize the Company's services or that the Company will be able to
attract and retain new customers. The failure of the Company to retain customers
after the free trial period or the inability of the Company to attract and
retain new customers could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. The Company
may elect to continue this or other sales practices in the future if it
determines they are warranted.

Research and development expenses consist primarily of salaries and related
expenses for personnel, fees to outside contractors and consultants, the
allocated costs of facilities, and the depreciation and amortization of capital
equipment. Research and development expenses for the year ended December 31,
1996, the six months ended June 30, 1996 and the six months ended June 30, 1997
were $1.4 million, $497,000 and $891,000, respectively. The increase in expenses
for the first six months of 1997 over the comparable period in 1996 was
attributable to the increase in personnel and related expenses. Research and
development expenses to date have focused in three areas: the development of
software tools and enabling platforms for the distribution of video content, the
development of tools to analyze Internet performance to subsequently redirect
individual end users to optimal servers, and the development of new media player
software. Research and development expenses have been expensed as incurred.

Selling, general and administrative expenses consist primarily of salaries,
commissions, promotional expenses, professional services and general operating
costs. Also included are costs the Company incurs for Internet access and
telecommunications transport costs ("bandwidth"). These costs have both fixed
and variable factors. The Company believes that it will be able to negotiate
lower bandwidth charges as the InterVU Network expands. The expansion of the
InterVU Network will in some cases require capital equipment expenditures, the
cost of which will be amortized over the useful life of the asset. Selling,
general and administrative expenses were $910,000, $231,000 and $1.4 million for
the year ended December 31, 1996, the six months ended June 30, 1996 and the six
months ended June 30, 1997, respectively. The increase in selling, general and
administrative expenses for the first six months of 1997 over the comparable
period in 1996 was attributable primarily to the development of the Company's
sales force, related travel and entertainment expenses, expenditures for trade
shows, increased marketing activities, general operating expenses necessary to
support the Company's business and bandwidth costs.

Interest income was $52,000, $19,000 and $42,000 for the year ended
December 31, 1996, the six months ended June 30, 1996 and the six months ended
June 30, 1997, respectively. Interest income represents interest earned by the
Company on its cash and cash equivalents. The increase in interest income for
the first six

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months of 1997 over the comparable period in 1996 was the result of higher cash
and cash equivalents balances resulting from sales of equity securities.

The Company has not recorded any income tax benefit for net losses incurred
for any period from inception to June 30, 1997 due to the lack of earnings
history of the Company and the uncertainty as to the timing and amount of future
earnings, if any. See Note 6 of Notes to Financial Statements.

The Company's net loss was $2.3 million, $709,000 and $2.2 million for the
year ended December 31, 1996, the six months ended June 30, 1996 and the six
months ended June 30, 1997, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
private sales of equity securities. Through August 8, 1997, the Company had
raised $10.3 million from the sale and issuance of preferred stock and common
stock. At June 30, 1997, the principal source of liquidity for the Company was
$3.5 million of cash and cash equivalents (which included $2.0 million of
advances from stockholders received in connection with a convertible preferred
stock financing transaction consummated in July 1997). Included in the $10.3
million raised are additional proceeds of approximately $2.3 million from the
sale of convertible preferred stock in July and August 1997.

The Company has had significant negative cash flows from operating
activities since inception. Cash used in operating activities for the year ended
December 31, 1996 and the six months ended June 30, 1997 was $2.1 million and
$2.0 million, respectively. Cash used in operating activities in each of these
periods was primarily the result of increased business activity and related
operating expenses.

Cash used in investing activities for the year ended December 31, 1996 and
the six months ended June 30, 1997 was $305,000 and $161,000, respectively,
primarily representing capital expenditures for equipment, software, and
furniture and fixtures. Although the Company has no material commitments for
capital expenditures, the Company expects to expend significant amounts for
equipment, software and fixtures over the next 24 months to expand the InterVU
Network, much of which it plans to finance through capital leases.

Cash provided by financing activities for the year ended December 31, 1996
and the six months ended June 30, 1997 was $4.4 million and $3.1 million,
respectively, resulting primarily from the net proceeds received by the Company
from the sale of preferred stock.

The Company believes that the net proceeds from the Offering, together with
existing cash and cash equivalents, will be sufficient to meet its working
capital and capital expenditure requirements through at least the end of 1998.
Thereafter, if cash generated by operations is insufficient to satisfy the
Company's liquidity requirements, the Company may need to sell additional equity
or debt securities or obtain credit facilities. The sale of additional equity or
convertible debt securities may result in additional dilution to the Company's
stockholders. There can be no assurance that the Company will be able to raise
any such capital on terms acceptable to the Company or at all. See "Risk
Factors -- Requirements for Additional Capital."

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BUSINESS
INTRODUCTION

InterVU Inc. is a specialized service company seeking to establish a
leadership position in the Internet video delivery market. The Company utilizes
a proprietary software system for routing and distributing high quality video
over the Internet at rapid speeds. Unlike traditional Web site based video
delivery solutions, the Company's system moves the video delivery mechanism away
from the owner's Web site and on to the Company's network of specialized video
servers strategically situated on the InterVU Network. The Company's proprietary
approach allows the Company to deliver video quickly to end-users and allows Web
site owners and advertisers to provide video on the Internet without having to
invest in costly hardware and software or to maintain a staff of employees with
video delivery expertise.

InterVU's technologies decrease the time required for video transmission
over the Internet. The InterVU Network is made up of specialized video servers
which have been strategically situated on the Internet and which have been
designed to deliver video quickly to the greatest number of end-users. Among
other things, InterVU's All Eyes and EyeQ technologies allow end-users to view
video in a variety of digital encoding formats regardless of the specific
hardware or software end-users might have. Other innovations, such as the
Company's InstaVU video player software, allow real-time multimedia
transmissions to end-users using 28.8 Kbps or faster modems over the Internet.
The Company believes that the long wait time traditionally associated with video
transmission over the Internet is one of the primary barriers to widespread
adoption of Internet video. As a result, the Company believes that its
technological solutions could play a significant role in increasing Internet
video use.

The Company offers its services to Web site owners and advertisers for fees
based on the volume of video content delivered, for flat fees or for a
combination thereof. The Company expects to generate additional revenues in the
future from selling advertising space on Web pages when Web site owners offer
such space on their pages in exchange for a sharing of fees or for video
encoding and delivery services performed by the Company. The Company also
generally charges its customers fees for encoding analog video into digital form
for transmission over the Internet.

INDUSTRY BACKGROUND

Growth of Internet Usage and Content. The Internet and many Internet
software, hardware and service providers have experienced dramatic growth over
the last three years. Unprecedented commercial and end-user interest in the
Internet has been spurred by the introduction of key technologies including Web
browsers and powerful search engines. These technologies, along with consistent
usage of URLs, have enabled end-users of the Internet to quickly and smoothly
navigate to sites around the world. Accordingly, the Internet has been widely
accepted as a communications medium. International Data Corporation has
estimated that as of the end of 1996 there were approximately 35 million
end-users of the Internet and that there would be approximately 175 million
end-users by the year 2001. According to a Netcraft survey, as of July 1997
there were approximately 1.2 million Web sites.

Existing Internet Video Technologies. Until recently, Internet video
delivery has been of low quality and slow speed due to traffic congestion on the
Internet and the limitations of video server storage and delivery

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resources, desktop storage capabilities and desktop processing power available
for video decoding and playback. As a result, most commercial Web site owners
have been reluctant to employ video on their sites and most advertisers have
been reluctant to add video to their advertisements because existing
technologies have not provided sufficient quality and cost-effective results.

The primary barrier to achieving interactive video delivery over the
Internet is a function of the large size of video files relative to standard
hypertext markup language ("HTML") data files. The large size of video files
exacerbates four distinct challenges to quality, high speed delivery: (i)
transmission time delays from Web server to end-user which are due to the
Internet's infrastructure, (ii) the capacity of the end-user's modem, (iii)
logistical problems and costs attendant to maintaining video delivery at the Web
site, and (iv) the potential for overloading a Web site owner's server due to
increased video file delivery.

The primary approaches pursued to date by others to address video file
delivery challenges have focused on the ongoing development of
compression/decompression algorithms ("codecs"), and to a lesser extent, a
variety of strategies for optimizing server capacities and reducing Internet
traffic congestion such as the development of specialized transmission
protocols.

Codecs are used to compress and decompress video files, effectively
reducing the size of a video file so that it can be transmitted or downloaded
with increased speed and quality. Codecs were introduced during the evolution of
the CD-ROM market to enable dynamic video presentations. Codecs, however, have
technological limitations in that they alone cannot optimize all of the
variables required to produce high quality video.

Although the continued development of codecs and other technologies to
improve transmission of video data over the Internet has led to significant
improvements in Internet video delivery, the Company believes that such
technologies do not address bottlenecks inherent in the Internet's
infrastructure. In fact, the Company believes that Internet technologies that
improve transmission speed and quality ultimately will increase end-user use of
the Internet, placing more stress on the most frequently used Internet
transmission channels. As a result, the Company believes that video delivered
from single sites will continue to be subject to delays associated with
transmission of such video over the Internet.

THE INTERVU SOLUTION

Unlike companies that have introduced video delivery mechanisms requiring a
Web site owner to purchase proprietary software and hardware in order to deliver
video from a single site, InterVU has moved the video delivery mechanism away
from the owner's Web site and into Company servers dedicated to video delivery.
The Company has developed a software system for routing and distributing video
on the Internet that allows the Company to link the Company's specialized video
servers to one another, to Web sites and to Internet end-users, creating the
InterVU Network. The Company has strategically placed its video servers on the
Internet to minimize the number of routers or "hops" video content must traverse
before reaching the end-user.

The InterVU Network is designed to be platform, browser and software player
independent, which allows Web site owners to use a variety of codecs with the
assurance that such codecs will be compatible with most platforms, browsers and
software players an end-user may be utilizing. The InterVU Network is also
scalable which will allow the Company to accommodate additional content from
customers as demand increases. In addition, the InterVU Network is Internet
connection independent, which allows the Company to support a variety of
telecommunication, cable, wireless and intranet solutions in order to maximize
the number of end-users who may wish to view video messages. The InterVU Network
provides high throughput delivery of video messages to end-users through the
Internet over a range of connection speeds (ranging from 28.8 Kbps modems to
cable modems).

The Company also has developed its own video player software, InstaVU, to
improve end-users' viewing experiences. Among other things, InstaVU provides
users with a preview of the full video in the form of a slide

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show synchronized to real-time audio that plays during the download of the
remainder of the video file to the end-user's personal computer.

STRATEGY

The Company's objective is to leverage its technology and market focus to
become a leading Internet video delivery company. The Company's strategy
includes the following key elements:

Achieve Significant Market Penetration and Promote Market Expansion. The
Company intends to attract and retain Web site owners with significant video
delivery volume requirements in the sports, entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. By using the InterVU Network, Web site owners and
advertisers can deliver video without the start-up costs associated with
software and hardware and the recurring maintenance costs associated with
delivering video from one delivery site. The Company has begun to develop
relationships with Web site developers to increase awareness of the Company's
services. Web site developers, in turn, will be able to use the Company's video
delivery technology to expand their product offerings to Web site owners. The
Company's sales force has begun to promote V-Banners (real time audio and video
in the space of an Internet advertising banner) to advertisers and advertising
agencies. The Company intends to increase its in-house sales force and expand
its marketing and sales efforts to Web site owners, Web site developers,
advertisers and advertising agencies. In addition, the Company intends to
develop strategic alliances with leading advertising agencies to promote video
advertising over the Internet. The Company expects demand for its services to
increase as more companies learn about the Company's video delivery services.

Maintain Technological Leadership. The Company's strategy is to continue to
develop advanced technological solutions to increase the speed and quality of
Internet video delivery. The Company continually works to develop its
proprietary InterVU Network to further reduce the number of network bottlenecks
that video content must traverse before it reaches the end-user. The Company
also seeks to refine, among other things, its Smart Mirror technology, All Eyes
software, InstaVU video player and EyeQ software, which together deliver video
to the end user from the "electronically closest" server, increase the number of
end-users a Web site owner or advertiser can reach with its video content and
improve end-users' video viewing experience. The Company intends to extend the
functionality and uses of its core video delivery technologies by continuing to
invest in research and development.

Offer Full-Service Approach to Video Delivery. The Company's strategy is to
offer Web site owners and advertisers a simple, cost-effective method of adding
video to their Internet presentations. The Company's network approach allows
customers to display video on the Internet without having to invest in hardware
and software or to hire a staff to establish and maintain a system for video
delivery. Instead, the Company offers a simple, turn-key solution for video
delivery. Customers need only send the Company video tapes containing video to
be included on their Web sites and the Company will place the video on the
InterVU Network and establish a link between the customer's Web site or
advertisement site and the InterVU Network. Upon the request of an end-user at a
participating Web site, the Company's network transmits video messages directly
to the viewer.

Maintain Internet Connection Independence. The Company's strategy is to
continue to develop and maintain Internet video delivery products and services
that support a variety of Internet connections. The Company currently supports
major telecommunication, cable, wireless and intranet connections to the
Internet. The Company intends to maintain the functionality of its video
delivery technologies as new Internet connections are developed in order to
reach the maximum number of end-users.

Build Brand Awareness. The Company's marketing strategy is to penetrate
markets for Internet video delivery services by creating awareness for the
"InterVU" brand. The Company seeks to make the "InterVU" name synonymous with
fast, high quality video on the Internet. The Company intends to promote,
advertise and increase its brand visibility through excellent service and a
variety of marketing and promotional techniques, including advertising, trade
show involvement, the InterVU Web site, various marketing and sales materials
and Internet promotions to market the Company's services.

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TECHNOLOGY OVERVIEW

The Company has designed the InterVU Network to meet the needs of Web site
owners and advertisers who wish to deliver video content over the Internet. The
Company believes that the InterVU Network provides an attractive service to Web
site owners and advertisers by accelerating video transmission and reception
times and by providing a method to incorporate video presentations into Web
pages easily and in a cost-effective manner. InterVU's technology is based on a
proprietary software operating system which links a distributed network of
servers, using open communication standards and commercially available
components. The use of open standards allows the Company to accommodate a
variety of customer hardware and software configurations.

Network Solution. The InterVU Network and the Company's Virtual URL(TM)
technology allow Web site owners and advertisers to provide video content to
end-users without the costs and inconvenience usually associated with video on
the Internet. Instead of managing large video files and maintaining expensive
hardware, Web site owners and advertisers deliver video directly to the Company.
The Company then digitizes the video and places it on the InterVU Network. To an
end-user visiting a Web site, the video appears to come from the Web site
because of software code the Company places on the customer's Web site to link
the end-user to the InterVU Network. The Virtual URL technology makes such
redirection of video invisible to the end-user.

Avoiding Transmission Bottlenecks. The Company's configuration of
distributed video servers located along the Internet provides significant
advantages in video delivery. The InterVU Network is designed to ensure that
once an end-user requests video from a Web site, the video is transmitted from
the server on the InterVU Network that can deliver the data most quickly. This
result is achieved through the use of the Company's proprietary Smart Mirror
technology. The InterVU Network helps users bypass bottlenecks on the Internet
by determining which of its servers is electronically closest to the end-user
and sending the video from that location.

Another significant component of the Company's video delivery system is the
Fast Track Network Analyzer, which allows end-users to optimize video delivery
performance. The Fast Track Analyzer "polls" selected servers on the InterVU
Network to determine which server will provide the end-user with the best
overall video performance. From information based on end-users who have
downloaded approximately 555,000 copies of InterVU's Fast Track end-user client
software as of July 1997, the Company has created a model of Internet data flow
which allows the Company to accelerate video delivery over the InterVU Network
by storing video files on servers at strategically located primary Internet
sites.

Optimizing and Managing the InterVU Network Servers. The servers on the
InterVU Network consist of a title manager and multiple video pumps which are
designed to optimize and manage the delivery of video over the Internet. The
video pumps are computers that have been customized to accelerate video
delivery. The title manager optimizes the amount of replication of video content
on each video pump and directs end-users' requests for video content to the
video pump capable of responding most quickly to the request.

Reaching Maximum End-Users. The Company has designed its proprietary All
Eyes software to allow its customers to reach almost all end-users, regardless
of the video player software used. All Eyes is an intelligent software
application written in the Java and JavaScript programming language that
determines the capabilities of the end-user's software and ensures that any
video sent out can be played by the end-user's video player software. Even
end-users with no multimedia capabilities will usually receive a graphic image,
instead of a broken icon signifying the presence of content that they cannot
see. By contrast, traditional methods of video delivery limit the number of
end-users able to view video content to those who have the appropriate software
for a specific encoding format. In addition, All Eyes is designed to deliver
video in the appropriate format even if the end-user has not downloaded any
InterVU software.

End-User Software Technologies. InterVU's EyeQ multimedia manager software
package includes the Company's InstaVU and MPEG video players, as well as a
software utility called Get Smart. InstaVU allows multimedia streaming on a 28.8
Kbps or faster modem. The InstaVU multimedia streaming algorithm displays a
pre-selected slide show of video frames at the same time as real-time audio
while the remainder of

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the video is downloaded to the end-user's computer for subsequent viewings. Get
Smart installs and manages the EyeQ multimedia software and keeps end-users'
computers current with other multimedia capabilities to take advantage of
InterVU's service. With a single mouse click, Get Smart downloads and installs
software updates to the end-user's computer from the Internet.

CUSTOMER SERVICES

The Company employs a full service approach to providing its video delivery
services which includes (i) ease of integration of video content into Web
presentations, (ii) encoding services, (iii) network distribution, hosting and
delivery and (iv) usage reports providing delivery volume and other data.

To date, the Company has generated most of its revenues from monthly fees
charged to customers for video delivery and encoding services. Certain of the
Company's Web site customers also have traded advertising space on their pages
for video delivery services. The Company's economic model, however, calls for
the Company to generate substantially all of its revenues from charging Web site
owners and advertisers volume-based fees for video delivery services. By
providing customers with a variable cost structure which is a function only of
the amount of video content delivered, the Company plans to relieve Web site
owners of the challenge of generating economies of scale relative to fixed costs
(bandwidth), capital investments (hardware and software), and incremental
logistical staffing. The rate structure is variable, with the Company's
customers receiving reduced per-megabyte costs as delivery volumes surpass
certain average daily levels. Although the Company believes its rate structure
offers significant value to its customers, the Company's pay-per-delivery
concept remains unproven. See "Risk Factors -- Unproven Acceptance of the
Company's Fee Structure."

To allow Web site owners and advertisers to more easily integrate video
into Web sites, InterVU has developed the V-Banner, which turns the ordinary
Internet advertising banner into a video display. With V-Banners, advertisers
can provide real time video and audio through their advertising banners instead
of just a few static pictures. The Company believes that it is currently the
only company to offer banners that include video. The Company has incorporated
its All Eyes technology into its V-Banners to make them compatible with most
video players currently used by end-users. As a result, the Company offers its
advertising customers the ability to reach a wide variety of end-users with
their video advertisements. The Company can create V-Banners using video
supplied by its customers in digital or analog format.

When using the Company's video delivery services, Web site owners may
digitize and compress video messages themselves or send analog VHS or Beta tapes
to InterVU for encoding services using a variety of different codec formats. All
major codec standards, such as MPEG, Quicktime and AVI, are supported by
InterVU. The Company also offers its InstaVU format, an advanced digital
encoding technique specifically designed for the delivery of enjoyable, high
quality audio and video messages. Customers' video files are dynamically
balanced to provide high quality video and audio, full audio/video
synchronization and flexible encoding rates to match specific requirements.

MARKETING AND SALES

Marketing Strategy

The Company's marketing strategy is to position InterVU as a leading
Internet company providing video delivery services. The Company employs a
full-service approach to marketing which focuses on Internet video delivery from
a network rather than from one delivery site or Internet backbone. Additionally,
by offering a full-service approach, the Company presents Web site owners and
advertisers with the opportunity to not only forego their own capital and fixed
cost investments in new technologies, but to be placed in the continuum of
receiving the Company's most current enhancements as they become available. The
Company employs a mix of techniques including advertising, trade show
involvement, the InterVU Web site, various marketing and sales materials and
Internet promotions to market the Company's services. The Company has identified
four target markets for its services: (i) content providers (Web site owners),
(ii) advertisers, (iii) advertising agencies and (iv) Web site developers.

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Content Providers. One of the Company's primary markets is delivering video
for content providers such as Web site owners. The Company believes that video
can be successfully employed by content providers to increase Web site
promotional effectiveness to consumers. The Company's network offers content
providers the opportunity to provide such video fast enough and at high enough
quality to capture consumers' attention. In addition, the Company gives its
customers the ability to reach end-users almost without regard to the video
player software used by such end-users. The Company's All Eyes technology
intelligently determines which of a number of digital video formats will be
compatible with a particular end-user's video player software and sends the
content provider's video presentation to the end user in the appropriate format.

The Company believes its approach to video delivery appeals to content
providers because the Company eliminates the need for content providers to
purchase software servers, hardware servers or communication bandwidth. The
Company also gives Web site owners the ability to deliver video without first
acquiring digital video expertise. The Company can create a digital video
presentation from an analog video tape. In addition, the Company allows Web site
owners to experiment with using video because the Company typically charges only
for video delivered, thereby obviating the need for Web site owners to make a
commitment to delivering video before they have an opportunity to gauge end-user
response.

Advertisers. The Company believes that Internet advertisements that include
video will be entertaining to consumers and, as a result, valuable to
advertisers. The Company's V-Banners automatically display a small video
presentation in a portion of the banner when an end-user visits a Web page. The
Company believes its V-Banners will be especially appealing to advertisers
because consumers with video player capability need not take any affirmative
steps to view the video or wait for it to download. Moreover, the Company
believes that many of the advantages the Company offers to Web site owners also
apply to advertisers. Advertisers can use video on their Internet advertisements
without having to learn how to work with video delivery technologies and without
burdening their servers or those of their host Web site with video.

Advertising Agencies. The Company has begun to establish relationships with
certain major advertising agencies in an effort to make advertisers more aware
of the services the Company offers. The Company believes that advertising
agencies will want to market themselves and the Company to advertisers by
incorporating Internet video promotions into their media proposals to clients.

Web Site Developers. The Company's approach to video delivery allows Web
site developers to add video to Web pages without the need for extensive video
delivery expertise. The Company manages encoding, recommends codecs and handles
distribution. As a result, Web site developers that work with the Company can
offer a broader range of services to their customers without investing time and
money into learning and applying video delivery technologies.

Sales Strategy

The Company's sales strategy is to attract and retain Web site owners with
significant video delivery volume requirements in the entertainment,
information/education, advertising and sales promotions and Internet video
product sales industries. The Company currently has targeted the entertainment
industry, specifically cable TV, broadcast programmers and sports leagues, as a
primary customer group. The Company believes that cable TV and broadcast
programmers currently (i) have the best understanding of the InterVU Network
capability, (ii) are dedicated to achieving differentiation in their Web site
offerings by delivering video that they have developed or otherwise possess,
(iii) are in a position to quickly expand their video delivery volumes once they
are satisfied with delivery results and (iv) serve as highly credible references
for the Company. The Company's sales force also has begun actively to promote
its V-Banners to advertisers and advertising agencies.

VUTOPIA Service

Although InterVU currently provides global delivery of video messages, the
Company intends to introduce a complementary, more distributed regional service
(the "VUTOPIA Service") which the Company believes will be an attractive vehicle
for the delivery of localized content. The VUTOPIA Service will utilize the
existing InterVU Network to offer faster delivery of high quality video messages
and is designed

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to include a home channel specifically tailored to individual markets which will
allow Web site owners to target their video programs to specific market areas.
VUTOPIA Service will allow the Company's customers to obtain further
enhancements in video delivery speed and incur lower delivery costs relative to
global delivery rates.

The VUTOPIA Service will utilize the Company's Virtual URL technology which
re-directs each viewer's mouse click request for video messages to regionally
distributed servers which are expected to be located directly at the viewer's
dial up point or POP. By hosting content on multiple distributed servers located
at various POPs, the Company intends to deliver video messages over local access
lines, thereby eliminating Internet bandwidth charges and avoiding other
Internet congestion challenges. The Company is currently testing the VUTOPIA
Service with a cable provider and a cellular service provider.

COMPETITION

The market for Internet services is highly competitive, and the Company
expects competition to increase significantly. In addition, the Company expects
the market for the delivery of video over the Internet, to the extent it
develops, to be intensely competitive. The Company faces substantial competition
from companies that provide the hardware, digital video encoding software and
know-how necessary to allow Web site owners and advertisers to utilize video in
their Internet marketing and advertising activities. Several companies offer
services that compete with those offered by the Company, including, among
others, Progressive Networks, Inc. (RealVideo), VDOnet Corp. (VDOLive), and
VXtreme, Inc. (Web Theater), AudioNet Inc. (AudioNet) and At Home Corporation
(@Home Experience). In August 1997, Progressive Networks and MCI Communications
Corporation ("MCI") announced a strategic alliance involving the introduction of
a service, called "RealNetwork," that will deliver audio and video broadcasts
over the Internet. The RealNetwork will reportedly permit end-users to
simultaneously receive video broadcasts by distributing copies of digital video
programs to multiple points on MCI's Internet backbone. The strategic alliance
between Progressive Networks and MCI appears to be a service-based marketing
strategy similar to that being implemented by the Company. In addition,
Microsoft Corporation ("Microsoft") has made significant investments in Internet
video delivery technologies and has disclosed a multimedia strategy of
broadening the market for video compression solutions. In August 1997, Microsoft
announced (i) the release of its NetShow 2.0 multimedia server which
incorporates technology for video and audio delivery over the Internet and
corporate intranets, (ii) an agreement with leading video compression software
companies, including Progressive Networks and VDOnet Corp., to cooperate in
defining future standards based on the Microsoft Active Streaming Format and
(iii) the acquisition of VXtreme, Inc. Microsoft also holds significant equity
positions in Progressive Networks and VDOnet Corp. In addition, as was the case
with VXtreme, Inc., Progressive Networks and VDOnet Corp., providers of Internet
delivery video services may be acquired by, receive investments from or enter
into other commercial relationships with, larger, well-established and
well-financed companies, such as Microsoft and MCI. Greater competition
resulting from such relationships could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Because the operations and strategic plans of existing and future competitors
are undergoing rapid change, it is extremely difficult for the Company to
anticipate which companies are likely to offer competitive services in the
future.

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technical, managerial and marketing resources, longer operating histories,
greater name recognition and/or more established relationships with advertisers
and content and application providers than the Company. Such competitors may be
able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and devote substantially more resources to developing Internet
services or online content than the Company. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to changes
in the competitive environment, the Company may make certain pricing, service or
marketing decisions or enter into acquisitions or new ventures that could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.

RESEARCH AND DEVELOPMENT

The market for the Company's services is characterized by rapidly changing
technology, evolving industry standards, and frequent new product introductions.
The Company believes that it can continue to improve its existing technologies
and services as well as develop new technologies and services. The Company
develops most of its technologies in house and maintains a highly trained
research and development staff that designs and develops InterVU's new services.
The Company had research and development expenses of $33,000, $1.4 million and
$891,000 for the period from August 2, 1995 (inception) to December 31, 1995,
the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively. The Company's primary objectives are to develop and maintain the
Company's position in Internet video delivery by being at the forefront of
product and services development. Additionally, the Company seeks to incorporate
customer preferences identified by InterVU's marketing and sales groups into
development plans. The Company attempts to integrate new enhancements into the
Company's existing services. These enhancements include extending the reach of
InterVU's video delivery, reducing the cost per megabyte of video delivered,
developing new methods of scaling existing services to changing client demands,
and increasing the robustness and reliability of all software and components
created by InterVU.

INTELLECTUAL PROPERTY

The Company regards its technology as proprietary and attempts to protect
it with copyrights, trademarks, trade secret laws, restrictions on disclosure
and other methods. In addition, the Company has filed seven United States patent
applications and one international patent application and is in the process of
preparing additional patent applications with respect to its technology. There
can be no assurance that any patent will issue from these applications or that,
if issued, any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued will not be challenged, invalidated or circumvented, or that
any rights granted thereunder would provide proprietary protection to the
Company. Failure of any patents to provide protection to the Company's
technology may make it easier for the Company's competitors to offer technology
equivalent or superior to the Company's technology. The Company also generally
enters into confidentiality and non-disclosure agreements with its employees and
consultants, and generally controls access to and distribution of its
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products, services or technology without authorization, or to develop
similar technology independently. There can be no assurance that the steps taken
by the Company will prevent misappropriation or infringement of its technology.
In addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. The Company believes
that, due to the rapid pace of technological innovation for Internet products
and services the Company's ability to establish and maintain a position of
technology leadership in the industry depends more on the skills of its
development personnel than upon the legal protections afforded its existing
technology.

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<PAGE> 30

EMPLOYEES

As of August 1, 1997, the Company employed 34 full-time and four part-time
people, of whom 24 were employed in research and development, ten were employed
in sales and marketing and four were employed in administration. None of the
Company's employees is represented by a labor union, and the Company considers
its relations with its employees to be good. The Company's ability to achieve
its financial and operational objectives depends in large part upon the
continued service of its senior management and key technical personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such qualified personnel in the Company's
industry is intense, particularly in software development, network engineering
and product management personnel. See "Risk Factors -- Dependence on Key
Personnel."

FACILITIES

The Company is headquartered in facilities consisting of approximately
7,000 square feet in Solana Beach, California, which the Company occupies under
two leases, both of which expire in 1999. The Company anticipates opening a
select number of regional sales offices in the future to address the demand for
its video delivery services. Other than such regional sales offices, the Company
anticipates that the Solana Beach facilities will be adequate for the
foreseeable future.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

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<PAGE> 31

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
Company's executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------
<S> <C> <C>
Harry E. Gruber 45 Chairman, Chief Executive Officer and Chief
Financial Officer
Douglas A. Augustine 39 Vice President, Marketing and Sales
Kenneth W. Colby 48 Vice President, Engineering
Brian Kenner 38 Vice President and Chief Technology Officer
Stephen Klein 34 Vice President, Sales
Marcia M. Berman 42 Secretary and Director
Edward David 72 Director
Mark Dowley 32 Director
Isaac Willis 57 Director
</TABLE>

HARRY E. GRUBER is a founder of InterVU, and has served as Chairman and
Chief Executive Officer of the Company since July 1996. From July 1996 to July
1997, Dr. Gruber also served as the Company's President. In addition, he has
served as the Company's Chief Financial Officer since July 1997. Prior to
founding the Company, Dr. Gruber founded two start-up biotech ventures, Gensia
Inc. and Viagene Inc., which completed initial public offerings in 1990 and
1993, respectively. From July 1995 to July 1996, Dr. Gruber served as Chief
Scientific Officer of Gensia, and from 1988 to July 1995, he served as Vice
President, Research of Gensia. Dr. Gruber serves as a director of Vascular
Genomics, Inc., a privately held company, and as a director of the UCSD
Foundation and a member of the Board of Overseers for the University of
Pennsylvania College of Arts and Sciences. Dr. Gruber obtained his M.D. and B.A.
degrees from the University of Pennsylvania.

DOUGLAS A. AUGUSTINE joined the Company in August 1996 as Director of
Corporate Development, and has served as Vice President, Marketing & Sales since
December 1996. Prior to joining the Company, Mr. Augustine was Chief Operating
Officer for Ad:vent Strategic Event Marketing, a division of N.W. Ayert
Partners, a national advertising firm from February 1996 to August 1996. From
June 1989 to July 1993 and from September 1995 to January 1996, Mr. Augustine
served as President of Arlen Marketing, a company he founded in June 1989. Arlen
Marketing served as marketing and licensing agent for the 1992 America's Cup and
later provided services to Ad:vent Strategic Event Marketing in connection with
Ad:vent's Olympics projects. From July 1993 through August 1995, Mr. Augustine
served as Director of Development and Fundraising for America(3), an America's
Cup Syndicate. Mr. Augustine obtained a J.D. degree from the University of San
Diego School of Law, and a B.A. degree from the University of California,
Berkeley.

KENNETH W. COLBY joined the Company in July 1996 as Director of Engineering
and has served as Vice President, Engineering since March 1997. Mr. Colby has
over 20 years experience in software development and programming and was a
former Director of Research and Development at Integrated Software, a mainframe
graphics company. Mr. Colby has received patents for a variety of programs. He
also founded Sedona Software, a research and development company. Mr. Colby
obtained a B.S. in Electrical Engineering from Purdue University.

BRIAN KENNER is a founder of InterVU, and has served as Vice President and
Chief Technology Officer of the Company since February 1996. From 1989 to
January 1996, Mr. Kenner was a Project Engineer at Science Applications
International Corporation ("SAIC"), an advanced-technology development and
research organization. As Project Engineer, Mr. Kenner had responsibility for
products ranging from advanced hand-held instrumentation to devices which
digitize, compress, and transmit both moving and still images over public and
proprietary communications networks. Mr. Kenner obtained a B.S. in Electrical
Engineering from the University of California, San Diego.

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<PAGE> 32

STEVE KLEIN joined the Company in May 1996 as Director of Business
Development and Sales and has served as Vice President, Sales since March 1997.
From 1994 to 1996, he served as New Business Development Manager for General
Instrument Corporation where he was one of the originating founders of the
SURFboard Program, General Instrument's Internet cable modem technology and
product line. From 1988 to 1992, Mr. Klein held various product management and
technical management positions at General Instrument's VideoCipher Division. Mr.
Klein obtained an M.B.A. from San Diego State University and a B.S. in
Engineering from Ohio State University.

MARCIA M. BERMAN has served as Secretary and a director of the Company
since its inception in August 1995. She is the Managing Director of Westchester
Group LLC, a stockholder in the Company. Ms. Berman obtained an M.S.W. degree
from the University of Pennsylvania and a B.A. in Psychology from Simmons
College. Ms. Berman serves as a director of Vascular Genomics, Inc., a privately
held company.

EDWARD DAVID has served as a director of the Company since its inception in
August 1995, and is President of Edward E. David, Inc., a telecommunications
consulting firm. He has been Science Advisor to the President of the United
States, and Director of the White House Office of Science and Technology. Dr.
David was also President of Exxon Research and Engineering Company and Executive
Director of Bell Telephone Laboratories. Mr. David serves as a director for
Intermagnetics General Corporation, Spacehab, Inc., California Microwave and
Protein Polymar Technologies, all of which are publicly traded companies. Until
recently, he served as the U.S. Representative to the NATO Science Committee.

MARK DOWLEY joined the Company as a director in January 1997 and is the
Chief Executive Officer of Momentum IMC, an advertising agency division of
McCann-Erickson, a national advertising firm. Mr. Dowley has over ten years
experience in major event management, promotion, and sponsorship. Mr. Dowley's
past and current clients include the NBA, the PGA Tour, NCAA, The Walt Disney
Company and Universal Studios. Mr. Dowley is also a member of McCann-Erickson's
board of directors. Mr. Dowley received a B.A. degree in Economics from the
College of Wooster.

ISAAC WILLIS has served as a director of the Company since November 1995.
Dr. Willis is a private investor with experience in venture financing and
banking, including the founding of Heritage Bank, Commercial Bank of Georgia and
Commercial Bank of Gwinnett. Dr. Willis has been a Professor and Director of
Dermatology Research at Morehouse School of Medicine since 1983 and was a Past
Commander of the 3297th U.S. Army Hospital. Dr. Willis obtained a M.D. from
Howard University and a B.S. in Chemistry and Mathematics from Morehouse
College.

CLASSIFIED BOARD OF DIRECTORS

Classified Board of Directors. The Company's Amended and Restated
Certificate to be adopted prior to the closing of the Offering will provide for
the Company's Board to be divided into three classes of directors, with each
class as nearly equal in number as possible, serving staggered three-year terms.
As a result, approximately one-third of the Company's Board will be elected each
year. The director in Class I will be , whose term will expire at the
annual stockholders meeting in 1998. The directors in Class II will be
and , whose terms will expire at the annual stockholders
meeting in 1999. The directors in Class III will be and ,
whose terms will expire at the annual stockholders meeting in 2000. The
classified board provision will help to assure the continuity and stability of
the Company's Board and the business strategies and policies of the Company as
determined by the Board.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit Committee. Concurrently with the closing of the Offering, the Board
of Directors will establish an audit committee (the "Audit Committee") which
will consist of Mr. David and Dr. Willis. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.

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<PAGE> 33

Compensation Committee. Concurrently with the closing of the Offering, the
Board of Directors will establish a compensation committee (the "Compensation
Committee"), which will consist of Mr. Dowley and Ms. Berman, to determine
compensation for the Company's senior executive officers and to administer the
1996 Stock Plan.

The Board of Directors of the Company initially will not have a nominating
committee or any other committee.

COMPENSATION OF DIRECTORS

The directors of the Company have never received any cash compensation from
the Company for services rendered as directors. Each of the non-management
directors has received compensation in the form of restricted stock awards or
non-statutory stock options to purchase up to 40,000 Common Stock shares of the
Company. Dr. Willis received an additional option to purchase up to 40,000
shares. Such stock awards and options are subject to repurchase rights or
vesting schedules.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996, the Stock Committee of the Company's Board of Directors, which
administered the 1996 Stock Plan, consisted of Dr. Gruber, the Company's
President and Chief Executive Officer, and Ms. Berman, the Company's Secretary.
No options were granted to Dr. Gruber or to Ms. Berman while such individuals
served on the Stock Committee.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
for the fiscal year ended December 31, 1996 received by the Chief Executive
Officer. No other executive officer of the Company meets the definition of
"highly compensated" within the meaning of the executive compensation disclosure
rules of the Securities and Exchange Commission (the "Commission").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER
NAME AND ANNUAL
PRINCIPAL POSITIONS SALARY($) BONUS($) COMPENSATION($)
- -------------------------------------------------------- --------- -------- ---------------
<S> <C> <C> <C>
Harry E. Gruber, Chief Executive Officer and Chairman of
the Board............................................. $87,450 $-- $ --
</TABLE>

1996 STOCK PLAN

The Company adopted the 1996 Stock Plan in December 1996 to enable key
employees, offices and consultants of the Company to acquire a proprietary
interest in the Company, and thus to create in such persons an increased
interest in and a greater concern for the welfare of the Company. The 1996 Stock
Plan provided for aggregate option grants of up to shares. As of
August 8, 1997, options to purchase an aggregate of shares of Common
Stock at prices ranging from $ to $ were outstanding under the 1996
Stock Plan.

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<PAGE> 34

CERTAIN TRANSACTIONS

Through January 1996, the Company issued an aggregate of
shares of Common Stock ("Restricted Stock") to certain of its founders for
aggregate consideration of $2,712. In connection with such issuance, the Company
entered into Vesting Agreements, dated March 4, 1996, with such individuals and
the other founders of the Company (collectively, the "Founders"). Each Vesting
Agreement grants to the Company the right to repurchase at the original issue
price all unvested shares of a Founder's Restricted Stock upon each Founder's
death or disability or his or her unwillingness to provide the services
requested by the Company in such Founder's Vesting Agreement. The Vesting
Agreements currently provide for daily vesting of Restricted Stock over a
five-year period (with no shares vesting until March 4, 1997. The Vesting
Agreements also grant the Company rights of first refusal to purchase vested
shares of Restricted Stock before such shares may be sold to third parties. The
Vesting Agreements do not contain termination provisions and will not terminate
by their terms upon completion of the Offering. The Company, however, expects to
amend the vesting and other provisions of such agreements prior to the closing
of the Offering.

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<PAGE> 35

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of August 8, 1997 and as adjusted after the
Offering by (i) each of the Company's directors, (ii) each of the Company's
executive officers, (iii) each person who is known by the Company to own
beneficially more than 5% of the Common Stock and (iv) all directors and
executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF CLASS(3)
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS(1) OWNED(2) OFFERING OFFERING
------------------------------------------------------ --------- -------- --------
<S> <C> <C> <C>
Harry Gruber(4)....................................... % %
Brian Kenner(5).......................................
Alan Gruber(6)........................................
Isaac Willis(7).......................................
Marcia Berman(8)......................................
Edward David(9).......................................
Mark Dowley...........................................
Douglas Augustine(10).................................
Stephen Klein(11).....................................
Kenneth Colby(12).....................................
All directors and executive officers as a group(9
persons)(13)........................................ % %
</TABLE>

- ---------------

* Less than one percent (1%).

(1) Except as indicated, the address of each person named in the table is c/o
InterVU Inc., 201 Lomas Santa Fe Drive, Solana Beach, CA 92075.

(2) Beneficial ownership of directors, officers and 5% or more stockholders
includes both outstanding Common Stock and shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them.

(3) Assumes no exercise of the Over-Allotment Option.

(4) Includes shares subject to the Company's repurchase right under a
Vesting Agreement.

(5) Includes shares subject to the Company's repurchase right under a
Vesting Agreement.

(6) Includes shares subject to the Company's repurchase right under a
Vesting Agreement.

(7) Includes shares subject to the Company's repurchase right under a
Vesting Agreement.

(8) Includes shares held by Westchester Group LLC, a Delaware limited
liability company, the members of which are Ms. Berman, individually with
respect to % of the LLC interests, and as custodian for her minor
children under the New York Uniform Gifts to Minors Act with respect to %
of the LLC interests. shares held by Westchester Group LLC are
subject to the Company's repurchase right under a Vesting Agreement.

(9) Includes shares subject to the Company's repurchase right under a
Vesting Agreement. Includes shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.

(10) Includes shares subject to the Company's repurchase right under a
Vesting Agreement. Includes shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.

34
<PAGE> 36

(11) Includes shares subject to the Company's repurchase right under a
Vesting Agreement.

(12) Includes shares subject to the Company's repurchase right under a
Vesting Agreement. Includes shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.

(13) Includes the shares described in notes ( ) through ( ).

Certain of the shares of the Company's Common Stock held by principal
stockholders are subject to the terms of Vesting Agreements described under
"Certain Transactions."

DESCRIPTION OF CAPITAL STOCK

The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate") and
Amended and Restated Bylaws (the "Bylaws"), which are included as exhibits to
the Registration Statement of which this Prospectus forms a part, and by the
provisions of applicable law.

Upon the closing of the Offering, the authorized capital stock of the
Company will consist of shares of Common Stock, par value $.001 per
share, and shares of preferred stock, par value $.001 per share, after
giving effect to amendments to the Company's Certificate that have been approved
by the Company's Board of Directors and stockholders.

COMMON STOCK

As of August 8, 1997, there were shares of Common Stock
outstanding held of record by 37 stockholders.

Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of the Company. Subject to the preferences
that may be applicable to any outstanding preferred stock, the holders of Common
Stock are entitled to a ratable distribution of any dividends that may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior liquidation rights of any
outstanding preferred stock. The Common Stock has no preemptive, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering, when issued and paid for, will be, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any preferred stock which the Company may designate and
issue in the future.

PREFERRED STOCK

Upon the closing of the Offering, each outstanding share of preferred stock
will be converted into Common Stock, and such shares of preferred stock will be
automatically retired. Thereafter, the Board of Directors will be authorized,
without further stockholder approval, to issue up to shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted or imposed upon any unissued shares of
preferred stock and to fix the number of shares constituting any series and the
designations of such series.

The issuance of preferred stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of the Offering, no shares of
preferred stock will be outstanding, and the Company currently has no plans to
issue any shares of preferred stock.

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<PAGE> 37

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

The following is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL") and the Company's Certificate and Bylaws.
This summary does not purport to be complete and is qualified in its entirety by
reference to the DGCL, the Certificate and the Bylaws.

InterVU is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.

Certain provisions of the Certificate and the Bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of the policies formulated by
InterVU's Board. In addition, these provisions are intended to ensure that the
Board will have sufficient time to act in what the Board of Directors believes
to be in the best interests of the Company and its stockholders. These
provisions also are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for the
restructuring or sale of all or part of the Company. The provisions are also
intended to discourage certain tactics that may be used in proxy fights.

Classified Board of Directors. The Certificate provides for the Company's
Board to be divided into three classes of directors, with each class as nearly
equal in number as possible, serving staggered three-year terms. As a result,
approximately one-third of the Company's Board will be elected each year. The
director in Class I will be , whose term will expire at the annual
stockholders meeting in 1998. The directors in Class II will be and
, whose terms will expire at the annual stockholders meeting in 1999.
The directors in Class III will be and , whose terms will
expire at the annual stockholders meeting in 2000. The classified board
provision will help to assure the continuity and stability of the Company's
Board and the business strategies and policies of the Company as determined by
the Board. The classified board provision could have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of the Company. In addition, the classified board provision could delay
stockholders who do not like the policies of the Company's Board from removing a
majority of the Board for two years.

No Stockholder Action by Written Consent; Special Meetings. The Certificate
provides that stockholder action can only be taken at an annual or special
meeting of stockholders and prohibits stockholder action by written consent in
lieu of a meeting. The Bylaws provide that special meetings of stockholders may
be called only by the Board, its Chairman or the President of the Company.
Stockholders are not permitted to call a special meeting of stockholders or to
require that the Board call a special meeting.

Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides that
only persons who are nominated by, or at the direction of, the Company's Board
or its Chairman, or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The
Stockholder Notice Procedure also provides that at an annual meeting only such
business may be conducted as has been brought before the meeting by, or at the
direction of, the Board or its Chairman or by a stockholder who has given timely
written notice to the Secretary of the Company of such stockholder's intention
to bring such business before such meeting. Under the Stockholder Notice
Procedure, if a stockholder desires to submit a proposal or nominate persons for
election as directors at an annual meeting, the stockholder must submit written
notice to the Company not less than 60 days nor more than 90 days prior to the
first anniversary of the previous year's annual meeting (or if the date of the
annual meeting is not within 30 days before or after such anniversary date,
then, to be timely, notice must be received

36
<PAGE> 38

no later than the 10th day after notice of the meeting was mailed or after
public announcement of the date of such meeting is first made). In addition,
under the Stockholder Notice Procedure, a stockholder's notice to the Company
proposing to nominate a person for election as a director or relating to the
conduct of business other than the nomination of directors must contain certain
specified information. If the chairman of a meeting determines that business was
not properly brought before the meeting, in accordance with the Stockholder
Notice Procedure, such business shall not be discussed or transacted.

Number of Directors; Removal; Filling Vacancies. The Bylaws provide that
the Company's Board will consist of between and members, the
exact number to be fixed from time to time by resolution adopted by the
directors of the Company. The Board currently consists of five directors.
Further, subject to the rights of the holders of any series of preferred stock
then outstanding, the Bylaws authorize the Board to fill newly created
directorships. Accordingly, this provision could prevent a stockholder from
obtaining majority representation on the Board by permitting the Board to
enlarge the size of the Board and fill the new directorships with its own
nominees. A director so elected by the Board holds office until the next
election of the class for which such director has been chosen and until his
successor is elected and qualified. Subject to the rights of the holders of any
series of preferred stock then outstanding, the Bylaws also provide that
directors may be removed only for cause and only by the affirmative vote of
holders of 66% of the outstanding shares of voting securities. The effect of
these provisions is to preclude a stockholder from removing incumbent directors
without cause and simultaneously gaining control of the Company's Board by
filling the vacancies created by such removal with its own nominees.

Indemnification. The Company has included in its Certificate and Bylaws
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the DGCL and (ii) indemnify its directors and officers to the fullest extent
permitted by Section 145 of the DGCL, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.

Bylaws. The Certificate provides that the Bylaws are subject to adoption,
amendment, alteration, repeal or rescission either by (a) a majority of the
authorized number of directors or (b) the affirmative vote of the holders of not
less than two-thirds of the outstanding shares of voting securities. This
provision will make it more difficult for stockholders to make changes in the
Bylaws by allowing the holders of a minority of the voting securities to prevent
the holders of a majority of voting securities from amending the Bylaws.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
.

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<PAGE> 39

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares sold in
the Offering (plus any shares issued upon exercise of the Over-Allotment Option)
will be freely tradeable without restriction under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (an "Affiliate").

In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from the Company and the date
they were acquired from an Affiliate, then the holder of such restricted shares
(including an Affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock or the average weekly reported volume of
trading of the Common Stock on AMEX during the four calendar weeks preceding
such sale. The holder may only sell such shares through unsolicited brokers'
transactions or directly to market makers. Sales under Rule 144 are also subject
to certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted shares in accordance with
the foregoing volume limitations and other requirements but without regard to
the one-year holding period.

Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above.

The Company's executive officers, directors and stockholders who
collectively own an aggregate of shares of Common Stock have agreed
that they will not directly or indirectly, offer to sell, sell, grant an option
for the sale of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any securities issued by the Company, including Common Stock or
securities convertible into or exchangeable or exercisable for or evidence any
right to purchase or subscribe for any shares of Common Stock whether or not
beneficially owned by them, or dispose of any beneficial interest therein, for a
period of nine months after the date of this Prospectus, without the prior
written consent of Josephthal. Josephthal may, in its sole discretion, and at
any time without notice, release all or any portion of the shares subject to
such lock-up agreements. After the nine month period, of the shares
subject to the sale restriction will be eligible for sale in the public market
pursuant to Rule 144 under the Securities Act, subject to the volume limitations
and other restrictions contained in Rule 144. The remaining shares of
Common Stock subject to the restrictions on sale will become eligible for public
sale under Rule 144 within one year from the date of this Prospectus.

Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made as to the effect, if any, that
sales of shares of Common Stock will have on the market price of the Common
Stock prevailing from time to time. Nevertheless, sales of significant numbers
of shares of the Common Stock in the public market, or the perception that such
sales may occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. See "Risk Factors -- Shares Eligible for Future Sale"
and "-- No Prior Trading Market; Possible Volatility of Stock Price."

38
<PAGE> 40

UNDERWRITING

The Underwriters named below (the"Underwriters"), for whom Josephthal Lyon
& Ross Incorporated ("Josephthal") and are acting as the
Representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of shares of
Common Stock set forth below opposite their names:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Josephthal Lyon & Ross Incorporated..................................
----------
Total......................................................
==========
</TABLE>

The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.

The Company has been advised by the Representatives that the Underwriters
initially propose to offer the Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less concessions of not in excess of $ per share of
Common Stock. Such dealers may re-allow a concession not in excess of $ per
share of Common Stock to other dealers. After the commencement of the Offering,
the public offering price, concession and reallowance may be changed.

The Representatives have advised the Company that they do not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the total number of shares of Common Stock offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay the Representatives an expense allowance on a non-accountable
basis equal to one percent (1%) of the gross proceeds of the Offering.

The Underwriters have been granted an option by the Company, exercisable
within 30 days of the date of this Prospectus, to purchase up to an additional
shares of Common Stock at the initial public offering price per share
of Common Stock offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the shares
offered hereby. To the extent such option is exercised, in whole or in part,
each Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of Common Stock proportionate to
its initial commitment.

Holders of shares of the Company's Common Stock, including each
officer, director and stockholder of the Company, have executed agreements
pursuant to which they have agreed not to offer to sell, sell, grant an option
for the sale of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any securities issued by the Company, including Common Stock or
securities convertible into or exchangeable or exercisable for or evidence any
right to purchase or subscribe for any shares of Common Stock whether or not
beneficially owned by them, or dispose of any beneficial interest therein, for a
period of nine months from the date of this Prospectus without the prior written
consent of Josephthal. An appropriate legend shall be marked on the face of the
certificates representing all of such securities.

In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Advisors' Warrants to purchase
from the Company shares of Common Stock. The Advisors' Warrants are
initially exercisable at a price per share equal to 120% of the initial public
offering price for a period of four years commencing one year after the date of
this Prospectus and are restricted from

39
<PAGE> 41

sale, transfer, assignment or hypothecation for a period of twelve months from
the date hereof, except to officers of Josephthal. The Advisors' Warrants also
provide for adjustment in the number of shares of Common Stock issuable upon the
exercise thereof as a result of certain subdivisions and combinations of the
Common Stock. The Advisors' Warrants grant to the holders thereof certain rights
of registration for the securities issuable upon exercise of the Advisors'
Warrants.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations between the Company and the Representatives and
will not necessarily be related to the Company's asset value, net worth or other
established criteria of value. The factors to be considered in such
negotiations, in addition to prevailing market conditions, include the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital structure
and certain other factors deemed relevant.

In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to shares of Common Stock, by
exercising the Over-Allotment Option. In addition, the Representatives may
impose "penalty bids" under contractual arrangements with the Underwriters,
where they may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of other Underwriters, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."

LEGAL MATTERS

The legality of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, San Diego, California. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Orrick,
Herrington & Sutcliffe LLP, San Francisco, California.

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1996
and for the period from August 2, 1995 (inception) to December 31, 1995, the
year ended December 31, 1996 and the period from August 2, 1995 to December 31,
1996 appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

40
<PAGE> 42

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in the Offering. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain portions of which are omitted as permitted by the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to any such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by reference to the Registration Statement
exhibits filed as a part thereof.

This Registration Statement and all other information filed by the Company
with the Commission may be inspected without charge at the principal reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part thereof
may be obtained upon payment of fees prescribed by the Commission from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.

41
<PAGE> 43

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited).......... F-3
Statements of Operations for the Period from August 2, 1995 (Inception) to December 31,
1995, the Year Ended December 31, 1996, the Period from August 2, 1995 (Inception) to
December 31, 1996, the Six Months Ended June 30, 1996 and 1997 (unaudited) and the
Period from August 2, 1995 (Inception) to June 30, 1997 (unaudited).................. F-4
Statement of Stockholders' Equity for the Period from August 2, 1995 (Inception) to
December 31, 1995, the Year Ended December 31, 1996, and the Six Months Ended June
30, 1997 (unaudited)................................................................. F-5
Statements of Cash Flows for the Period from August 2, 1995 (Inception) to December 31,
1995, the Year Ended December 31, 1996, the Period from August 2, 1995 (Inception) to
December 31, 1996, the Six Months Ended June 30, 1996 and 1997 (unaudited) and the
Period from August 2, 1995 (Inception) to June 30 1997 (unaudited)................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>

F-1
<PAGE> 44

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS AND STOCKHOLDERS
INTERVU INC.

We have audited the accompanying balance sheets of InterVU Inc. (a development
stage company) as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period from August 2,
1995 (inception) to December 31, 1995, the year ended December 31, 1996 and for
the period from August 2, 1995 (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterVU Inc. (a development
stage company) at December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from August 2, 1995 (inception) to December
31, 1995, the year ended December 31, 1996, and for the period from August 2,
1995 (inception) to December 31, 1996, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

San Diego, California
May 2, 1997,
except for Note 8, as to which the date is
August , 1997
- --------------------------------------------------------------------------------

The foregoing report is in the form that will be signed upon completion of
certain events as described in Note 8 to the financial statements.

San Diego, California
August 11, 1997

F-2
<PAGE> 45

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
----------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997
-------- ---------- ---------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................ $508,754 $2,507,822 $3,452,902
Accounts receivable.............................................. -- -- 19,069
Prepaid and other current assets................................. -- 10,095 11,270
-------- ---------- ----------
Total current assets............................................... 508,754 2,517,917 3,483,241
Property and equipment, net........................................ 12,666 252,286 370,645
Other assets....................................................... -- 6,274 6,274
-------- ---------- ----------
Total assets............................................... $521,420 $2,776,477 $3,860,160
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ -- $ 87,084 $ 98,104
Accrued liabilities.............................................. -- 65,970 143,711
Current portion, lease commitments............................... -- -- 11,814
-------- ---------- ----------
Total current liabilities.................................. -- 153,054 253,629
Lease commitments.................................................. -- -- 13,753
Advances from stockholders......................................... 411,241 26,500 2,010,000
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value
Authorized shares -- 250,000 Issued and outstanding
shares -- 172,500 at December 31, 1995 and 1996 and June 30,
1997
Liquidation preference -- $172,500 at December 31, 1995 and
1996 and June 30, 1997......................................... 173 173 173 $ --
Series B convertible preferred stock, $0.001 par value
Authorized shares -- 400,000 Issued and outstanding
shares -- 339,562 at December 31, 1996 and June 30, 1997
Liquidation preference -- $431,243 at December 31, 1996 and
June 30, 1997.................................................. -- 340 340 --
Series C convertible preferred stock, $0.001 par value
Authorized shares -- 400,000 Issued and outstanding
shares -- 296,147 at December 31, 1996 and June 30, 1997
Liquidation preference -- $814,404 at December 31, 1996 and
June 30, 1997.................................................. -- 296 296 --
Series D convertible preferred stock, $0.001 par value
Authorized shares -- 200,000 Issued and outstanding
shares -- 96,429 at December 31, 1996 and June 30, 1997
Liquidation preference -- $675,003 at December 31, 1996 and
June 30, 1997.................................................. -- 96 96 --
Series E convertible preferred stock, $0.001 par value
Authorized shares -- 400,000 Issued and outstanding
shares -- 289,500 and 400,000 at December 31, 1996 and June 30,
1997, respectively
Liquidation preference -- $2,895,000 at December 31, 1996 and
$4,000,000 at June 30, 1997.................................... -- 290 400 --
Common stock, $0.001 par value Authorized shares -- 13,000,000
Issued and outstanding shares -- 3,808,000 at December 31, 1995
and 6,362,000 at December 31, 1996 and June 30, 1997
(10,780,552 shares unaudited pro forma)........................ 3,808 6,362 6,362 10,781
Additional paid-in capital....................................... 152,218 5,322,236 6,961,561 6,958,447
Notes receivable from common stockholders........................ -- (5,570) (4,000) (4,000)
Deferred compensation............................................ -- (403,202) (876,787) (876,787)
Deficit accumulated during the development stage................. (46,020) (2,324,098) (4,505,663) (4,505,663)
-------- ---------- ---------- ----------
Total stockholders' equity................................. 110,179 2,596,923 1,582,778 $ 1,582,778
==========
-------- ---------- ----------
Total liabilities and stockholders' equity................. $521,420 $2,776,477 $3,860,160
======== ========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE> 46

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS AUGUST 2, 1995
PERIOD FROM PERIOD FROM ENDED JUNE 30, (INCEPTION) TO
AUGUST 2, 1995 YEAR ENDED AUGUST 2, 1995 ----------------------- JUNE 30,
(INCEPTION) TO DECEMBER (INCEPTION) TO 1996 1997 1997
DECEMBER 31, 31, DECEMBER 31, --------- ----------- ---------------
1995 1996 1996
--------------- ----------- ----------------- (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $ -- $ -- $ -- $ -- $ 31,513 $ 31,513
Operating expenses:
Research and
development........... 32,632 1,420,483 1,453,115 496,512 891,321 2,344,436
Selling, general and
administrative........ 16,542 910,040 926,582 231,349 1,363,921 2,290,503
-------- ----------- ----------- --------- ----------- -----------
Total operating expenses... 49,174 2,330,523 2,379,697 727,861 2,255,242 4,634,939
Loss from operations....... (49,174) (2,330,523) (2,379,697) (727,861) (2,223,729) (4,603,426)
Interest income............ 3,154 52,445 55,599 19,023 42,164 97,763
-------- ----------- ----------- --------- ----------- -----------
Net loss................... $ (46,020) $(2,278,078) $(2,324,098) $(708,838) $(2,181,565) $(4,505,663)
======== =========== =========== ========= =========== ===========
Pro forma net loss per
share.................... $ $
=========== ===========
Shares used in computing
pro forma net loss per
share....................
=========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 47

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
------------------ ------------------ PAID-IN COMMON
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS
--------- ------ --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.00025 per share to
founders for cash in August 1995.................... -- $ -- 3,808,000 $3,808 $ (2,856) $ --
Issuance of Series A convertible preferred stock at
$1.00 per share for cash in August 1995, net of
issuance costs of $17,253........................... 172,500 173 -- -- 155,074 --
Net loss.............................................. -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at December 31, 1995............................ 172,500 173 3,808,000 3,808 152,218 --
Issuance of common stock at $.00125 per share to
founders for cash in January 1996................... -- -- 1,408,000 1,408 352 --
Issuance of common stock at $.0025 per share for cash
and notes receivable in January 1996................ -- -- 234,000 234 351 (70)
Issuance of Series B convertible preferred stock at
$1.27 per share for cash in February 1996, net of
issuance costs of $12,758........................... 339,562 340 -- -- 418,146 --
Issuance of Series C convertible preferred stock at
$2.75 per share for cash in March 1996, net of
issuance costs of $21,067........................... 296,147 296 -- -- 793,041 --
Issuance of Series D convertible preferred stock at
$7.00 per share for cash in April 1996, net of
issuance costs of $18,931........................... 96,429 96 -- -- 655,976 --
Issuance of common stock at $.015 per share for cash
and notes receivable in April 1996.................. -- -- 706,000 706 9,884 (1,500)
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in December 1996, net of
issuance costs of $28,659........................... 289,500 290 -- -- 2,866,051 --
Issuance of common stock at $.025 per share for cash
and notes receivable in December 1996............... -- -- 206,000 206 4,944 (4,000)
Deferred compensation................................. -- -- -- -- 421,273 --
Amortization of deferred compensation................. -- -- -- -- -- --
Net loss.............................................. -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at December 31, 1996............................ 1,194,138 1,195 6,362,000 6,362 5,322,236 (5,570)
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in January 1997, net of
issuance costs of $3,967 (unaudited)................ 13,500 13 -- -- 131,020 --
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in February 1997, net of
issuance cost of $24,417 (unaudited)................ 97,000 97 -- -- 945,486 --
Repayments of notes receivable from common
shareholders (unaudited)............................ -- -- -- -- -- 1,570
Deferred compensation (unaudited)..................... -- -- -- -- 562,819 --
Amortization of deferred compensation (unaudited)..... -- -- -- -- -- --
Net loss (unaudited).................................. -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at June 30, 1997 (unaudited).................... 1,304,638 $1,305 6,362,000 $6,362 $6,961,561 $ (4,000)
========= ====== ========= ====== ========== =======

<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEFERRED DEVELOPMENT STOCKHOLDERS'
COMPENSATION STAGE EQUITY
------------ ------------ -------------
<S> <C> <C> <C>
Issuance of common stock at $.00025 per share to
founders for cash in August 1995.................... $ -- $ -- $ 952
Issuance of Series A convertible preferred stock at
$1.00 per share for cash in August 1995, net of
issuance costs of $17,253........................... -- -- 155,247
Net loss.............................................. -- (46,020) (46,020)
------- --------- -----------
Balance at December 31, 1995............................ (46,020) 110,179
Issuance of common stock at $.00125 per share to
founders for cash in January 1996................... -- -- 1,760
Issuance of common stock at $.0025 per share for cash
and notes receivable in January 1996................ -- -- 515
Issuance of Series B convertible preferred stock at
$1.27 per share for cash in February 1996, net of
issuance costs of $12,758........................... -- -- 418,486
Issuance of Series C convertible preferred stock at
$2.75 per share for cash in March 1996, net of
issuance costs of $21,067........................... -- -- 793,337
Issuance of Series D convertible preferred stock at
$7.00 per share for cash in April 1996, net of
issuance costs of $18,931........................... -- -- 656,072
Issuance of common stock at $.015 per share for cash
and notes receivable in April 1996.................. -- -- 9,090
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in December 1996, net of
issuance costs of $28,659........................... -- -- 2,866,341
Issuance of common stock at $.025 per share for cash
and notes receivable in December 1996............... -- -- 1,150
Deferred compensation................................. (421,273) -- --
Amortization of deferred compensation................. 18,071 -- 18,071
Net loss.............................................. -- (2,278,078) (2,278,078)
------- --------- -----------
Balance at December 31, 1996............................ (403,202) (2,324,098) 2,596,923
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in January 1997, net of
issuance costs of $3,967 (unaudited)................ -- -- 131,033
Issuance of Series E convertible preferred stock at
$10.00 per share for cash in February 1997, net of
issuance cost of $24,417 (unaudited)................ -- -- 945,583
Repayments of notes receivable from common
shareholders (unaudited)............................ -- 1,570
Deferred compensation (unaudited)..................... (562,819) -- --
Amortization of deferred compensation (unaudited)..... 89,234 -- 89,234
Net loss (unaudited).................................. -- (2,181,565) (2,181,565)
------- --------- -----------
Balance at June 30, 1997 (unaudited).................... $ (876,787) $(4,505,663) $ 1,582,778
======= ========= ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 48

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 2, AUGUST 2, AUGUST 2,
1995 TO YEAR ENDED 1995 TO SIX MONTHS ENDED 1995 TO
(INCEPTION) DECEMBER (INCEPTION) JUNE 30, (INCEPTION)
DECEMBER 31, 31, DECEMBER 31, ------------------------ JUNE 30,
1995 1996 1996 1996 1997 1997
------------ ----------- ------------ ---------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(46,020) $(2,278,078) $(2,324,098) $ (708,838) $(2,181,565) $(4,505,663)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred compensation... -- 18,071 18,071 -- 89,234 107,305
Depreciation and amortization........... 678 59,305 59,983 16,504 69,851 129,834
Changes in operating assets and
liabilities:
Accounts receivable................... -- -- -- -- (19,069) (19,069)
Prepaid and other current assets...... -- (10,095) (10,095) (9,195) (1,175) (11,270)
Accounts payable...................... -- 87,084 87,084 40,954 11,020 98,104
Accrued liabilities................... -- 65,970 65,970 23,949 77,741 143,711
-------- ----------- ----------- ---------- ----------- -----------
Net cash used in operating activities..... (45,342) (2,057,743) (2,103,085) (636,626) (1,953,963) (4,057,048)
INVESTING ACTIVITIES
Purchases of property and equipment....... (13,344) (298,925) (312,269) (186,712) (160,724) (472,993)
Other assets.............................. -- (6,274) (6,274) -- -- (6,274)
-------- ----------- ----------- ---------- ----------- -----------
Net cash used in investing activities..... (13,344) (305,199) (318,543) (186,712) (160,724) (479,267)
FINANCING ACTIVITIES
Payments on capital leases................ -- -- -- -- (1,919) (1,919)
Issuance of common stock.................. 952 12,515 13,467 11,365 -- 13,467
Issuance of preferred stock............... 155,247 4,322,995 4,478,242 1,456,654 1,050,116 5,528,358
Advances from stockholders................ 411,241 26,500 437,741 539,083 2,010,000 2,447,741
Repayment of stockholder notes
receivable.............................. -- -- -- -- 1,570 1,570
-------- ----------- ----------- ---------- ----------- -----------
Net cash provided by financing
activities.............................. 567,440 4,362,010 4,929,450 2,007,102 3,059,767 7,989,217
Net increase in cash and cash
equivalents............................. 508,754 1,999,068 2,507,822 1,183,764 945,080 3,452,902
Cash and cash equivalents at beginning of
period.................................. -- 508,754 -- 508,754 2,507,822 --
-------- ----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $508,754 $ 2,507,822 $ 2,507,822 $1,692,518 $ 3,452,902 $ 3,452,902
======== =========== =========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations entered into
for equipment......................... $ -- $ -- $ -- $ -- $ 27,486 $ 27,486
======== =========== =========== ========== =========== ===========
Conversion of advances from stockholders
to convertible preferred stock........ $ -- $ 411,241 $ 411,241 $ 411,241 $ 26,500 $ 437,741
======== =========== =========== ========== =========== ===========
Issuance of common stock in exchange for
notes receivable...................... $ -- $ 5,570 $ 5,570 $ 1,570 $ -- $ 5,570
======== =========== =========== ========== =========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE> 49

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

InterVU Inc. (the "Company") was incorporated in Delaware on August 2, 1995
to develop and market proprietary technologies and systems for delivering video
on the internet. The Company utilizes a proprietary operating system for routing
and distributing high quality video over the Internet at high speeds. The
Company has commenced planned principal operations, however, as there has been
no significant revenue therefrom, the Company is considered to be in the
development stage.

BASIS OF PRESENTATION

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Since inception, the Company has been engaged in
organizational activities, including recruiting personnel, establishing office
facilities, research and development and obtaining financing. Through June 30,
1997, the Company had incurred accumulated losses of $4,505,663. Successful
completion of the Company's development program and its transition to attaining
profitable operations is dependent upon obtaining financing adequate to fulfill
its research, development and market introduction activities, and achieving a
level of revenues adequate to support the Company's cost structure. Management
believes that the funds necessary to meets its capital requirements for the next
twelve months will be raised either from the offering contemplated by this
Prospectus or by private equity or debt financing. Without the additional
financing, the Company will be required to delay, reduce the scope of or
eliminate one or more of its research and development projects or market
introduction activities and significantly reduce its expenditures on
infrastructure and product upgrade programs that enhance the InterVU network
architecture.

INTERIM FINANCIAL DATA

The financial statements for the six months ended June 30, 1996 and 1997
and for the period from August 2, 1995 (inception) to June 30, 1997 are
unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.

The results of operations for the interim period ended June 30, 1997 are
not necessarily indicative of the results which may be reported for any other
interim period or for the year ended December 31, 1997.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. Such
investments are made in accordance with the Company's investment policy, which
establishes guidelines relative to diversification and maturities designed to
maintain safety and liquidity. The Company has not experienced any losses on its
cash and cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost net of accumulated depreciation
and depreciated over the estimated useful lives of the assets, ranging from
three to five years, using the straight-line method. Leasehold improvements are
stated at cost and amortized using the straight-line method over the shorter of
the estimated

F-7
<PAGE> 50

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
useful lives of the assets or the lease term. Amortization of equipment under
capital leases is reported with depreciation of property and equipment.

SOFTWARE DEVELOPMENT COSTS

Financial accounting standards provide for the capitalization of certain
software development costs after technological feasibility of the software is
attained. No such costs have been capitalized to date because costs incurred
subsequent to reaching technological feasibility have not been material.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.

REVENUE RECOGNITION

Revenue is generated primarily from video encoding and distribution
services. Revenue from video encoding services is recognized as the service is
provided and revenue from video distribution services is recognized at the time
of delivery.

CONCENTRATION OF CREDIT RISK

Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. Credit losses have been
minimal and such losses have been within management's expectations.

RESEARCH AND DEVELOPMENT COSTS

Costs incurred in connection with research and development are charged to
operations as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

In 1996, the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
adoption had no impact on the Company's financial statements.

STOCK OPTIONS

In 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. SFAS No. 123 also permits companies to elect to continue
using the current intrinsic value accounting method specified in Accounting
Principles Board (APB) Opinion No. 25 to account for stock-based compensation.
The Company

F-8
<PAGE> 51

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
has decided to retain the current intrinsic value based method, and has
disclosed the pro forma effect of using the fair value based method to account
for its stock-based compensation (Note 4).

PRO FORMA NET LOSS PER SHARE

The Company's pro forma net loss per share calculations are based upon the
weighted average number of shares of common stock outstanding. Pursuant to the
requirements of the Securities and Exchange Commission Staff Accounting Bulletin
No. 83, convertible preferred stock, convertible preferred stock warrants,
common stock, and options to purchase common stock issued at prices below the
estimated initial public offering price during the twelve months immediately
preceding the contemplated initial filing of the registration statement relating
to the initial public offering ("IPO"), have been included in the computation of
net loss per share as if they were outstanding for all periods presented (using
the treasury method assuming repurchase of common stock at the estimated IPO
price). The pro forma calculation also gives effect to the conversion of
convertible preferred shares not included above that will automatically convert
upon completion of the Company's IPO (using the if-converted method) from the
original date of issuance. Other shares issuable upon the exercise of stock
options have been excluded from the computation because the effect of their
inclusion would be antidilutive. Subsequent to the Company's IPO, options under
the treasury stock method will be included to the extent they are dilutive. Net
loss per share prior to 1996 has not been presented since such amounts are not
deemed meaningful due to the significant change in the Company's capital
structure that will occur in connection with the IPO.

PRO FORMA STOCKHOLDERS' EQUITY

If the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding will automatically be converted into
4,418,552 shares of common stock, based on the shares of convertible preferred
stock outstanding as of June 30, 1997 and assuming no antidilution adjustments
are necessary. Pro forma stockholders' equity at June 30, 1997, as adjusted for
the conversion of preferred stock, is disclosed on the balance sheet.

NEW ACCOUNTING STANDARD

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. Application of the statement is expected to have
no impact on primary or fully diluted loss per share for the six months ended
June 30, 1997.

F-9
<PAGE> 52

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Computers....................................... $13,344 $228,729 $ 323,517
Furniture and fixtures.......................... -- 61,676 104,113
Equipment under capital lease................... -- -- 27,486
Leasehold improvements.......................... -- 11,936 22,692
Purchased software.............................. -- 9,928 22,671
------- -------- ---------
13,344 312,269 500,479
Less accumulated depreciation................... (678) (59,983) (129,834)
------- -------- ---------
$12,666 $252,286 $ 370,645
======= ======== =========
</TABLE>

3. STOCKHOLDER ADVANCES

In December 1995, the Company received $411,241 in cash advances from
certain stockholders that was subsequently converted to Series B convertible
preferred stock in February 1996 at a per share price of $1.27. In December
1996, the Company received $26,500 in cash advances from certain stockholders
that was subsequently converted into Series E convertible preferred stock in
January 1997 at a per share price of $10.00. In June 1997, the Company received
$2,010,000 in cash advances from certain stockholders that was subsequently
converted into Series F convertible preferred stock in July 1997 at a per share
price of $6.00.

4. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

A summary of convertible preferred stock at June 30, 1997 is as follows:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PREFERENCE COMMON
SHARES SHARES ISSUED IN STOCK ISSUABLE PER SHARE
SERIES AUTHORIZED AND OUTSTANDING LIQUIDATION UPON CONVERSION DIVIDEND RATE
---------------- ---------- --------------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C>
A............... 250,000 172,500 $ 172,500 690,000 $ .08
B............... 400,000 339,562 431,243 1,358,248 .10
C............... 400,000 296,147 814,404 1,184,588 .22
D............... 200,000 96,429 675,003 385,716 .56
E............... 400,000 400,000 4,000,000 800,000 .80
</TABLE>

Convertible preferred shares convert, at the option of the holder, into
common shares at a rate determined by dividing the original issue price by the
conversion price. The conversion price is subject to adjustment for
antidilution. The convertible preferred shares automatically convert to common
shares on the closing of an underwritten public offering of common stock under
the Securities Act of 1933 in which the Company receives at least $7,500,000 in
gross proceeds.

In the event of a liquidation of the Company, the holders of convertible
preferred stock are entitled to a liquidation preference equal to the sum of (i)
the original issue price for each share of convertible preferred stock, and (ii)
an amount equal to all declared but unpaid dividends on each such share. If upon
the

F-10
<PAGE> 53

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

4. STOCKHOLDERS' EQUITY (CONTINUED)

occurrence of such event, the assets and funds thus distributed among the
holders of the convertible preferred stock are insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, the entire
assets and funds of the corporation legally available for distribution must be
distributed ratably among the holders of the convertible preferred stock in
proportion to the aggregate liquidation preferences of the respective shares,
and ratably among the holders of that series in proportion to the amount of such
stock owned by each such holder. Any remaining assets of the Company are to be
distributed to the common stockholders.

The holders of convertible preferred stock are entitled to receive annual
noncumulative dividends, when, as and if declared by the Board of Directors,
prior to and in preference to stockholders of common stock. As of June 30, 1997,
no cash dividends had been declared.

COMMON STOCK

In August 1995, 3,808,000 shares of common stock were issued to the
founders of the Company at a price of $.00025 per share under founder stock
purchase agreements. In January 1996, an additional 1,408,000 shares of common
stock were issued to three of the founders at a price of $.00125 per share under
the founder stock purchase agreements. In January 1996, the Company issued
234,000 shares of common stock to employees at $.0025 per share under restricted
stock agreements. Also, in April and December 1996, the Company issued 706,000
and 206,000 shares of common stock, respectively, to employees at $.015 and
$.025 per share, respectively, under restricted stock agreements. In connection
with the founder stock purchase agreements and the restricted stock agreements,
the Company has the option to repurchase, at the original issue price, unvested
common shares in the event of termination of employment. Shares issued under the
agreements generally vest 20% on the first anniversary of the employee's hire
date and daily thereafter for four years. At June 30, 1997, 4,465,211 shares
were subject to repurchase by the Company.

In April 1996, the Board of Directors declared a two-for-one stock dividend
of the Company's common stock, effectuated as a stock split. All applicable
share and stock option information has been restated to reflect the split.

STOCK OPTIONS

The Company has established a stock option plan to grant options to
purchase common stock to consultants, employees, officers and directors of the
Company. The Company has authorized for grant under the plan stock options to
purchase up to 1,500,000 shares of its common stock.

Under the terms of the plan, non-qualified and incentive options may be
granted to consultants, employees, officers and directors at prices not less
than 100% of the fair market value on the date of grant. Options generally vest
20% after the first year of employment and daily thereafter for four years. The
options expire ten years from the date of grant.

F-11
<PAGE> 54

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

4. STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes the stock option activity for the period
from August 2, 1995 (inception) to June 30, 1997:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Granted.............................................................. 249,000 $ 0.025
-------- ------
Balance at December 31, 1996........................................... 249,000 0.025
Granted.............................................................. 805,200 0.830
Canceled............................................................. (140,000) 0.025
-------- ------
Balance at June 30, 1997............................................... 914,200 $ 0.730
======== ======
</TABLE>

As of June 30, 1997, options for 19,343 common shares were exercisable. The
weighted average remaining contractual life of outstanding options was
approximately 4.7 years at June 30, 1997.

Pro forma information regarding net income or loss is required to be
disclosed in accordance with SFAS No. 123, and has been determined as if the
Company has accounted for its employee stock options under the fair value method
prescribed in that Statement. The fair value of these options was estimated at
the date of grant using the minimal value pricing model with the following
weighted average assumptions for 1995 and 1996: risk free interest rate of 6.0%;
dividend yield of 0%; and a weighted-average option life of 7 years.

The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option valuation
models require the input of highly speculative assumptions.

Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Company's pro forma net loss was $46,020 for the period from August 2, 1995
(inception) to December 31, 1995, $2,278,002 for the year ended December 31,
1996, $2,324,022 for the period from August 2, 1995 (inception) to December 31,
1996, $708,838 and $2,176,717 for the six months ended June 30, 1996 and 1997,
respectively, and $4,500,739 for the period from August 2, 1995 (inception) to
June 30, 1997.

DEFERRED COMPENSATION

Through June 30, 1997, the Company recorded deferred compensation for the
difference between the price per share of restricted stock issued or the
exercise price of stock options granted and the deemed fair value for financial
statement presentation purposes of the Company's common stock at the date of
issuance or grant. The deferred compensation will be amortized over the vesting
period of the related restricted stock or options, which is generally five
years. Gross deferred compensation at December 31, 1996 and June 30, 1997
totaled $421,273 and $984,092, respectively, and related amortization expense
totaled $18,071 and $89,234 in 1996 and 1997, respectively, and $107,305 for the
period from August 2, 1995 (inception) to June 30, 1997.

F-12
<PAGE> 55

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

4. STOCKHOLDERS' EQUITY (CONTINUED)

SHARES RESERVED FOR FUTURE ISSUANCE

At June 30, 1997, the Company had reserved 7.3 million common shares for
the conversion of preferred stock, the exercise of stock options and for stock
options available for future grant.

5. COMMITMENTS

The Company leases its principal facilities under two noncancelable
operating leases which expire in 1999 with options to renew the leases for up to
two years. Total rent expense was $47,648 for the year ended December 31, 1996,
$15,349 and $60,354 for the six months ended June 30, 1996 and 1997,
respectively, and $108,002 for the period from August 2, 1995 (inception) to
June 30, 1997.

Future minimum payments under noncancelable capital and operating leases
(with initial lease terms in excess of one year) consisted of the following at
June 30, 1997:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1997..................................................... $ 37,806 $ 9,413
1998..................................................... 57,648 13,790
1999..................................................... 27,450 8,353
-------- --------
Total minimum lease payments............................. $ 122,904 31,556
========
Less amounts representing interest....................... (5,989)
--------
Present value of future minimum lease payments........... 25,567
Less current portion..................................... (11,814)
--------
Capital lease obligation, net of current portion......... $ 13,753
========
</TABLE>

6. INCOME TAXES

Significant components of the Company's deferred tax assets as of December
31, 1996 are shown below. A valuation allowance of $1,008,000 has been recorded
at December 31, 1996 to offset the net deferred tax assets as realization is
uncertain.

<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 17,000 $ 920,000
Research tax credit carryforwards.................. 400 71,000
Other.............................................. 1,000 17,000
-------- -----------
Total deferred tax assets............................ 18,400 1,008,000
Valuation allowance.................................. (18,400) (1,008,000)
-------- -----------
Net deferred tax assets.............................. $ -- $ --
======== ===========
</TABLE>

The Company had federal and California tax net operating loss carryforwards
at December 31, 1996 of approximately $2.3 million. The federal and California
tax loss carryforwards will begin to expire in 2010 and 2003, respectively,
unless previously utilized. The Company also has federal and California research
tax credit carryforwards of approximately $47,000 and $38,000, respectively,
which will begin to expire in 2010 unless previously utilized.

F-13
<PAGE> 56

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997 IS UNAUDITED)

6. INCOME TAXES (CONTINUED)
Pursuant to Internal Revenue Service Code Sections 382 and 383, use of the
Company's net operating loss carryforwards may be limited because of a
cumulative change in ownership of more than 50% which occurred during 1996.
However, the Company does not believe such limitations will have a material
impact on the Company's ability to use these carryforwards.

7. EMPLOYEE BENEFITS

In 1996, the Company established a cafeteria benefits plan whereby it
contributes for each employee an amount equal to $3,000 plus a percentage of
each employee's base salary, as approved by the Board of Directors, up to a
maximum contribution of $9,000. The employer contribution goes towards the
purchase of various benefit packages selected by the employee. The employee may
contribute additional amounts as desired. Benefit packages include health care
reimbursement, dependent care assistance, various insurance premium payments and
a 401(k) plan. Company contributions to the cafeteria benefits plan were
$101,832 for the year ended December 31, 1996, $25,061 and $97,985 for the six
months ended June 30, 1996 and 1997, respectively, and $101,832 and $199,817 for
the period from August 2, 1995 (inception) to June 30, 1997.

8. SUBSEQUENT EVENTS

On July 16, 1997, the Company declared a two-for-one stock split of the
Company's common stock. All applicable share and stock option information have
been restated to reflect the split.

On July 16, 1997, the Company issued 677,498 shares of Series F preferred
stock at a price of $6.00 per share on conversion of $2,010,000 in advances from
stockholders received prior to June 30, 1997 as well as additional cash proceeds
of $2,054,988 received in July 1997. Additionally, on August 8, 1997, the
Company issued 44,166 shares of Series F preferred stock at $6.00 per share for
proceeds of $264,996. As of August 8, 1997, the Company had issued and
outstanding an aggregate of 721,665 shares of Series F convertible preferred
stock ($.001 par value) for aggregate proceeds of $4,329,984 with an aggregate
liquidation preference of $4,329,984, a dividend rate of $.48 per share, and a
one-for-one conversion rate to common stock, subject to adjustment for
antidilution.

In August 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. If the initial public offering is
closed under the terms presently anticipated, all of the preferred stock
outstanding, including 721,665 shares of Series F convertible preferred stock,
will automatically convert into 5,140,217 shares of common stock.

Also in August 1997, the Board of Directors authorized, and the
stockholders approved, a reverse stock split to be effected
concurrently with the closing of the initial public offering, in which
shares of common stock are exchanged for one share of common stock.
All applicable share and stock option information have been restated to reflect
the split.

F-14
<PAGE> 57

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 21
Management............................ 30
Certain Transactions.................. 33
Principal Stockholders................ 34
Description of Capital Stock.......... 35
Shares Eligible for Future Sale....... 38
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 40
Available Information................. 41
Index to Financial Statements......... F-1
</TABLE>

------------------------

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

======================================================
======================================================

LOGO

INTERVU INC.

COMMON STOCK
---------------------

PROSPECTUS
---------------------

JOSEPHTHAL LYON & ROSS
, 1997

======================================================
<PAGE> 58

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the Company.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 7,667
NASD filing fee................................................... 3,030
AMEX listing fee.................................................. 42,500
Non-accountable expense allowance................................. 253,000
Legal fees and expenses........................................... 225,000
Accounting fees and expenses...................................... 153,000
Printing and engraving expenses................................... 125,000
Blue Sky fees and expenses........................................ 5,000
Transfer agent and registrar fees................................. 5,000
Miscellaneous..................................................... 30,803
--------
TOTAL........................................................... $850,000
========
</TABLE>

- ---------------

All of the above items are estimates, except the Securities and Exchange
Commission registration fee and the NASD filing fee.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.

The Company's Restated Certificate and Bylaws provide that the Company will
indemnify its directors and officers to the fullest extent permitted by Delaware
law. Delaware law permits, but does not require, a corporation to indemnify
officers, directors, employees or agents and expressly provides that the
indemnification provided for under Delaware law shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or disinterested
directors, or otherwise. Delaware law permits indemnification against expenses
and certain other liabilities arising out of legal actions brought or threatened
against such persons for their conduct on behalf of the Company, provided that
each such person acted in good faith and in a manner that he or she reasonably
believed was in or not opposed to the Company's best interests and in the case
of a criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Delaware law does not allow indemnification of directors in the
case of an action by or in the right of the Company (including stockholder
derivative suits) unless the directors successfully defend the action or
indemnification is ordered by the court.

The Company is a party to indemnification agreements with each of its
directors and officers. In addition, the form of Underwriting Agreement filed as
Exhibit 1.1 hereto provides for the indemnification of the Company and its
directors and officers against certain liabilities, including liabilities under
the Securities Act.

The Company, with the approval of its Board of Directors, has applied for,
and expects to obtain, directors' and officers' liability insurance.

II-1
<PAGE> 59

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

(a) Securities sold.

The following table sets forth the date of sale, title and amount of shares
of Preferred and Common Stock sold by the Company within the past three years
which were not registered under the Securities Act:

<TABLE>
<CAPTION>
DATE OF SALE TITLE NO. OF SHARES OFFERING PRICE
- ------------ --------------------------- ------------- --------------
<C> <S> <C> <C>
08/25/95 Common Stock 3,808,000 $ 952
08/30/95 Series A Preferred Stock 172,500 172,500
01/17/96 Common Stock 1,408,000 1,760
01/17/96 Common Stock 234,000 585
02/04/96 Series B Preferred Stock 339,562 431,244
03/07/96 Series C Preferred Stock 296,147 814,404
04/16/96 Common Stock 706,000 10,590
04/17/96 Series D Preferred Stock 96,429 675,003
12/04/96 Series E Preferred Stock 289,500 2,895,000
12/16/96 Common Stock 206,000 5,150
01/24/97 Series E Preferred Stock 13,500 135,000
02/04/97 Series E Preferred Stock 97,000 970,000
07/16/97 Series F Preferred Stock 677,498 4,064,988
08/08/97 Series F Preferred Stock 44,166 264,996
</TABLE>

In addition, the Company has granted stock options under the 1996 Stock
Plan since such plan's inception. For a description of these options granted to
employees, officers and consultants of the Company, see "Management -- 1996
Stock Option Plan."

(b) Underwriters and other purchasers.

Underwriters were not retained in connection with the sale of any of the
Company's currently outstanding securities. All sales were made in private
placements to employees or directors of the Company or to accredited individual
investors.

The shares of capital stock were sold by the Company for cash and notes
receivable in the amounts set forth in Item 15(a) above.

(d) Exemption from registration claimed.

The Company relied upon an exemption from registration under Section 4(2)
of the Securities Act in connection with each of these transactions. All sales
were made through private placements to employees or directors of the Company or
to accredited individual investors.

II-2
<PAGE> 60

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.(2)
3.1 Restated Certificate of Incorporation and all amendments thereto.(2)
3.2 Form of Amended and Restated Certificate of Incorporation.(2)
3.3 Form of Amended and Restated Bylaws.(2)
4.1 Form of Common Stock Certificate.(2)
4.2 Form of Representatives' Warrant Agreement including form of Representatives'
Warrants.(2)
5.1 Opinion of Latham & Watkins.(2)
10.1 1996 Stock Plan of InterVU Inc.(2)
10.2 Form of Indemnification Agreement.(2)
10.3 Form of Restricted Stock Purchase Agreement.(2)
10.4 Form of Vesting Agreement.(2)
11.1 Statement re: computation of per share losses.(2)
23.1 Consent of Ernst & Young LLP, Independent Auditors.(1)
23.2 Consent of Latham & Watkins (to be contained in Exhibit 5.1).(2)
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.(1)
</TABLE>

- ---------------

(1) Filed herewith.

(2) To be filed by amendment.

(b) Financial Statement Schedules.

All required information is set forth in the financial statements included
in the Prospectus constituting part of this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE> 61

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 62

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on August 13, 1997.

InterVU Inc.

By: /s/ HARRY E. GRUBER
------------------------------------
Harry E. Gruber
Chairman, Chief Executive Officer
and Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Harry E. Gruber his true and lawful
attorney-in-fact, acting alone, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments including post-effective amendments
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933 to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute, may lawfully do or cause to be done by
virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------------- -----------------
<C> <S> <C>

/s/ HARRY E. GRUBER Chairman of the Board, Chief August 13, 1997
- ---------------------------------- Executive Officer and Chief
Harry E. Gruber Financial Officer (Principal
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)

Director August 13, 1997
- ----------------------------------
Marcia Berman

/s/ EDWARD DAVID Director August 13, 1997
- ----------------------------------
Edward David

/s/ MARK DOWLEY Director August 13, 1997
- ----------------------------------
Mark Dowley

/s/ ISAAC WILLIS Director August 13, 1997
- ----------------------------------
Isaac Willis
</TABLE>

II-5
<PAGE> 63

EXHIBIT INDEX

The following exhibits are filed as part of this Form S-1 Registration
Statement.

- ---------------

(1) Filed herewith.

(2) To be filed by amendment.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated May 2, 1997,
except for Note 8, as to which the date is August 8, 1997, in the Registration
Statement on Form S-1 and related Prospectus of InterVU Inc. (a development
stage company) expected to be filed on or about August 13, 1997.

ERNST & YOUNG LLP

August __, 1997
San Diego, California

- --------------------------------------------------------------------------------

The foregoing consent is in the form that will be signed upon completion of
certain events as described in Note 8 to the financial statements.

San Diego, California
August 11, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 2,507,822 3,452,902
<SECURITIES> 0 0
<RECEIVABLES> 0 19,069
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,517,917 3,483,241
<PP&E> 312,269 500,479
<DEPRECIATION> 59,983 129,834
<TOTAL-ASSETS> 2,776,477 3,860,160
<CURRENT-LIABILITIES> 153,054 253,629
<BONDS> 0 0
0 0
1,195 1,305
<COMMON> 6,362 6,362
<OTHER-SE> 2,589,366 1,575,111
<TOTAL-LIABILITY-AND-EQUITY> 2,776,477 3,860,160
<SALES> 0 0
<TOTAL-REVENUES> 0 31,513
<CGS> 0 0
<TOTAL-COSTS> 2,330,523 2,255,242
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,278,078) (2,181,565)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,278,078) (2,181,565)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,278,078) (2,181,565)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0

</TABLE>