INTERVU INC, 424B4, 1997-11-20

INTERVU INC
424B4, 1997-11-20
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1
----------------------------
This filing is made pursuant
to Rule 424(b)(4) under the
Securities Act of 1933 in
connection with Registration
No. 333-33521
----------------------------

PROSPECTUS

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2,000,000 SHARES
[LOGO]

INTERVU INC.

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

InterVU Inc. ("InterVU" or the "Company") hereby offers 2,000,000 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. See "Underwriting"
for information relating to the determination of the initial public offering
price.

NBC Multimedia, Inc., a wholly-owned subsidiary of National Broadcasting
Company, Inc., has agreed, subject to certain closing conditions, to purchase
210,526 shares of Common Stock at the initial public offering price in a direct
offering to be consummated concurrently with the Offering (the "Direct
Offering"). See "Direct Offering."

The Common Stock has been approved for quotation on the Nasdaq Stock Market's
National Market System (the "Nasdaq National Market") under the symbol ITVU.

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SEE "RISK FACTORS" BEGINNING ON PAGE 7 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)
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<S> <C> <C> <C>
Per Share........................ $9.50 $0.665 $8.835
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Total(3)(4)...................... $19,000,000 $1,330,000 $17,670,000
=================================================================================================
</TABLE>

(1) Does not include a non-accountable expense allowance payable to Josephthal
Lyon & Ross Incorporated ("Josephthal") and Cruttenden Roth Incorporated
(the "Underwriters"). 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
Underwriters' 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 300,000 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 $21,850,000, $1,529,500 and $20,320,500, respectively. See
"Underwriting."

(4) Excludes $2,000,000 to be received by the Company from the Direct Offering.
See "Direct Offering."

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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 November 25, 1997.

JOSEPHTHAL LYON & ROSS CRUTTENDEN ROTH
INCORPORATED

The date of this Prospectus is November 19, 1997.

<PAGE> 2

[INTERVU LOGO]

<TABLE>
<S> <C>
V-Banner(TM) InterVU's network approach to video delivery offers Web site owners and
Client Videos advertisers a solution to offering video on the Internet. Video messages are
Free Software 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
transmits video messages directly to the end- user. In the case of video
banner advertisements, the video is displayed automatically to end-users
with video player capability. The InterVU Network utilizes a number of
proprietary technologies, including InterVU'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.
[INTERVU LOGO] [MLB LOGO] [NBC LOGO]
http://www.intervu.net
</TABLE>

Below the MLB logo is a depiction of an Internet video player showing the
legs of a baserunner as he prepares to slide into home plate. The video player
represented contains triangular symbols representing forward and reverse, an
icon representing the presence of sound and the word "InterVU."

Below the NBC.com logo is a depiction of a video player showing a line of
people entering a building with an NBC logo over the door. The video player
represented contains triangular symbols representing the word "InterVU."

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

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. Major League
Baseball trademarks and copyrights are used with permission of Major League
Baseball Properties, Inc. NBC and the Peacock logo are registered trademarks of
National Broadcasting Company, Inc. 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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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 Underwriters to
purchase up to 200,000 shares of Common Stock (the "Advisors' Warrants"); (iii)
has been adjusted to give effect to the 0.6298-for-one reverse stock split
effected in November 1997 (the "Reverse Stock Split"); and (iv) reflects the
automatic conversion of all outstanding shares of the Company's Preferred Stock
(other than shares of the Company's Series G Convertible Preferred Stock (the
"Series G Preferred")) 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 NBC Multimedia, Inc. ("NBC Multimedia"), a
wholly-owned subsidiary of National Broadcasting Company, Inc. ("NBC"), 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's video banner
advertisements have promoted Goldwin Golf on the Golfonline Web site, the
Columbia Pictures movie "Air Force One" and Volvo cars on the Yahoo! Web site
and Anheuser Busch on the Major League Baseball Web site.

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

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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 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.

As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into a strategic alliance with NBC Multimedia. Pursuant to the strategic
alliance, the Company became the exclusive provider of technology and services
for the distribution of NBC entertainment audio/video content by means of NBC
Web sites on the Internet. Pursuant to a strategic alliance agreement between
the Company and NBC Multimedia (the "Strategic Alliance Agreement"), the Company
will store NBC entertainment audio/video content on the InterVU Network and
transmit such content to end-users via the Internet at their request.

As consideration for the strategic alliance, the Company issued to NBC
approximately 10% of the capital stock of the Company in the form of Series G
Preferred, and NBC Multimedia granted the Company exclusive rights to deliver
most NBC entertainment audio/video content from NBC Web sites. The Strategic
Alliance Agreement provides for sharing of revenues from a newly created area to
be placed on the "NBC.com" Web site that will contain, among other things,
certain NBC entertainment audio/video content (the "Revenue Sharing Area") and
allocates costs between the parties. The Strategic Alliance Agreement provides
for an exclusive term of two years that will be extended to four years if
certain cost and revenue goals to be mutually agreed upon in the future are
established and met. NBC Multimedia has agreed to use commercially reasonable
efforts to promote the Company and the InterVU Network in connection with
Internet advertising promotions involving the Company's dissemination of NBC
entertainment audio/video content. In addition, NBC Multimedia has agreed to use
commercially reasonable efforts to introduce the Company to the television
stations associated with the NBC Television Network and to refer other
programming opportunities for the Internet to the Company, all to the extent
that NBC Multimedia reasonably deems appropriate. See "Risk Factors -- Risks
Associated with Strategic Alliance with NBC Multimedia" and
"Business -- Strategic Alliance with NBC Multimedia."

NBC Multimedia has agreed, subject to certain closing conditions, to
purchase 210,526 shares of Common Stock at the initial public offering price in
a direct offering to be consummated concurrently with the Offering (the "Direct
Offering"). After the consummation of the Offering and the Direct Offering, NBC
Multimedia and NBC will together own approximately 10% of the outstanding shares
of capital stock of the Company. Following consummation of the Direct Offering,
the Company will be obligated to pay NBC Multimedia $2,000,000 in installments
over three calendar quarters for the costs of producing and operating the
Revenue Sharing Area and the costs of advertising and promotions to be placed by
the Company on Web sites controlled by NBC.

NBC Multimedia may terminate the Strategic Alliance Agreement without cause
upon 90 days notice. If following the consummation of the Offering, NBC
Multimedia exercises its right to terminate the Strategic Alliance Agreement
without cause, NBC generally must return approximately one half of the shares of
Series G Preferred issued to it by the Company or the shares of Common Stock
into which they would be convertible if the termination occurs during the first
two years of the agreement.

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<PAGE> 5

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 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 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 AND THE DIRECT OFFERING

Common Stock offered in the Offering.... 2,000,000 shares

Common Stock offered in the Direct
Offering................................ 210,526 shares (1)

Common Stock to be outstanding after the
Offering and the Direct Offering........ 9,378,835 shares(2)

Use of proceeds......................... Expansion of marketing and sales
efforts, additional research and
development expenditures, capital
expenditures, funding costs related
to its strategic alliance agreement
with NBC Multi-media 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. The risks
faced by the Company include, among
others, its limited operating
history and anticipated losses;
unpredictability of future
revenues; unproven acceptance of
the Company's fee structure and
services; competition; and risks
associated with the Company's
strategic alliance with NBC
Multimedia. See "Risk Factors."

Nasdaq National Market symbol........... ITVU

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(1) NBC Multimedia has agreed, subject to certain closing conditions, to
purchase 210,526 shares of Common Stock in the Direct Offering at the price
per share to the public in the Offering.

(2) Excludes 200,000 shares of Common Stock issuable upon exercise of the
Advisors' Warrants, 735,102 shares of Common Stock issuable upon exercise of
outstanding options under the 1996 Stock Plan of InterVU Inc. (the "1996
Stock Plan") and 806,144 shares issuable upon conversion of the Series G
Preferred.

5
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
---------------- ------------ ------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ -- $ -- $ 84
Operating expenses:
Research and development............... 33 1,420 967 1,301
Selling, general and administrative.... 16 910 531 2,202
---- ---------- ------- ---------
Total operating expenses.................. 49 2,330 1,498 3,503
---- ---------- ------- ---------
Loss from operations...................... (49) (2,330) (1,498) (3,419)
Interest income........................... 3 52 34 76
---- ---------- ------- ---------
Net loss.................................. $(46) $ (2,278) $(1,464) $ (3,343)
==== ========== ======= =========
Pro forma net loss per share (1).......... $ (.31) $ (.41)
========== =========
Shares used in computing pro forma net
loss per share (l)..................... 7,337,448 8,253,093
========== =========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $4,358 $ 23,178
Working capital...................................................... 4,142 22,962
Total assets......................................................... 5,080 23,900
Long-term liabilities................................................ 11 11
Total stockholders' equity........................................... 4,791 23,611
</TABLE>

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(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) As adjusted to reflect the sale by the Company of 2,210,526 shares of Common
Stock at the initial public offering price of $9.50 per share, and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."

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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. The Company has a limited operating history on which
to base an evaluation of its business and prospects and currently is considered
a development stage company. Accordingly, 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
September 30, 1997, the Company had an accumulated deficit of approximately $5.7
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 and negative cash flows from operations on both a
quarterly and annual basis through at least the end of fiscal 1998 and for the
foreseeable future thereafter. For these and other reasons, there can be no
assurance that the Company will ever achieve or be able to sustain
profitability. The Company had federal and California tax net operating loss
carry forwards at December 31, 1996 of approximately $2.3 million. The federal
and California tax loss carry forwards will begin to expire in 2010 and 2003,
respectively, unless previously utilized. The Company also has federal and
California research tax credit carry forwards of approximately $47,000 and
$38,000, respectively, which will begin to expire in 2010 unless previously
utilized. The utilization of these losses is contingent upon the Company's
ability to generate taxable income in the future. Because of that uncertainty,
management has recorded a full valuation allowance with respect to these
deferred tax assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and Note 6 of Notes
to Financial Statements.

As consideration for the strategic alliance with NBC Multimedia, the
Company issued 1,280,000 shares of Series G Preferred to NBC, and NBC Multimedia
granted the Company exclusive rights to deliver most NBC audio/video content
from NBC Web sites. NBC Multimedia may terminate the Strategic Alliance
Agreement between the Company and NBC Multimedia without cause by giving 90 days
prior written notice and, following the completion of the Offering, is required
to return (i) all shares of Series G Preferred (or the shares of Common Stock
into which such shares may in the future be converted) if termination occurs
prior to January 10, 1998 and NBC Multimedia has not, at a minimum, displayed a
button or link containing a copy of the Company's logo on the NBC Web site or
(ii) 600,000 shares of Series G Preferred (or Common Stock, as the case may be)
if the termination occurs at any other time during the first two years of the
exclusive term of the Strategic Alliance Agreement. Notwithstanding the
foregoing, NBC Multimedia is not required to return any such shares until it has
received from the Company the $2.0 million of non-refundable payments described
below under "-- Risks Associated with Strategic Alliance with NBC Multimedia."
The Company will determine the fair value of the Series G Preferred issued to
NBC on the dates the requirements that NBC

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return some or all of the shares of Series G Preferred upon termination of the
Strategic Alliance Agreement lapse. Based on these provisions, the Company
currently expects to charge the then fair value of 680,000 shares of Series G
Preferred to expense in the quarter ending March 31, 1998 and the then fair
value of the remaining 600,000 shares of Series G Preferred to expense in the
quarter ending December 31, 1999. Should the Company renegotiate or waive these
provisions, removing NBC's obligation to return shares of Series G Preferred (or
Common Stock, as the case may be), the Company would expense the fair value of
the shares at that time. The Company believes that the fair value of each share
of Series G Preferred will roughly approximate the price per share at which the
Common Stock is then trading, multiplied by the .6298 conversion ratio
applicable to the Series G Preferred. These noncash charges are likely to be
substantial and are likely to have a material adverse impact on the Company's
results of operations in the periods such expenses are recognized.

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 (including, in particular,
NBC), 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."

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."

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UNCERTAIN MARKET FOR THE COMPANY'S SPECIALIZED SERVICES

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. There can be no
assurance that a market for Internet video delivery services will develop or
that any such market, if developed, will offer significant revenue opportunities
for specialized video delivery service providers such as the Company. 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. The Company's services are highly
specialized and designed solely to meet Web site owners' and advertisers'
Internet video delivery needs. Accordingly, if Internet-based marketing and
advertising activities incorporating video are not widely 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."

The Company's ability to achieve and maintain a leadership position in the
Internet video delivery market 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. Moreover, even if
a significant market for video delivery services develops, there can be no
assurance that Web site owners and advertisers will retain the Company to
provide video delivery services. Because of the specialized nature of the
Company's services, the absence of a market for video delivery services, or the
Company's failure to obtain a significant share of such market if it develops,
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.

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, 19 customers have emerged from the free trial period, one customer
remains in the trial period, and four customers 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.

COMPETITION

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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 RealNetworks 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 RealNetworks 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 RealNetworks and VDOnet Corp. In addition, as was the case with VXtreme,
Inc., RealNetworks 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.

RISKS ASSOCIATED WITH STRATEGIC ALLIANCE WITH NBC MULTIMEDIA

As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into the Strategic Alliance Agreement with NBC Multimedia. The terms of
the Strategic Alliance Agreement subject the Company to a number of risks and
uncertainties, including the following:

Issuance of Stock. As consideration for the strategic alliance, the Company
issued 1,280,000 shares of Series G Preferred to NBC pursuant to the terms of a
Preferred Stock Purchase Agreement among the Company, NBC and NBC Multimedia
(the "Series G Purchase Agreement"). Such shares represented approximately 10%
of the Company's outstanding capital stock prior to this Offering. No cash
consideration was received by the Company for the Series G Preferred. In
addition, the Series G Purchase Agreement grants NBC Multimedia the right to
purchase $2.0 million of Common Stock at the initial public offering price, and
NBC Multimedia has exercised this right. See "Dilution," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Capital Stock -- Preferred Stock" and "Direct Offering."

InterVU Payment Obligations. InterVU is fully obligated to pay to NBC
Multimedia a total of $2.0 million in a series of non-refundable payments (the
"Prepayments"), the first of which will be in the amount

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of $750,000 and is payable immediately upon the completion of the Direct
Offering. The Prepayments are designed to cover certain production, operational
and promotional costs. If the Strategic Alliance Agreement is terminated for any
reason, all unpaid Prepayments become immediately due and payable to NBC. There
can be no assurance that NBC Multimedia will not terminate the Strategic
Alliance Agreement, with or without cause. The termination of the Strategic
Alliance Agreement would have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. See "NBC
Multimedia's Termination Rights" below.

Broad Discretionary Powers of NBC Multimedia. The Strategic Alliance
Agreement provides NBC Multimedia with broad discretion in a number of areas,
including (i) the determination of what materials and content will be made
available for downloading through the InterVU Network, (ii) the promotional
obligations of NBC Multimedia and (iii) the obligation of NBC Multimedia to
introduce the Company to television stations associated with the NBC television
network. The failure of NBC Multimedia to make a significant amount of
compelling material available for downloading through the InterVU Network and to
promote the Company and its Internet video delivery services could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.

Limited Nature of Exclusive Rights. The Strategic Alliance Agreement
provides that, subject to certain exceptions, during the Exclusive Term (as
defined below), NBC Multimedia will not make available for transmission over the
Internet any entertainment (i.e., excluding sports, news and other
non-entertainment programming) audio/video content in any format to users via a
Web site operated or controlled by NBC ("NBC Internet Sites") other than
pursuant to the Strategic Alliance Agreement. The Strategic Alliance Agreement
expressly excludes from this provision audio/video content of less than five
seconds in length. In addition, NBC Multimedia is not restricted from making
such audio/video content available on any Internet site that is not an NBC
Internet Site. There can be no assurance that NBC Multimedia will not make its
audio/video content available on other Internet sites. A determination by NBC
Multimedia to make its audio/video content available on other Internet sites
could have a material adverse effect on the amount of revenues generated
pursuant to the Strategic Alliance Agreement and could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.

The Exclusive Term is defined as the period commencing on October 10, 1997
and ending on October 10, 1999; provided that if certain mutually agreed cost
and revenue goals are established and met, then the Exclusive Term shall be
automatically extended until October 10, 2001. Although the Strategic Alliance
Agreement provides that the parties shall meet and consult with one another in
good faith and shall make good faith efforts to determine such cost and revenue
goals on or before October 10, 1998, there can be no assurance that the Company
and NBC Multimedia will be able to establish such mutually agreeable cost and
revenue goals. The failure of the Company and NBC Multimedia to reach an
agreement on this issue could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.

NBC Multimedia's Termination Rights. During the Exclusive Term, NBC
Multimedia may terminate the Strategic Alliance Agreement without cause by
giving 90 days prior written notice to the Company. NBC Multimedia also has the
right to terminate the Strategic Alliance Agreement if, among other things, the
services provided by the Company pursuant to such agreement materially decline
below industry standards or fail to conform to the specifications set forth in
the Strategic Alliance Agreement and the Company is unable to cure such failure
within ten days of its receipt of notice. The Strategic Alliance Agreement
requires the Company to maintain a successful user connection rate of at least
98%. The failure to maintain such a connection rate could be deemed to be a
material breach by the Company of the Strategic Alliance Agreement, giving NBC
Multimedia the right to terminate the Strategic Alliance Agreement for cause.
Although the Company expects to maintain the required connection rate, there can
be no assurance that the Company can do so. The Company has represented to NBC
Multimedia in the Strategic Alliance Agreement that it will not use the InterVU
Network in connection with the encoding or distribution of adult video content.
Any such activity would constitute a breach of that representation and warranty
and could result in a determination by NBC Multimedia to terminate the Strategic
Alliance Agreement for cause. The termination of the Strategic Alliance
Agreement, or the announcement of an intent to terminate, would have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Among

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other things, any such termination or announcement of an intent to terminate
could cause other customers of the Company, especially NBC television affiliates
then using the Company's video delivery services, if any, to terminate their
relationship with the Company and would also have a negative impact on the
Company's reputation in the market for Internet video delivery services, which
would have a material adverse effect on the Company's ability to market its
services to Web site owners and advertisers.

If NBC Multimedia terminates the Strategic Alliance Agreement without cause
during the first two years of the Exclusive Term, then NBC or NBC Multimedia
would be required to return to the Company (i) all shares of Series G Preferred
(or the shares of Common Stock into which such shares may in the future be
converted) if termination occurs prior to January 10, 1998 and NBC Multimedia
has not, at a minimum, displayed a button or link containing a copy of the
Company's logo on the NBC Website or (ii) 600,000 shares of the Company's Series
G Preferred (or Common Stock, as the case may be) if the termination occurs at
any other time during the first two years of the Exclusive Term; provided that
NBC or NBC Multimedia would not be required to return any shares until the
Company had made the $2.0 million of Prepayments. NBC Multimedia is not
obligated to return any shares to the Company if the Strategic Alliance
Agreement is terminated by NBC Multimedia for cause.

Limited Nature of Revenue Sharing Rights. The Strategic Alliance Agreement
provides for the establishment of a new "area" (the "Revenue Sharing Area") to
be created and placed by NBC Multimedia on its Web site to allow, among other
things, the distribution of NBC audio/video clips and the promotion of the
business relationship between the Company and NBC Multimedia. The Company is
entitled to receive 30% of the actual NBC cash receipts, if any, from
advertising, transactions and subscriptions directly attributable to any Revenue
Sharing Area less certain costs and expenses associated with the Revenue Sharing
Area. Since no Revenue Sharing Areas have yet been established, no revenues have
been generated. There can be no assurance that any revenues will be generated by
the Revenue Sharing Area. In addition, the Strategic Alliance Agreement permits
NBC Multimedia to opt out of its 30% revenue sharing obligation by paying for
the Company's video delivery services at rates at least as favorable as the most
favorable rates offered by the Company to third parties, other than special
promotional rates. NBC Multimedia would have an incentive to exercise its right
to opt out of the revenue sharing obligation if the costs to NBC Multimedia of
sharing revenue exceed the amount that NBC Multimedia would be required to pay
the Company based on its most favorable video delivery rates. See
"Business -- Strategic Alliance with NBC Multimedia."

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 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. The Company does not have employment agreements with any
of its officers or employees. The Company, however, has obtained a key man life
insurance policy on the life of Mr. Kenner in the amount of $1.0 million, of
which the Company is the sole beneficiary. The Company does not have key man
life insurance on Dr. Gruber. 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

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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 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 the potential adverse impact on its strategic
alliance with NBC Multimedia and other possible negative reaction from its
existing and potential Web site and advertising

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customers. The Company has represented to NBC Multimedia in its Strategic
Alliance Agreement that it will not use the InterVU Network in connection with
the encoding or distribution of adult video content. Any such activity would
constitute a breach of that representation and warranty and could result in a
determination by NBC Multimedia to terminate the Strategic Alliance Agreement.
The Company could also 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.

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. Such association could
result even if the Company does not use the InterVU Network in connection with
the encoding or distribution of adult video content. For example, if an end-user
utilizing an Internet browser attempts to view an adult video and such end-user
does not have the necessary software, or "plug-in," he or she will automatically
be directed to the browser's plug-in finder page which lists the particular
plug-ins, including the InterVU Player, that can display the video. If the
InterVU Player is selected by the end-user, or if the end-user has already
installed the InterVU Player, the adult video will be presented within the
InterVU Player and with the InterVU name displayed in the manner depicted by the
graphics located on the inside front cover page of this Prospectus.

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.

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

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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 3,720,000 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 and
the Direct Offering, the Company will have 9,378,835 shares of Common Stock
outstanding (including 210,526 shares purchased in the Direct Offering). The
2,000,000 shares offered in the Offering (plus any shares issued upon exercise
of the Over-Allotment Option) and the shares offered in the Direct Offering will
be freely tradeable under the Securities Act of 1933, as amended (the
"Securities Act"), unless held by "affiliates" of the Company as defined in Rule
144 under the Securities Act. Of the remaining 7,168,309 shares of Common Stock,
all will be eligible for sale under Rule 144 under the Securities Act, subject
to certain volume and other limitations, following expiration of the nine-month
lockup agreements with 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. In addition, the shares of Common Stock issuable upon
conversion of the Series G Preferred will become eligible for public sale under
Rule 144 in October 1998. The Company also intends to register on Form S-8
following the effective date of the Offering, a total of 1,889,400 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
Underwriters, for nominal consideration, the Advisors' Warrants to purchase from
the Company 200,000 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."

CONTROL BY EXISTING STOCKHOLDERS

Following the completion of the Offering, members of the Board of Directors
and the executive officers of the Company, together with members of their
families and entities that may be deemed affiliates of or related to such
persons or entities, will beneficially own approximately 42.1% of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders may be able to elect all of the Company's Board of Directors and
determine the outcome of corporate actions requiring stockholder approval, such
as mergers and acquisitions. This level of ownership may have a significant
effect in delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of other holders of the
Common Stock. See "Management -- Executive Officers and Directors" and
"Principal Stockholders."

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

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capital and capital expenditures. In addition, the Company intends to use a
portion of the net proceeds to fund obligations under its strategic alliance
agreement with NBC Multimedia. 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 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 finance
significant capital equipment expenditures and lease commitments for additional
servers to expand the InterVU Network, as well as for 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

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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 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 $6.98 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." In addition, the Company has
issued an aggregate of 765,830 shares of Series F Preferred Stock, all of which
will be converted into Common Stock upon consummation of the Offering. As a
result of the Offering, the conversion price of the Series F Preferred Stock
will be adjusted, resulting in the issuance of 495,262 shares of Common Stock
upon such conversion. See "Description of Capital Stock -- Preferred Stock."

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USE OF PROCEEDS

The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered in the Offering are estimated to be $16,820,000 ($19,442,000 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. In addition, the
Company will receive $2,000,000 of additional proceeds upon the closing of the
Direct Offering.

The Company intends to use the estimated net proceeds as follows: (i)
approximately $6.2 million will be used for increased marketing and sales
efforts; (ii) approximately $5.3 million will be used for additional research
and development; (iii) approximately $900,000 will be used for capital
expenditures on equipment; (iv) $2.0 million will be used to meet the Company's
installment obligations under the Strategic Alliance Agreement to pay NBC
Multimedia for the costs of producing and operating the Revenue Sharing Area and
the costs of advertising and promotions to be placed by the Company on Web sites
controlled by NBC, including an installment of $750,000 due upon completion of
the Direct Offering, and the Company anticipates incurring an additional
approximately $2.0 million of development and support costs relating to the
strategic alliance; and (v) approximately $2.4 million 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 or Direct
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 and Direct 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.

18
<PAGE> 19

DILUTION

The pro forma net tangible book value of the Company as of September 30,
1997 was $4,791,000 or $0.67 per share after giving effect to the Stock Splits
and the conversion of all outstanding shares of preferred stock, other than
shares of Series G Preferred, 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 2,210,526
shares of Common Stock offered in the Offering and the Direct Offering (after
deducting estimated underwriting discounts, the non-accountable expense
allowance and other estimated expenses of the Offering), the adjusted pro forma
net tangible book value of the Company as of September 30, 1997 would have been
$23,611,000, or $2.52 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $1.85 per share to existing
stockholders and an immediate dilution of $6.98 per share to new investors. The
following table illustrates the per share dilution in pro forma net tangible
book value to new investors:

<TABLE>
<S> <C> <C>
Initial public offering price........................................ $ 9.50
Pro forma net tangible book value per share as of September 30,
1997............................................................ $ 0.67
Increase per share attributable to new investors................... 1.85
------
Pro forma net tangible book value per share after the Offering....... 2.52
------
Dilution per share to new investors.................................. $ 6.98
======
</TABLE>

The above table assumes that no shares of Series G Preferred are converted
into Common Stock and that no stock options are exercised. If all shares of
Series G Preferred were converted into Common Stock, there would be an immediate
increase in pro forma net tangible book value of $1.65 per share to existing
stockholders and an immediate dilution of $7.18 per share to new investors.

The following table summarizes as of September 30, 1997 on a pro forma
basis after giving effect to the Stock Splits and the conversion of all
outstanding shares of preferred stock, other than shares of Series G Preferred,
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(1).............. 7,168,309 76.4% $10,437,000 33.2% $ 1.46
New investors(2)...................... 2,210,526 23.6 21,000,000 66.8 9.50
--------- ------- ----------- -------
Total(2).................... 9,378,835 100.0% $31,437,000 100.0%
======== ===== ========== =====
</TABLE>

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

(1) The information presented with respect to existing stockholders assumes (i)
that no shares of Series G Preferred are converted into Common Stock, (ii)
no exercise of the Advisors' Warrants to purchase 200,000 shares of Common
Stock and (iii) no exercise of outstanding options to purchase 735,102
shares of Common Stock granted under the 1996 Stock Plan. The issuance of
Common Stock upon the conversion of the Series G Preferred or the 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.

(2) If the Over-Allotment Option is exercised in full, the Company will issue an
additional 300,000 shares to new investors (3.1% of the total of 9,678,835
shares outstanding) and the total consideration from new investors will be
$23,850,000 (69.6% of the total of $34,287,000 consideration paid for all
shares outstanding).

19
<PAGE> 20

CAPITALIZATION

The following table sets forth as of September 30, 1997, (i) the actual
capitalization of the Company (as if the Reverse Stock Split had occurred prior
to September 30, 1997); (ii) the pro forma capitalization as of such date after
giving effect to the automatic conversion of all shares of Series A through
Series F Convertible Preferred Stock upon the closing of the Offering and the
issuance of 1,280,000 shares of Series G Preferred to NBC in October 1997, which
will remain outstanding following the Offering and do not become convertible
until July 10, 1998; and (iii) the pro forma capitalization as adjusted to give
effect to the application of the estimated net proceeds from the sale by the
Company of 2,000,000 shares of Common Stock offered in the Offering (after
deducting the underwriting discounts, the non-accountable expense allowance and
other estimated expenses of the Offering) and 210,526 shares of Common Stock in
the Direct Offering. The table should be read in conjunction with the financial
statements and the related notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
(IN THOUSANDS, EXCEPT SHARE
PRO
FORMA
DATA) PRO AS
ACTUAL FORMA ADJUSTED
------- ------- -------
<S> <C> <C> <C>
Long-term capital lease obligations, less current portion..... $ 11 $ 11 $ 11
Stockholders' equity:
Preferred Stock, $.001 par value; 4,650,000 shares
authorized, 2,026,302 shares issued and outstanding,
actual; 5,000,000 shares authorized and 1,280,000 shares
outstanding, pro forma and as adjusted................... 2 1 1
Common Stock, $.001 par value;
16,000,000 shares authorized, 3,929,592 shares
issued and outstanding, actual;
16,000,000 shares authorized, 7,168,309 shares
issued and outstanding, pro forma;
20,000,000 shares authorized, 9,378,835 shares
issued and outstanding as adjusted(1).................... 4 7 9
Additional paid-in capital.................................. 11,282 11,280 30,098
Notes receivable from common stockholders................... (3) (3) (3)
Deferred compensation....................................... (827) (827) (827)
Deficit accumulated during the development stage............ (5,667) (5,667) (5,667)
------- ------- -------
Total stockholders' equity.................................... 4,791 4,791 23,611
------- ------- -------
Total capitalization................................ $ 4,802 $ 4,802 $23,622
======= ======= =======
</TABLE>

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

(1) Excludes 200,000 shares of Common Stock issuable upon exercise of the
Advisors' Warrants, 735,102 shares of Common Stock issuable upon exercise of
outstanding options under the 1996 Stock Plan and 806,144 shares of Common
Stock issuable upon conversion of the Series G Preferred.

20
<PAGE> 21

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 August 2, 1995 (Inception) 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 nine months ended September 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 nine months ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year.

<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER 31, DECEMBER 31, -------------------
1995 1996 1996 1997
---------------- ------------- ------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $ -- $ -- $ -- $ 84
Operating expenses:
Research and development................... 33 1,420 967 1,301
Selling, general and administrative........ 16 910 531 2,202
---- --------- ------- ---------
Total operating expenses...................... 49 2,330 1,498 3,503
---- --------- ------- ---------
Loss from operations.......................... (49) (2,330) (1,498) (3,419)
Interest income............................... 3 52 34 76
---- --------- ------- ---------
Net loss...................................... $(46) $ (2,278) $(1,464) $ (3,343)
==== ========= ======= =========
Pro forma net loss per share.................. $ (.31) $ (.41)
========= =========
Shares used in computing pro forma net loss
per share(1)............................... 7,337,448 8,253,093
========= =========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------------- 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $509 $2,508 $4,358
Working capital..................................... 509 2,365 4,142
Total assets........................................ 521 2,776 5,080
Long-term liabilities............................... 411 27 11
Total stockholders' equity.......................... 110 2,597 4,791
</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.

21
<PAGE> 22

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
nine 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 September 30, 1997, had an accumulated deficit of $5.7
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 and negative cash flows from operations on both a
quarterly and annual basis through at least the end of fiscal 1998 and for the
foreseeable future thereafter. 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 Market for the Company's Specialized
Services."

As consideration for the strategic alliance with NBC Multimedia, the
Company issued 1,280,000 shares of Series G Preferred to NBC, and NBC Multimedia
granted the Company exclusive rights to deliver most NBC audio/video content
from NBC Web sites. NBC Multimedia may terminate the Strategic Alliance
Agreement between the Company and NBC Multimedia without cause by giving 90 days
prior written notice and, following the completion of the Offering, is required
to return (i) all shares of Series G Preferred (or the shares of Common Stock
into which such shares may in the future be converted) if termination occurs
prior to January 10, 1998 and NBC Multimedia has not, at a minimum, displayed a
button or link containing a copy of the Company's logo on the NBC Web site or
(ii) 600,000 shares of Series G Preferred (or Common Stock, as the case may be)
if the termination occurs at any other time during the first two years of the
exclusive term of the Strategic Alliance Agreement. Notwithstanding the
foregoing, NBC Multimedia is not required to return any such shares until it has
received from the Company the $2.0 million of non-refundable payments described
below under "-- Liquidity and Capital Resources." The Company will determine the
fair value of the Series G Preferred issued to NBC on the dates the requirements
that NBC return some or all of the shares of Series G Preferred upon termination
of the Strategic Alliance Agreement lapse. Based on these provisions, the
Company currently expects to charge the then fair value of 680,000 shares of
Series G Preferred to

22
<PAGE> 23

expense in the quarter ending March 31, 1998 and the then fair value of the
remaining 600,000 shares of Series G Preferred to expense in the quarter ending
December 31, 1999. Should the Company renegotiate or waive these provisions,
removing NBC's obligation to return shares of Series G Preferred (or Common
Stock, as the case may be), the Company would expense the fair value of the
shares at that time. The Company believes that the fair value of each share of
Series G Preferred will roughly approximate the price per share at which the
Common Stock is then trading, multiplied by the .6298 conversion ratio
applicable to the Series G Preferred. These noncash charges are likely to be
substantial and are likely to have a material adverse impact on the Company's
results of operations in the periods such expenses are recognized.

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 amount
and timing of such expenditures will depend upon the level of demand for the
Company's services. 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.

RESULTS OF OPERATIONS

The financial results for the period from August 2, 1995 (Inception) to
September 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 nine 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 nine months ended September 30, 1996 with the
results for the nine months ended September 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 $84,000 for the nine months ended September 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, 12 customers have emerged from the free
trial period, five customers remain in the trial period, and three customers
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.

23
<PAGE> 24

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 nine months ended September 30, 1996 and the nine months ended
September 30, 1997 were $1.4 million, $967,000 and $1.3 million, respectively.
The increase in expenses for the first nine 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, $531,000 and $2.2 million for
the year ended December 31, 1996, the nine months ended September 30, 1996 and
the nine months ended September 30, 1997, respectively. The increase in selling,
general and administrative expenses for the first nine months of 1997 over the
comparable period in 1996 was attributable primarily to an increase of
approximately $970,000 in personnel and associated costs, primarily related to
sales and marketing, an increase of approximately $200,000 for expenditures for
trade shows, an increase of approximately $165,000 for bandwidth costs, an
increase of approximately $120,000 for travel and entertainment expenses and an
increase of approximately $120,000 in amortization of deferred compensation.

Interest income was $52,000, $34,000 and $77,000 for the year ended
December 31, 1996, the nine months ended September 30, 1996 and the nine months
ended September 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 nine 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 September 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, $1.5 million and $3.3 million for
the year ended December 31, 1996, the nine months ended September 30, 1996 and
the nine months ended September 30, 1997, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
private sales of equity securities. Through September 30, 1997, the Company had
raised $10.3 million from the sale and issuance of preferred stock and common
stock. At September 30, 1997, the principal source of liquidity for the Company
was $4.4 million of cash and cash equivalents.

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 nine months ended September 30, 1997 was $2.1 million
and $3.0 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 nine months ended September 30, 1997 was $305,000 and $268,000,
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

24
<PAGE> 25

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 nine months ended September 30, 1997 was $4.4 million and $5.1 million,
respectively, resulting primarily from the net proceeds received by the Company
from the sale of preferred stock.

In connection with the strategic alliance with NBC entered into in October
1997, the Company is obligated to make $2.0 million in non-refundable payments
to NBC for certain production, operating and advertising costs associated with
certain Web sites including payments of (i) $750,000 due on the completion of
the Direct Offering, (ii) $500,000 due at the end of the first calendar quarter
following the Direct Offering, (iii) $500,000 due at the end of the second
calendar quarter following the Direct Offering, and (iv) $250,000 due at the end
of the third calendar quarter following the Direct Offering; provided that all
such payments will become immediately due and payable to NBC Multimedia if the
Strategic Alliance Agreement is terminated for any reason.

The Company believes that the net proceeds from the Offering and the Direct
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 Company currently does not have any lines of credit. 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."

25
<PAGE> 26

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'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 NBC Multimedia, 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's video banner advertisements have promoted Goldwin Golf on
the Golfonline Web site, the Columbia Pictures movie "Air Force One" and Volvo
cars on the Yahoo! Web site and Anheuser Busch on the Major League Baseball Web
site.

As part of the Company's strategy to provide video delivery services to the
top tier of Internet multimedia content sites, in October 1997 the Company
entered into a strategic alliance with NBC Multimedia. Pursuant to the strategic
alliance, the Company became the exclusive provider of technology and services
for the distribution of certain NBC entertainment audio/video content by means
of NBC Web sites on the Internet. Pursuant to the Strategic Alliance Agreement
between the Company and NBC Multimedia, the Company will store NBC entertainment
audio/visual content on the InterVU Network and transmit such content to
end-users via the Internet at their request.

As consideration for the strategic alliance, the Company issued to NBC
approximately 10% of the capital stock of the Company in the form of Series G
Preferred, and NBC Multimedia granted the Company exclusive rights to deliver
most NBC entertainment audio/video content from NBC web sites. The Strategic
Alliance Agreement provides for sharing of revenues from a newly created area to
be placed on the "NBC.com" Web site that will contain, among other things,
certain NBC entertainment audio/video content (the "Revenue Sharing Area") and
allocates costs between the parties. The Strategic Alliance Agreement provides
for an exclusive term of two years that will be extended to four years if
certain cost and revenue goals to be mutually agreed upon in the future are
established and met. NBC Multimedia has agreed to use commercially reasonable
efforts to promote the Company and the InterVU Network in connection with
Internet advertising promotions involving the Company's dissemination of NBC
entertainment audio/video content. In addition, NBC Multimedia has agreed to use
commercially reasonable efforts to introduce the

26
<PAGE> 27

Company to the television stations associated with the NBC Television Network
and to refer other programming opportunities for the Internet to the Company,
all to the extent that NBC Multimedia reasonably deems appropriate.

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.

The Company believes that the net proceeds from the Offering and Direct
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. During this period the Company intends to continue to
make significant expenditures in sales and marketing and research and
development related to the InterVU Network, as well as expenditures for general
and administrative activities. In addition, the Company plans to make
expenditures related to its strategic alliance with NBC Multimedia. The Company
does not anticipate any material changes in the number of employees in its
various departments over the near term. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

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 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.

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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 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. As part of the Company's strategy to
provide video delivery services to the top tier of Internet multimedia content
sites, in October 1997 the Company entered into a strategic alliance with NBC
Multimedia. Pursuant to the strategic alliance, the Company became the exclusive
provider of technology and services for the distribution of most NBC
entertainment audio/video content by means of NBC Web sites on the Internet. The
Company also 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

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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.

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.

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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 850,000 copies of InterVU's Fast Track end-user client
software through October 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 Internet
sites. Performance data has been accumulated and analyzed for most top Internet
service providers, allowing the Company to identify and integrate the services
of six providers (UUNET, Cerfnet, DIGEX, Exodus, GlobalCenter, and SuperNet) to
offer distributed, high performance video delivery.

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 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

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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, AVI, Vivo and RealPlayer, 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.

STRATEGIC ALLIANCE WITH NBC MULTIMEDIA

In October 1997 the Company entered into a strategic alliance with NBC
Multimedia. Pursuant to the strategic alliance, the Company became the exclusive
provider of technology and services for the distribution of certain NBC
entertainment audio/video content by means of NBC Web sites on the Internet.
Under the Strategic Alliance Agreement between the Company and NBC Multimedia,
the Company will store NBC entertainment audio/video content on the InterVU
Network servers and transmit this content to users via the Internet in response
to requests from end-users.

NBC Multimedia has agreed to use commercially reasonable efforts to promote
the Company and the InterVU Network in connection with Internet advertising
promotions involving the Company's dissemination of NBC entertainment
audio/video content. NBC Multimedia has reserved the right to determine, in its
reasonable discretion, when such promotion of the Company is appropriate. The
Company has agreed to include in the Company's EyeQ multimedia manager an "NBC"
icon that links end-users to the NBC Web site. The Company and NBC Multimedia
also have agreed to place links on their Web sites connecting end-users with the
other party's site. In addition, NBC Multimedia has agreed to use commercially
reasonable efforts to introduce the Company to the television stations
associated with the NBC Television Network and
to refer other programming opportunities for the Internet to the Company, all to
the extent that NBC Multimedia reasonably deems appropriate. NBC Multimedia
would receive a 10% commission for each such referral.

Under the Strategic Alliance Agreement, the Company will receive 30% of
NBC's net revenues from advertisements on a new area to be placed on the
"NBC.com" Web site that will contain, among other things, the NBC audio/video
content (the "Revenue Sharing Area"). If NBC receives advertising space or other
barter in return for placing advertisements in the Revenue Sharing Area, NBC
will allocate 30% of bartered advertising space to InterVU or make available an
equivalent amount of space on one or more Internet sites controlled by NBC. NBC
Multimedia may opt out of revenue sharing by paying for the Company's video
delivery services at rates at least as favorable as the most favorable rates
offered by the Company to third parties, other than special promotional rates.
NBC Multimedia will reimburse the Company for the costs incurred by the Company
in connection with the delivery of audio/video content, provided that NBC

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Multimedia will not reimburse the Company for any costs in excess of $10,000 per
month that it has not expressly approved.

The Strategic Alliance Agreement provides for an exclusive term of two
years that will automatically extend to four years if certain cost and revenue
goals to be mutually agreed upon in the future are established and met. The
Company's exclusive rights to deliver NBC content from NBC Web sites do not
apply to sports, news or other non-entertainment programs, nor do they apply to
video clips of less than five seconds in length. NBC Multimedia also has
reserved the right to permit other companies to distribute NBC video content
from Web sites and areas not controlled by NBC.

As consideration for the strategic alliance, the Company issued to NBC
1,280,000 shares of the Company's Series G Preferred pursuant to the Preferred
Stock Purchase Agreement (the "Purchase Agreement"). These shares represent
approximately 10% of the Company's outstanding capital stock prior to the
Offering. The Company has granted NBC rights to include shares of Common Stock
issuable upon conversion of the Series G Preferred in certain future
registrations of the Company's Common Stock, as well as the right to demand on
one occasion only that the Company register such shares of Common Stock after
the Company becomes eligible to use Form S-3 under the Act. NBC has agreed that
neither it, nor its affiliates, will acquire or seek to acquire any of the
Company's securities for a period of one year from October 10, 1997, the date of
the Purchase Agreement.

NBC Multimedia has agreed, subject to certain closing conditions, to
purchase 210,526 shares of Common Stock in the Direct Offering at the per share
price to the public in the Offering. After the consummation of the Offering and
the Direct Offering, NBC Multimedia and NBC will together own approximately 10%
of the outstanding shares of capital stock of the Company.

If the Direct Offering is consummated, the Company would be obligated to
pay to NBC Multimedia a total of $2,000,000 in a series of non-refundable
payments over the three calendar quarters following the Direct Offering (the
"Prepayments") as payment for the costs of producing and operating the Revenue
Sharing Area (the "Production Costs") and the costs of advertising and
promotions to be placed by the Company on Web sites controlled by NBC ("InterVU
Advertising"). The first payment in the amount of $750,000 would be due upon the
completion of the Direct Offering. Production costs may include, but shall not
be limited to, costs related to NBC Multimedia's personnel costs, out-of-pocket
costs, costs for content needed for the Revenue Sharing Area, reasonable
allocated overhead costs and a management fee to be paid to NBC in return for
its services equal to 20% of all production and operating costs. The Company
would be charged for InterVU Advertising at NBC Multimedia's customary rates and
would be responsible for the expenses related to placing the advertising on the
designated Web site. The Company would not be permitted to post InterVU
Advertising at any time that advertising space were unavailable or if all of the
amounts paid by the Company to NBC already had been allocated to Production
Costs.

During the exclusive term, NBC Multimedia may terminate the Strategic
Alliance Agreement without cause by giving 90 days written notice to the Company
and returning (i) all of the shares of Series G Preferred if the termination
occurs prior to January 10, 1998 and NBC Multimedia has not, at a minimum,
displayed a button or link containing a copy of the Company's logo on the
"NBC.com" web site or (ii) 600,000 shares of Series G Preferred or the shares of
Common Stock into which they would be convertible if the termination occurs at
any other time during the first two years of the agreement. NBC Multimedia would
not be required to return any shares upon exercise of its early termination
right until the Company had made all of the required Prepayments described
above. Upon a material breach by NBC Multimedia, the Company would be entitled
to terminate the Strategic Alliance Agreement and NBC Multimedia would be
required to return the same portion of the shares as if NBC Multimedia had
exercised its early termination right. Upon a material breach by the Company,
NBC Multimedia could terminate the Strategic Alliance Agreement with no
obligation to return shares. In no event shall NBC Multimedia be required to
refund any of the Prepayments. See "Risk Factors -- Limited Operating History;
Accumulated Deficit; Anticipated Losses" and "-- Risks Associated With Strategic
Alliance With NBC Multimedia."

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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
five target markets for its services: (i) content providers (Web site owners),
(ii) advertisers, (iii) advertising agencies, (iv) Web site developers and (v)
Internet service providers.

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, including Saatchi & Saatchi, Foote Cone &
Belding and Think New Ideas, and specialized Internet advertising agencies,
which primarily provide advertising banners, 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 compatible
with customers' needs 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.

Internet Service Providers. The Company established nonexclusive
promotional agreements with six Internet service providers (UUNET, Cerfnet,
DIGEX, Exodus, GlobalCenter, and SuperNet) pursuant to

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which the service providers may market their performance (as verified by the
Fast Track Network Analyzer results) and the Company's integration of their
infrastructures into the InterVU Network.

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
primary customer groups. The Company believes that cable TV and broadcast
programmers in particular 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 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, RealNetworks, Inc. (formerly Progressive Networks, Inc.) (RealVideo),
VDOnet Corp. (VDOLive), and VXtreme, Inc. (Web Theater), AudioNet Inc.
(AudioNet) and At Home Corporation (@Home Experience). In August 1997,
RealNetworks 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 RealNetworks 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

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Active Streaming Format and (iii) the acquisition of VXtreme, Inc. Microsoft
also holds significant equity positions in RealNetworks and VDOnet Corp. In
addition, as was the case with VXtreme, Inc., RealNetworks 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.

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
$1.3 million for the period from August 2, 1995 (Inception) to December 31,
1995, the year ended December 31, 1996 and the nine months ended September 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

35
<PAGE> 36

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.

EMPLOYEES

As of October 15, 1997, the Company employed 34 full-time and two part-time
people, of whom 20 were employed in research and development, twelve 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
7,800 square feet in Solana Beach, California, which the Company occupies under
two leases and one sublease. Both leases expire in 1999 and the sublease is on a
month to month basis. 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> 37

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
J. William Grimes 56 Vice Chairman
Brian Kenner 38 Vice President and Chief Technology Officer
Douglas A. Augustine 39 Vice President, Marketing and Sales
Michael Bernstein 37 Vice President of Business Development, Media
Kenneth W. Colby 48 Vice President, Engineering
Stephen Klein 34 Vice President of Business Development, Networks
Edward David 72 Director
Mark Dowley 32 Director
Alan Z. Senter 55 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.

J. WILLIAM GRIMES joined the Company as a director in September 1997 and
has served as Vice Chairman of the Board since October 1997. Since July 1995,
Mr. Grimes has worked as a consultant with JWG Communications, Inc., a
communications consulting company he founded in July 1995. He also serves as a
faculty member in the Media Studies Program at the New School for Social
Research, a position he has held since September 1996. From September 1994 to
August 1996, Mr. Grimes held the position of President and Chief Executive
Officer with Zenith Media, a media buying service company. From October 1991 to
December 1993, Mr. Grimes served as President and Chief Executive Officer of
Multimedia, Inc. From November 1988 to September 1991, Mr. Grimes served as
President and Chief Executive Officer of Univision Holdings, Inc. Mr. Grimes
served as President and Chief Executive Officer of ESPN, Inc. from June 1982 to
October 1988. Prior to June 1982, Mr. Grimes held various positions with CBS,
Inc., including his final position as Executive Vice President of the CBS Radio
division. He obtained a B.A. in English from West Virginia Wesleyan College.

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.

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,

37
<PAGE> 38

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.

MICHAEL BERNSTEIN joined the Company in October 1997 as Vice President of
Business Development, Media. From May 1991 to September 1997, Mr. Bernstein held
a number of positions with Major League Baseball Properties, including his last
position of Vice President, Business Development & New Ventures. Mr. Bernstein
obtained a B.S. in Industrial and Labor Relations from Cornell University and an
M.B.A. from Columbia University Graduate School of Business.

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.

STEVE KLEIN joined the Company in May 1996 as Director of Business
Development and Sales and has served as Vice President of Business Development,
Networks 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.

EDWARD DAVID has served as a director of the Company since its inception in
August 1995, and has served as President of Edward E. David, Inc., a
telecommunications consulting firm since 1992. In addition, since April 1996,
Dr. David has served as Vice President of Washington Advisory Group LLC. 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., 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.

ALAN Z. SENTER joined the Company as a director in September 1997. From
September 1994 to June 1997, Mr. Senter served as Executive Vice President,
Chief Financial Officer and as a member of the Policy Council of Nynex
Corporation. From November 1993 to August 1994 and since June 1996, Mr. Senter
has served as Chairman of Senter Associates, a consulting firm founded by Mr.
Senter in November 1993. From August 1992 to November 1993, Mr. Senter served as
Executive Vice President, Chief Financial Officer and a director of GAF/ISP
Corporation. From January 1990 to July 1992, Mr. Senter served as Vice President
of Finance for Xerox Corporation. Mr. Senter serves on the Board of Directors of
XL Insurance and Advanced Radio Telecom, both publicly traded companies. Mr.
Senter obtained a B.S. in economics and political science from the University of
Rhode Island and an M.B.A. from the University of Chicago.

38
<PAGE> 39

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 directors in Class I will be Mark Dowley and Isaac Willis, whose terms
will expire at the annual stockholders meeting in 1998. The directors in Class
II will be Edward David and Alan Senter, whose terms will expire at the annual
stockholders meeting in 1999. The directors in Class III will be William Grimes
and Harry Gruber, 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 Messrs. David, Senter and 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.

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 Messrs. Dowley, Grimes and Senter, 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 25,192 Common Stock shares of the
Company. Mr. Grimes received an additional option to purchase up to 25,192
shares of Common Stock for serving as Vice Chairman of the Board. Dr. Willis
received an additional option to purchase up to 25,192 shares in light of his
additional contributions made to the Company. Such stock awards and options are
subject to repurchase rights or vesting schedules.

STOCK COMMITTEE

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 a former director of the Company. No
options were granted to Dr. Gruber or to such former director while such
individuals served on the Stock Committee. No executive officer of the Company
served on the compensation committee of another entity or on any other committee
of the board of directors of another entity performing

39
<PAGE> 40

similar functions during the last fiscal year, and no executive officer of the
Company served as a director of another entity that had an executive officer
serving on the Stock Committee of the Company.

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, officers 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 1,889,400 shares. As of
November 19, 1997, options to purchase an aggregate of 735,102 shares of Common
Stock at prices ranging from $.04 to $9.13 were outstanding under the 1996 Stock
Plan.

40
<PAGE> 41

CERTAIN TRANSACTIONS

Upon incorporation of the Company in August 1995, the Company sold an
aggregate of 2,398,278 shares of Common Stock to various individuals for an
aggregate of $952, including 705,387 shares to Harry E. Gruber, 705,387 shares
to Brian Kenner, 599,555 shares to a predecessor of the Westchester Group LLC,
211,609 shares to Ruth Hargis and 176,340 shares to the A.B. Gruber Living Trust
(the "Initial Stockholders"). Allen B. Gruber, the settlor and trustee of the
A.B. Gruber Living Trust, is the brother of Harry E. Gruber. In connection with
such issuance, the Company entered into stock purchase agreements ("Stock
Purchase Agreements") with each of the Initial Stockholders. Each Stock Purchase
Agreement granted the Company certain repurchase rights with respect to unvested
shares and certain rights of first refusal to purchase vested shares. The Stock
Purchase Agreements (including the vesting repurchase provisions contained
therein) terminated by their terms in March 1996 when the aggregate proceeds of
the Company's equity offerings exceeded $600,000.

Each of the Initial Stockholders also entered into a Voting Trust Agreement
concurrently with execution of a Stock Purchase Agreement. Pursuant to the
Voting Trust Agreement, each Initial Stockholder transferred his or her shares
to Dr. Gruber as trustee of the Voting Trust (the "Trustee"). In exchange for
such shares, the Trustee issued Voting Trust Certificates representing the
shares transferred to the Voting Trust. The Voting Trust Agreement grants the
Trustee the right to exercise all stockholder voting rights and other rights
with respect to the shares transferred to the Voting Trust other than the right
to sell, transfer or dispose of such shares. By its terms, the Voting Trust
terminates, among other reasons, upon the successful completion of an initial
public offering of the Company's securities under the Securities Act involving a
gross offering price of at least $7,500,000.

In March 1996, the Company entered into Vesting Agreements with each of the
Initial Stockholders. Each Vesting Agreement grants to the Company the right to
repurchase at the original issue price all of an Initial Stockholder's unvested
shares upon such person's death or disability or his or her unwillingness to
provide the services requested by the Company in such Vesting Agreement. The
Vesting Agreements provide for daily vesting of restricted shares of Common
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 before such shares may be sold to third parties. In October 1997,
the Company amended the Vesting Agreements for the Initial Stockholders other
than Dr. Gruber and Mr. Kenner to provide for the termination of such Vesting
Agreements (and the vesting of all shares covered thereby) upon the completion
of an initial public offering by the Company resulting in gross proceeds of at
least $7,500,000 (a "Qualifying IPO"). The Vesting Agreements for Dr. Gruber and
Mr. Kenner survive completion of the Offering but have been amended and restated
as of October 1997 to provide for the termination, upon completion of a
Qualifying IPO, of the Company's rights of first refusal to purchase vested
shares and the Company's right to repurchase unvested shares upon the death or
disability of Dr. Gruber or Mr. Kenner, as applicable. The Company's rights to
repurchase unvested shares also would terminate upon a change of control, with
respect to Mr. Gruber, and upon a change of control followed by termination
without cause or reduction of annual cash compensation, with respect to Mr.
Kenner.

On August 30, 1995, the Company sold 172,500 shares of Series A Convertible
Preferred Stock at $1 per share to various accredited investors for total
consideration of $172,500. The Company sold 80,000 of such shares to the A.B.
Gruber Living Trust. Each share of Series A Convertible Preferred Stock will be
converted into 2.5192 shares of Common Stock upon the closing of the Offering.

On February 4, 1996, the Company sold an aggregate of 339,562 shares of
Series B Convertible Preferred Stock at $1.27 per share to various accredited
investors for a total consideration of $431,244. The Company sold 50,000 of such
shares to the A.B. Gruber Living Trust, 25,000 of such shares to L. Burton
Gruber, the father of Harry Gruber, 3,000 of such shares to Hope Gruber, the
sister of Harry Gruber, and 200,000 of such shares to Isaac Willis, who has
served as a director of the Company from November 1995 to the present. Each
share of Series B Convertible Preferred Stock will be converted into 2.5192
shares of Common Stock upon the closing of the Offering.

41
<PAGE> 42

On March 5, 1996, the Company issued 302,296 shares of Common Stock to each
of Harry Gruber and Mr. Kenner and 282,166 shares to a predecessor of
Westchester Group LLC for aggregate proceeds of $1,760.

On March 7, 1996, the Company sold 296,147 shares of Series C Convertible
Preferred Stock at $2.75 per share to various accredited investors for a total
consideration of $814,404. The Company sold 3,500 of such shares to the A.B.
Gruber Living Trust, 3,000 of such shares to L. Burton Gruber and 136,364 of
such shares to Dr. Willis. Each share of Series C Convertible Preferred Stock
will be converted into 2.5192 shares of Common Stock upon the closing of the
Offering.

On April 17, 1996, the Company sold 96,429 shares of Series D Convertible
Preferred Stock at $7 per share to various accredited investors for a total
consideration of $675,003. The Company sold 7,143 of such shares to Dr. Willis.
Each share of Series D Convertible Preferred Stock will be converted into 2.5192
shares of Common Stock upon the closing of the Offering.

On August 9, 1996, the Company sold 154,500 shares of Series E Convertible
Preferred Stock at $10 per share to various accredited investors for a total
consideration of $1,545,000. The Company sold 10,000 of such shares to Dr.
Willis.

From November 1996 through February 1997, the Company sold 245,500
additional shares of Series E Convertible Preferred Stock at $10 per share to
various accredited investors for a total consideration of $2,455,000. The
Company sold 54,550 of such shares to Dr. Willis. Each share of Series E
Convertible Preferred Stock will be converted into 1.2596 shares of Common Stock
upon the closing of the Offering.

On July 16, 1997, the Company sold 677,498 shares of Series F Convertible
Preferred Stock at $6 per share to various accredited investors for a total
consideration of $4,064,988. The Company sold 290,000 of such shares to Dr.
Willis. The Company received payments for certain of the shares of Series F
Preferred Stock issued on July 16, 1997 prior to such date and accounted for
such payments as advances from stockholders. Each share of Series F Convertible
Preferred Stock will be converted into .6318 of one share of Common Stock upon
the closing of the Offering.

As consideration for the establishment of a strategic alliance in October
1997, the Company issued to NBC 1,280,000 shares of Series G Preferred, and NBC
Multimedia made the Company the exclusive provider of technology and services
for the distribution of NBC's entertainment audio/visual content by means of the
Internet. There are no agreements between management and NBC with respect to
voting their respective shares of Common Stock. The Company has granted NBC
rights to include shares of Common Stock issuable upon conversion of the Series
G Preferred in certain future registrations of the Company's Common Stock, as
well as the right to demand on one occasion only that the Company register such
shares of Common Stock after the Company becomes eligible to use Form S-3 under
the Act. NBC has agreed that neither it, nor its affiliates, will acquire or
seek to acquire any of the Company's securities for a period of one year from
October 10, 1997, the date of the Purchase Agreement. See "Business--Strategic
Alliance with NBC Multimedia."

NBC Multimedia has agreed, subject to certain closing conditions, to
purchase 210,526 shares of Common Stock in the Direct Offering at the price per
share to the public in the Offering. After the consummation of the Offering and
the Direct Offering, NBC Multimedia and NBC will together own approximately 10%
of the outstanding shares of capital stock of the Company. Upon consummation of
the Direct Offering, the Company will be obligated to pay NBC Multimedia
$2,000,000 in installments over three calendar quarters for the costs of
producing and operating the Revenue Sharing Area and the costs of advertising
and promotions to be placed by the Company on web sites controlled by NBC.

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<PAGE> 43

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 22, 1997 and as adjusted after the
Offering and the Direct 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
COMMON STOCK(3)
NUMBER OF SHARES ---------------------------------
NUMBER OF SHARES OF SERIES G BEFORE THE AFTER THE
OF COMMON STOCK PREFERRED STOCK OFFERING AND OFFERING AND
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED DIRECT OFFERING DIRECT OFFERING
- ---------------------------------- --------------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Harry Gruber(4)................... 1,007,680 -- 14.1% 10.8%
Brian Kenner(5)................... 1,007,680 -- 14.1 10.8
Allen Gruber(6)................... 512,657 -- 7.2 5.5
Isaac Willis(7)................... 1,159,385 -- 16.2 12.4
Edward David(8)................... 25,192 -- 0.4 0.3
Mark Dowley....................... -- -- -- --
J. William Grimes................. -- -- -- --
Alan Z. Senter.................... -- -- -- --
Douglas Augustine(9).............. 68,067 -- 1.0 0.7
Michael Bernstein................. -- -- -- --
Stephen Klein(10)................. 63,219 -- 0.9 0.7
Kenneth Colby(11)................. 42,096 -- 0.6 0.5
Westchester Group LLC(12)......... 881,720 -- 12.3 9.4
National Broadcasting Company,
Inc.(13)........................ -- 1,280,000 -- 2.1
All directors and executive
officers as a group (11
persons)(14).................... 3,373,319 -- 47.0% 36.0%
</TABLE>

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

(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 consummation of the Direct Offering and no exercise of the
Over-Allotment Option.

(4) Includes 569,070 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement.

(5) Includes 569,070 shares subject to the Company's repurchase right under an
Amended and Restated Vesting Agreement.

(6) Includes 255,069 shares owned by the Gruber Family Limited Partnership, of
which Allen Gruber is a general partner, and 81,244 shares owned by the
Judith Gruber Living Trust, of which Judith Gruber, Allen Gruber's wife, is
settlor and trustee.

(7) Includes 953,867 shares owned by the Willis Family Trust, of which Mr.
Willis is settlor. Includes 14,486 shares subject to the Company's
repurchase right under a restricted stock agreement and 4,070 shares
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days after the date of this table.

(8) Includes 14,486 shares subject to the Company's repurchase right under a
restricted stock agreement.

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<PAGE> 44

(9) Includes 47,947 shares subject to the Company's repurchase right under a
restricted stock agreement and 5,087 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 45,692 shares subject to the Company's repurchase right under a
restricted stock agreement. Includes 239 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.

(11) Includes 25,433 shares subject to the Company's repurchase right under a
restricted stock agreement and 4,308 shares issuable upon exercise of
options that are currently exercisable or will become exercisable within 60
days after the date of this table.

(12) The membership interests of Westchester Group LLC are owned by Marcia
Berman individually, with respect to 99.5% of the interests, and as
custodian for her minor children under the New York Uniform Gifts to Minors
Act, with respect to .5% of the interests.

(13) The shares of Series G Preferred owned by NBC become convertible at the
option of the holder on July 10, 1998. The holder of each share of Series G
Preferred shall have the right to vote on an as-converted basis. With
respect to such vote, each holder of Series G Preferred will have full
voting rights and powers of the holders of Common Stock. As of the date of
this table, NBC owns 100% of the outstanding Series G Preferred. NBC
Multimedia, a wholly owned subsidiary of NBC, has agreed, subject to
certain closing condition, to purchase 210,526 shares of Common Stock in
the Direct Offering at the price per share to the public in the Offering.

(14) See Notes (4), (5), (7), (8), (9), (10) and (11).

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<PAGE> 45

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 20,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 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 October 15, 1997, there were 3,929,592 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, other than shares of Series G Preferred, 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 3,720,000 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 Company has designated 1,200,000 shares of preferred stock as Series F
Preferred Stock. In July and August 1997, the Company issued an aggregate of
765,830 shares of Series F Preferred Stock to various accredited investors. Upon
consummation of the Offering, all shares of Series F Preferred Stock will be
converted into shares of Common Stock based on a conversion price of $9.50 per
share. The conversion price applicable to the Series F Preferred Stock would
have been $9.53 per share but for an antidilution adjustment triggered by the
initial public offering price per share.

The Board of Directors of the Company has designated 1,280,000 shares of
preferred stock as Series G Preferred Stock. The holders of Series G Preferred
are entitled to receive dividends, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock of the Company) on
the Common Stock of the Company, at the rate of $0.64 per share per annum,
payable quarterly, when, as and if declared by the Board of Directors. In the
event of any liquidation, dissolution or winding up of the Company, the holders
of Series G Preferred will be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Common Stock, an amount equal to $8.00 per share. Each share of Series G
Preferred will be convertible, at the option of the holder thereof, at any time
nine months after the date of issuance, into .6298 shares of Common Stock,
subject to adjustments for stock splits, stock dividends or combinations of
outstanding shares of Common Stock. The holder of each share of Series G
Preferred shall have the right to one vote for each share of Common Stock into
which such Series G Preferred

45
<PAGE> 46

is then convertible or into which it would be convertible but for the nine-month
restriction on conversions described above. With respect to such vote, each
holder of Series G Preferred will have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock. The Company has
granted NBC rights to include shares of Common Stock issuable upon conversion of
the Series G Preferred in certain future registrations of the Company's Common
Stock, as well as the right to demand on one occasion only that the Company
register such shares of Common Stock after the Company becomes eligible to use
Form S-3 under the Act.

Future issuances 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, other than the Series G Preferred, will be outstanding, and the
Company currently has no plans to issue any shares of preferred stock.

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
directors in Class I will be Mark Dowley and Isaac Willis, whose term will
expire at the annual stockholders meeting in 1998. The directors in Class II
will be Edward David and Alan Senter, whose terms will expire at the annual
stockholders meeting in 1999. The directors in Class III will be William Grimes
and Harry Gruber, 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

46
<PAGE> 47

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 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 three and eleven 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 six 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 Norwest
Shareowner Services, Norwest Bank Minnesota N.A.

47
<PAGE> 48

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and the Direct Offering, the Company will
have outstanding 9,378,835 shares of Common Stock. Of these shares, the
2,000,000 shares sold in the Offering (plus any shares issued upon exercise of
the Over-Allotment Option) and the 210,526 shares sold in the Direct Offering
will be freely tradeable without restriction under the Securities Act, unless
held by "affiliates" of the Company as that term is defined in Rule 144 under
the Securities Act (an "Affiliate"). The shares sold in the Offering and the
Direct Offering are not subject to the lock-up agreements discussed below.

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 the Nasdaq National Market 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 substantially all of the 7,168,309 shares of Common Stock
issued prior to the Offering 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, all of the shares of Common Stock 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. In addition, the shares of Common Stock
issuable upon conversion of the Series G Preferred will become eligible for
public sale under Rule 144 in October 1998.

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."

48
<PAGE> 49

UNDERWRITING

The Underwriters named below (the"Underwriters") 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.................................. 1,000,000
Cruttenden Roth Incorporated......................................... 1,000,000
----------
Total...................................................... 2,000,000
==========
</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 Underwriters that they 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 $0.40 per share of Common Stock.
Such dealers may re-allow a concession not in excess of $0.10 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 Underwriters have advised the Company that they do not anticipate sales
to discretionary accounts 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 Underwriters 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
300,000 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 substantially all the shares of the Company's Common Stock,
including each officer and director, 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
Underwriters, for nominal consideration, the Advisors' Warrants to purchase from
the Company 200,000 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
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.

49
<PAGE> 50

The Company has also agreed to pay Josephthal, effective upon the closing
of the Offering, a fee of $140,000 for financial advisory services.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Underwriters and was not
necessarily related to the Company's asset value, net worth or other established
criteria of value. The factors considered in such negotiations, in addition to
prevailing market conditions, included 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, the 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 300,000 shares of Common Stock, by exercising the
Over-Allotment Option. In addition, the Underwriters may impose "penalty bids"
whereby they may reclaim from each other (or dealer participating in the
Offering) for their account the selling concession with respect to Common Stock
that is distributed in the Offering but subsequently purchased for their account
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."

DIRECT OFFERING

In addition to the 2,000,000 shares of Common Stock offered in the
Offering, the Company is offering 210,526 shares of Common Stock directly to NBC
Multimedia at a price per share equal to the initial public offering price set
forth on the cover of this Prospectus. The Company and NBC Multimedia have
entered into a purchase agreement on customary terms. Upon consummation of the
Direct Offering, the Company will be obligated to pay NBC Multimedia for the
costs of producing the Revenue Sharing Area and the costs of advertising and
promotions to be placed by the Company on Web sites controlled by NBC in
installments totalling $2,000,000.

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 (Inception) 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

50
<PAGE> 51

appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

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.

51
<PAGE> 52

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 September 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 Nine Months Ended September 30, 1996 and 1997 (unaudited) and
the Period from August 2, 1995 (Inception) to September 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 Nine Months Ended
September 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 Nine Months Ended September 30, 1996 and 1997 (unaudited) and
the Period from August 2, 1995 (Inception) to September 30 1997 (unaudited).......... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>

F-1
<PAGE> 53

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
November 17, 1997

F-2
<PAGE> 54

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
--------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
-------- ---------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................... $508,754 $2,507,822 $ 4,358,088
Accounts receivable..................................................... -- -- 50,582
Prepaid and other current assets........................................ -- 10,095 10,924
-------- ---------- ----------
Total current assets...................................................... 508,754 2,517,917 4,419,594
Property and equipment, net............................................... 12,666 252,286 430,398
Other assets.............................................................. -- 6,274 6,269
Deferred offering costs................................................... -- -- 223,869
-------- ---------- ----------
Total assets...................................................... $521,420 $2,776,477 $ 5,080,130
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ -- $ 87,084 $ 147,503
Accrued liabilities..................................................... -- 65,970 118,682
Current portion, lease commitments...................................... -- -- 11,814
-------- ---------- ----------
Total current liabilities......................................... -- 153,054 277,999
Lease commitments......................................................... -- -- 10,974
Advances from stockholders................................................ 411,241 26,500 --
Stockholders' equity:
Preferred stock, $.001 par value: 4,650,000 shares authorized
Series A convertible preferred stock, Designated -- 250,000 shares;
Issued and outstanding -- 172,500 shares at December 31, 1995 and
1996 and September 30, 1997; Liquidation preference -- $172,500 at
December 31, 1995 and 1996 and September 30, 1997................... 173 173 173 $ --
Series B convertible preferred stock, Designated -- 400,000 shares;
Issued and outstanding -- 339,562 shares at December 31, 1996 and
September 30, 1997; Liquidation preference -- $431,243 at December
31, 1996 and September 30, 1997..................................... -- 340 340 --
Series C convertible preferred stock, Designated -- 400,000 shares;
Issued and outstanding -- 296,147 shares at December 31, 1996 and
September 30, 1997; Liquidation preference -- $814,404 at December
31, 1996 and September 30, 1997..................................... -- 296 296 --
Series D convertible preferred stock, Designated -- 200,000 shares;
Issued and outstanding -- 96,429 shares at December 31, 1996 and
September 30, 1997; Liquidation preference -- $675,003 at December
31, 1996 and September 30, 1997..................................... -- 96 96 --
Series E convertible preferred stock, Designated -- 400,000 shares;
Issued and outstanding -- 289,500 and 400,000 shares at December 31,
1996 and September 30, 1997, respectively; Liquidation
preference -- $2,895,000 at December 31, 1996 and $4,000,000 at
September 30, 1997.................................................. -- 290 400 --
Series F convertible preferred stock, Designated -- 1,200,000 shares;
Issued and outstanding -- 721,664 shares at September 30, 1997;
Liquidation preference -- $4,329,984 at September 30, 1997.......... -- -- 721 --
Series G convertible preferred stock (pro forma)
Designated -- 1,280,000 shares; Issued and outstanding -- 1,280,000
pro forma; Liquidation preference -- $10,240,000.................... -- -- -- 1,280
Common stock, $0.001 par value Authorized -- 16,000,000 shares; Issued
and outstanding -- 2,398,278 shares at December 31, 1995 and 4,006,787
shares at December 31, 1996 and 3,929,592 at September 30, 1997
(7,168,309 shares unaudited pro forma)................................ 2,398 4,007 3,929 7,167
Additional paid-in capital.............................................. 153,628 5,324,591 11,281,740 11,279,248
Notes receivable from common stockholders............................... -- (5,570) (3,117) (3,117)
Deferred compensation................................................... -- (403,202) (826,515) (826,515)
Deficit accumulated during the development stage........................ (46,020) (2,324,098) (5,666,906) (5,666,906)
-------- ---------- ---------- ----------
Total stockholders' equity........................................ 110,179 2,596,923 4,791,157 $ 4,791,157
==========
-------- ---------- ----------
Total liabilities and stockholders' equity........................ $521,420 $2,776,477 $ 5,080,130
======== ========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE> 55

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 2, 1995 AUGUST 2, 1995 NINE MONTHS AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED (INCEPTION) TO ENDED SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------- SEPTEMBER 30,
1995 1996 1996 1996 1997 1997
--------------- ------------- ----------------- ----------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ -- $ -- $ -- $ -- $ 84,122 $ 84,122
Operating expenses:
Research and
development......... 32,632 1,420,483 1,453,115 966,519 1,300,712 2,753,827
Selling, general and
administrative...... 16,542 910,040 926,582 531,206 2,202,747 3,129,329
-------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 49,174 2,330,523 2,379,697 1,497,725 3,503,459 5,883,156
-------- ----------- ----------- ----------- ----------- -----------
Loss from operations..... (49,174) (2,330,523) (2,379,697) (1,497,725) (3,419,337) (5,799,034)
Interest income.......... 3,154 52,445 55,599 33,628 76,529 132,128
-------- ----------- ----------- ----------- ----------- -----------
Net loss................. $ (46,020) $ (2,278,078) $(2,324,098) $(1,464,097) $(3,342,808) $(5,666,906)
======== =========== =========== =========== =========== ===========
Pro forma net loss per
share.................. $ (.31) $ (.41)
=========== ===========
Shares used in computing
pro forma net loss per
share.................. 7,337,448 8,253,093
=========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 56

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 $.0004 per share to
founders for cash in August 1995................... -- $ -- 2,398,278 $2,398 $ (1,446) $ --
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 2,398,278 2,398 153,628 --
Issuance of common stock at $.004 per share for cash
and notes receivable in January 1996............... -- -- 147,373 147 438 (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 common stock at $.002 per share to
founders for cash in March 1996.................... -- -- 886,758 887 873 --
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 $.024 per share for cash
and notes receivable in April 1996................. -- -- 444,639 445 10,145 (1,500)
Issuance of Series E convertible preferred stock at
$10.00 per share for cash from August through
December 1996, net of issuance costs of $28,659.... 289,500 290 -- -- 2,866,051 --
Issuance of common stock at $.04 per share for cash
and notes receivable in December 1996.............. -- -- 129,739 130 5,020 (4,000)
Deferred compensation................................ -- -- -- -- 421,273 --
Amortization of deferred compensation................ -- -- -- -- -- --
Net loss............................................. -- -- -- -- -- --
--------- ------ --------- ------- ----------- ------------
Balance at December 31, 1996........................... 1,194,138 1,195 4,006,787 4,007 5,324,591 (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 --
Issuance of Series F convertible preferred stock at
$6.00 per share for cash and conversion of advances
from stockholders in July and August 1997, net of
issuance costs of $10,179 (unaudited).............. 721,664 721 -- -- 4,319,084 --
Repayments of notes receivable from common
shareholders (unaudited)........................... -- -- -- -- -- 1,065
Exercise of stock options at $0.04 per share for cash
in July 1997 (unaudited)........................... -- -- 31,490 31 1,219 --
Repurchase of restricted stock at $0.024 per share
for cash and cancellation of note receivable in
September 1997 (unaudited)......................... -- -- (108,685) (109) (2,479) 1,388
Deferred compensation (unaudited).................... -- -- -- -- 562,819 --
Amortization of deferred compensation (unaudited).... -- -- -- -- -- --
Net loss (unaudited)................................. -- -- -- -- -- --
--------- ------ --------- ------- ----------- ------------
Balance at September 30, 1997 (unaudited).............. 2,026,302 $2,026 3,929,592 $3,929 $11,281,740 $ (3,117)
======== ======= ======== ======== ========== ===========

<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEFERRED DEVELOPMENT STOCKHOLDERS'
COMPENSATION STAGE EQUITY
------------ ------------ -------------
<S> <C> <C> <C>
Issuance of common stock at $.0004 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 $.004 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 common stock at $.002 per share to
founders for cash in March 1996.................... -- -- 1,760
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 $.024 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 from August through
December 1996, net of issuance costs of $28,659.... -- -- 2,866,341
Issuance of common stock at $.04 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
Issuance of Series F convertible preferred stock at
$6.00 per share for cash and conversion of advances
from stockholders in July and August 1997, net of
issuance costs of $10,179 (unaudited).............. -- -- 4,319,805
Repayments of notes receivable from common
shareholders (unaudited)........................... -- -- 1,065
Exercise of stock options at $0.04 per share for cash
in July 1997 (unaudited)........................... -- -- 1,250
Repurchase of restricted stock at $0.024 per share
for cash and cancellation of note receivable in
September 1997 (unaudited)......................... -- -- (1,200)
Deferred compensation (unaudited).................... (562,819) -- --
Amortization of deferred compensation (unaudited).... 139,506 -- 139,506
Net loss (unaudited)................................. -- (3,342,808) (3,342,808)
------------ ------------ -------------
Balance at September 30, 1997 (unaudited).............. $ (826,515) $(5,666,906) $ 4,791,157
============ ============ ============
</TABLE>

See accompanying notes.

F-5
<PAGE> 57

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, PERIOD FROM PERIOD FROM
1995 AUGUST 2, AUGUST 2,
(INCEPTION) YEAR ENDED 1995 NINE MONTHS ENDED 1995
TO DECEMBER (INCEPTION) TO SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, 31, DECEMBER 31, ------------------------- SEPTEMBER 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) $(1,464,097) $(3,342,808) $ (5,666,906)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation.................... -- 18,071 18,071 10,260 139,506 157,577
Depreciation and amortization..... 678 59,305 59,983 35,641 117,771 177,754
Changes in operating assets and
liabilities:
Accounts receivable............. -- -- -- -- (50,582) (50,582)
Prepaid and other current
assets........................ -- (10,095) (10,095) (12,244) (829) (10,924)
Accounts payable................ -- 87,084 87,084 40,103 60,419 147,503
Accrued liabilities............. -- 65,970 65,970 81,854 52,712 118,682
-------- ----------- ----------- ---------- ----------- -----------
Net cash used in operating
activities........................ (45,342) (2,057,743) (2,103,085) (1,308,483) (3,023,811) (5,126,896)
INVESTING ACTIVITIES
Purchases of property and
equipment......................... (13,344) (298,925) (312,269) (230,199) (268,397) (580,666)
Other assets........................ -- (6,274) (6,274) -- 5 (6,269)
-------- ----------- ----------- ---------- ----------- -----------
Net cash used in investing
activities........................ (13,344) (305,199) (318,543) (230,199) (268,392) (586,935)
FINANCING ACTIVITIES
Payments on capital leases.......... -- -- -- -- (4,698) (4,698)
Issuance of common stock............ 952 12,515 13,467 11,365 1,250 14,717
Issuance of preferred stock......... 155,247 2,429,124 2,584,371 1,456,654 3,359,921 5,944,292
Advances from stockholders.......... 411,241 1,920,371 2,331,612 1,901,682 2,010,000 4,341,612
Repurchase of common stock.......... -- -- -- -- (1,200) (1,200)
Repayment of stockholder notes
receivable........................ -- -- -- -- 1,065 1,065
Deferred offering costs............. -- -- -- -- (223,869) (223,869)
-------- ----------- ----------- ---------- ----------- -----------
Net cash provided by financing
activities........................ 567,440 4,362,010 4,929,450 3,369,701 5,142,469 10,071,919
Net increase in cash and cash
equivalents....................... 508,754 1,999,068 2,507,822 1,831,019 1,850,266 4,358,088
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 $ 2,339,773 $ 4,358,088 $ 4,358,088
======== =========== =========== ========== =========== ===========
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................. $ -- $ 2,305,112 $ 2,305,112 $ 1,956,241 $ 2,036,500 $ 4,341,612
======== =========== =========== ========== =========== ===========
Issuance of common stock in
exchange for notes receivable... $ -- $ 5,570 $ 5,570 $ 1,570 $ -- $ 5,570
======== =========== =========== ========== =========== ===========
Cancellation of stockholder notes
receivable...................... $ -- $ -- $ -- $ -- $ 1,388 $ 1,388
======== =========== =========== ========== =========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE> 58

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
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 September
30, 1997, the Company had incurred accumulated losses of $5,666,906. 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 nine months ended September 30, 1996 and
1997 and for the period from August 2, 1995 (Inception) to September 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 September 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> 59

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
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> 60

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
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, 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 at an IPO
price of $9.50, all of the Series A through Series F convertible preferred stock
outstanding will automatically be converted into 3,238,717 shares of common
stock, based on the shares of Series A through Series F convertible preferred
stock outstanding as of September 30, 1997. The Series G convertible preferred
stock will remain outstanding following the offering and does not become
convertible until July 10, 1998. Pro forma stockholders' equity at September 30,
1997, as adjusted for the conversion of the Series A through Series F
convertible preferred stock and the issuance of 1,280,000 shares of Series G
convertible preferred stock to NBC, 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 nine months ended
September 30, 1997.

F-9
<PAGE> 61

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

2. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computers...................................... $13,344 $228,729 $ 417,907
Furniture and fixtures......................... -- 61,676 112,769
Equipment under capital lease.................. -- -- 27,486
Leasehold improvements......................... -- 11,936 24,172
Purchased software............................. -- 9,928 25,818
------- -------- ---------
13,344 312,269 608,152
Less accumulated depreciation.................. (678) (59,983) (177,754)
------- -------- ---------
$12,666 $252,286 $ 430,398
======= ======== =========
</TABLE>

3. STOCKHOLDER ADVANCES

At December 31, 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. At December 31,
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.

4. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

A summary of convertible preferred stock at September 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 $ 172,500 434,562 $ .08
B............... 400,000 339,562 431,243 855,421 .10
C............... 400,000 296,147 814,404 746,048 .22
D............... 200,000 96,429 675,003 242,922 .56
E............... 400,000 400,000 4,000,000 503,825 .80
F............... 1,200,000 721,664 4,329,984 455,939 .48
</TABLE>

Series A through Series F of the 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, subject to adjustment for
antidilution. The Series F conversion has been adjusted to reflect such
adjustment for antidilution at the IPO price of $9.50 per common share. The
Series A through Series F 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.

F-10
<PAGE> 62

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

4. STOCKHOLDERS' EQUITY (CONTINUED)
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 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 September 30,
1997, no cash dividends had been declared.

COMMON STOCK

In August 1995, 2,398,278 shares of common stock were issued to the
founders of the Company at a price of $.0004 per share under founder stock
purchase agreements. In March 1996, an additional 886,758 shares of common stock
were issued to three of the founders at a price of $.002 per share under the
founder stock purchase agreements. In January 1996, the Company issued 147,373
shares of common stock to employees at $.004 per share under restricted stock
agreements. Also, in April and December 1996, the Company issued 444,639 and
129,739 shares of common stock, respectively, to employees at $.024 and $.04 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 September 30, 1997, 2,536,814
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. Also, 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.

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 1,889,400 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 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> 63

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
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 September 30, 1997:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Granted.............................................................. 156,820 $0.04
-------- ------
Balance at December 31, 1996........................................... 156,820 0.04
Granted.............................................................. 684,089 3.34
Exercised............................................................ (31,490) 0.04
Canceled............................................................. (88,172) 0.04
-------- ------
Balance at September 30, 1997.......................................... 721,247 $3.17
======== ======
</TABLE>

As of September 30, 1997, options for 21,090 common shares were
exercisable. The weighted average remaining contractual life of outstanding
options was approximately 9.5 years at September 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.

DEFERRED COMPENSATION

Through September 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 September 30, 1997
totaled $421,273 and $984,092, respectively, and related amortization expense
totaled $18,071 and $139,506 in 1996 and 1997, respectively, and $157,577 for
the period from August 2, 1995 (Inception) to September 30, 1997.

F-12
<PAGE> 64

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

4. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE

At September 30, 1997, the Company had reserved approximately 5.1 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,
$20,722 and $93,209 for the nine months ended September 30, 1996 and 1997,
respectively, and $140,857 for the period from August 2, 1995 (Inception) to
September 30, 1997.

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

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- --------
<S> <C> <C>
1997 (three months)...................................... $ 18,193 $ 5,965
1998..................................................... 120,870 13,790
1999..................................................... 36,190 8,353
-------- --------
Total minimum lease payments............................. $ 175,253 28,108
========
Less amounts representing interest....................... (5,320)
--------
Present value of future minimum lease payments........... 22,788
Less current portion..................................... (11,814)
--------
Capital lease obligation, net of current portion......... $ 10,974
========
</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

F-13
<PAGE> 65

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

6. INCOME TAXES (CONTINUED)
carryforwards of approximately $47,000 and $38,000, respectively, which will
begin to expire in 2010 unless previously utilized.

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, $63,258 and $154,692 for the nine
months ended September 30, 1996 and 1997, respectively, and $256,524 for the
period from August 2, 1995 (Inception) to September 30, 1997.

8. RECENT EVENTS

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. Concurrent with the closing of the
offering contemplated by this prospectus, all of the preferred stock
outstanding, excluding 1,280,000 shares of Series G convertible preferred stock,
automatically convert into 3,238,717 shares of common stock.

On November 18, 1996, the Company effected a reverse stock split in which
.6298 shares of common stock were exchanged for one share of common stock. All
applicable share and stock option information have been restated to reflect the
split. Additionally, the Company modified its capital structure to authorize
20,000,000 shares of common stock ($.001 par value) and 5,000,000 shares of
preferred stock ($.001 par value). The Board of Directors is authorized, without
further stockholder approval, to issue up to 3,720,000 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.

On October 10, 1997, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC Multimedia"), a wholly-owned subsidiary of the National
Broadcast Corporation, Inc. ("NBC") whereby the Company became the exclusive
provider of technology and services for the distribution of most NBC
entertainment audio/visual content by means of the Internet. As consideration
for the formation of the strategic alliance, the Company issued to NBC 1,280,000
shares of Series G convertible preferred stock. The Series G convertible
preferred stock ($.001 par value) has an aggregate liquidation preference of
$10,240,000, a dividend rate of $.64 per share and a conversion rate of .6298
common share to one preferred share, subject to adjustment for dilution. The
Series G Convertible Preferred Stock is convertible at the option of the holder
commencing on July 10, 1998. The Company is entitled to receive 30% of certain
advertising revenues generated under this alliance from NBC websites or, at a
minimum, payments from NBC Multimedia for the video delivery services at rates
at least as favorable as the most favorable rates offered by the Company to
third

F-14
<PAGE> 66

INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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

8. RECENT EVENTS (CONTINUED)
parties. The Company is obligated to make $2,000,000 in non-refundable payments
to NBC Multimedia for certain production, operating and advertising costs
associated with certain NBC websites including payments of (i) $750,000 due on
the completion of the initial public offering contemplated by this prospectus,
(ii) $500,000 due at the end of the first calendar quarter following the initial
public offering, (iii) $500,000 due at the end of the second calendar quarter
following the initial public offering, and (iv) $250,000 due at the end of the
third calendar quarter following the initial public offering.

NBC Multimedia may terminate the agreement without cause by giving 90 days
written notice and, following the completion of the offering contemplated by the
prospectus, is required to return (i) all shares of Series G convertible
preferred stock if termination occurs prior to January 10, 1998 and NBC
Multimedia has not promoted, at a minimum, the Company's logo on the NBC Web
site or (ii) 600,000 shares of Series G convertible preferred stock if the
termination occurs at any other time during the first two years of the exclusive
term. The Company will determine the fair value of the Series G convertible
preferred stock issued to NBC on the dates the requirements that NBC return some
or all of the shares of Series G convertible preferred stock lapse. Based on
these provisions, the Company currently expects to charge the then fair value of
680,000 shares of Series G convertible preferred stock to expense in the quarter
ending March 31, 1998 and the then fair value of the remaining 600,000 shares of
Series G convertible preferred stock to expense in the quarter ending December
31, 1999. Should the Company renegotiate or waive these provisions, removing
NBC's obligation to return shares of Series G convertible preferred stock, the
Company would expense the fair value of each share at that time. The Company
believes that the fair value of the shares of Series G convertible preferred
stock will roughly approximate the price at which the stock is then trading,
multiplied by the .6298 conversion ratio applicable to the Series G convertible
preferred stock. These noncash charges are likely to be substantial and are
likely to have a material adverse impact on the Company's results of operations
in the periods such expenses are recognized.

F-15
<PAGE> 67

[INTERVU LOGO]

Two video banner advertisements are depicted. The first advertisement is a
rectangle approximately one inch high and four inches wide containing the words
"Volvo V70 and Cross Country"; "Click here for video"; and "V-Banner Delivered,
the InterVU Network." At the far right of the rectangle is a one inch by one
inch picture of a car. The second advertisement also is a one inch by four inch
rectangle that contains the words "Goldwin Golf"; "AVDP System: The Story Behind
the Technology"; and "Click Here to Play Through." At the far right of the
rectangle is a picture of the head of a golf club.

<TABLE>
<S> <C>
V-Banner(TM) InterVU's V-Banner video advertising banners, which integrate real time
Client Videos audio and video into traditional ad banners, are delivered automatically to
Free Software end-users with video player capability. V-Banners offer advertisers access
to end-users through use of InterVU's All Eyes service. All Eyes identifies
each end-user's player software and delivers the video portion of the
V-Banner in the compatible encoding format.
</TABLE>

[EYEQ LOGO]

The Company's "Fast Track Analyzer" is depicted. The graphic shows a
rectangular computer "window." On the left is a circle, inside of which is a
top-down view of the globe with sweeping radii and four points on the globe
numbered one through four. The right-hand portion of the graphic contains the
InterVU logo; alphabetical and numerical references numbered one through four;
and buttons labelled "Stop", "Settings", "Help" and "Exit." Also included are
the words "Mapping InterVU Network delivery centers"; "Please Wait"; "Video
Delivery Center Status"; "Faster"; "Emulated"; and "Inactive."

<TABLE>
<S> <C>
V-Banner(TM) InterVU's EyeQ multimedia software package, made available to InterVU
Client Videos end-users at no charge, includes InterVU's InstaVU and MPEG video players,
Free Software a software utility called Get Smart and InterVU's Fast Track Analyzer.
InstaVU allows multimedia streaming on a 28.8 Kbps or faster modem. 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. The Fast Track Analyzer, pictured here,
"polls" selected servers on the InterVU Network to determine which server
will provide the end- user with the best overall video performance.
</TABLE>
<PAGE> 68

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

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............................... 7
Use of Proceeds............................ 18
Dividend Policy............................ 18
Dilution................................... 19
Capitalization............................. 20
Selected Financial Data.................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 22
Business................................... 26
Management................................. 37
Certain Transactions....................... 41
Principal Stockholders..................... 43
Description of Capital Stock............... 45
Shares Eligible for Future Sale............ 48
Underwriting............................... 49
Direct Offering............................ 50
Legal Matters.............................. 50
Experts.................................... 50
Available Information...................... 51
Index to Financial Statements.............. F-1
</TABLE>

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

UNTIL DECEMBER 14, 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.

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

2,000,000 SHARES

LOGO

INTERVU INC.

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

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

JOSEPHTHAL LYON & ROSS

CRUTTENDEN ROTH
INCORPORATED

NOVEMBER 19, 1997

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