<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
Commission File No. 000-23361
INTERVU INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0680870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6815 Flanders Drive, San Diego CA 92121
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 623-8400
Securities Registered Pursuant to Section 12 (b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock (par value $.001 per share)
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports to
be filed by section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock on
July 30, 1998 was 10,875,032
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which provides a "safe harbor" for these types of statements. To the extent
statements in this Quarterly Report involve, without limitation, the Company's
expectations for growth, estimates of future revenue, expenses, profit, cash
flow, balance sheet items or any other guidance on future periods, these
statements are forward-looking statements. These risks and uncertainties include
those identified in the Company's Annual Report on Form 10-K in Item 1 -
"Business - Factors That May Affect Future Performance" and other risks
identified for time to time in the Company's filings with the Securities and
Exchange Commission, press releases and other communications. Copies of the
Company's Form 10-K are available from the Company upon request. The Company
assumes no obligation to update forward-looking statements.
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INTERVU INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 FINANCIAL STATEMENTS PAGE
<S> <C>
Balance Sheets................................................ 4
Statements of Operations...................................... 5
Statements of Cash Flows...................................... 6
Notes to the Financial Statements............................. 7-9
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 10-12
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK............................................. 12
PART II - OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS..................... 13
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 15
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.............................. 15
SIGNATURES...................................................................... 16
</TABLE>
3
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PART I
ITEM 1. FINANCIAL STATEMENTS
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ ------------
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................. $ 21,379,845 $ 9,146,350
Short-term investments ................................................ -- 25,517,727
Accounts receivable (net of $4,290 and $15,605, allowance for doubtful
accounts, at December 31, 1997 and June 30, 1998).................... 88,685 349,344
Prepaid and other current assets ...................................... 69,608 128,938
------------ ------------
Total current assets .................................................... 21,538,138 35,142,359
Property and equipment, net ............................................. 584,601 891,315
Other assets ............................................................ 7,269 82,998
------------ ------------
Total assets .................................................... $ 22,130,008 $ 36,116,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 437,064 $ 1,632,177
Accrued liabilities ................................................... 142,018 209,093
Current portion, lease commitments .................................... 11,814 12,595
------------ ------------
Total current liabilities ....................................... 590,896 1,853,865
Lease commitments ....................................................... 7,608 1,068
Stockholders' equity:
Series G convertible preferred stock, Designated -- 1,280,000 shares;
Issued and outstanding -- 1,280,000 shares at December 31, 1997
and June 30, 1998; Liquidation preference -- $10,240,000 .......... 1,280 1,280
Common stock, $0.001 par value Authorized -- 20,000,000 shares;
Issued and outstanding 9,377,404 shares and 10,875,032 shares at
December 31,1997 and June 30, 1998, respectively .................. 9,377 10,875
Additional paid-in capital ............................................ 29,821,121 51,274,305
Notes receivable from common stockholders ............................. (500) --
Deferred compensation ................................................. (710,493) (620,419)
Deficit accumulated during the development stage ...................... (7,589,281) (16,404,302)
------------ ------------
Total stockholders' equity ...................................... 21,531,504 34,261,740
------------ ------------
Total liabilities and stockholders' equity ...................... $ 22,130,008 $ 36,116,672
============ ============
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date. But does not include all of the
disclosures required by generally accepted accounting principles.
See accompanying notes.
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INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2,1995
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30, JUNE 30,
1997 1998 1997 1998 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ................. $ 21,606 $ 283,196 $ 31,513 $ 396,349 $ 539,890
Operating expenses:
Research and
development ............ 583,920 955,328 1,157,937 1,554,498 4,710,724
Selling, general and
Administrative .......... 670,821 2,121,376 1,106,014 3,710,634 7,785,230
Charges associated with
the NBC Strategic
Alliance Agreement ....... -- 500,000 -- 4,372,580 5,122,580
------------ ------------ ------------ ------------ ------------
Total operating expenses . 1,254,741 3,576,704 2,263,951 9,637,712 17,618,534
------------ ------------ ------------ ------------ ------------
Loss from operations ..... (1,233,135) (3,293,508) (2,232,438) (9,241,363) (17,078,644)
------------ ------------ ------------ ------------ ------------
Interest income .......... 20,736 230,627 42,163 426,345 674,345
Net loss ................. $ (1,212,399) $ (3,062,881) $ (2,190,275) $ (8,815,018) $(16,404,299)
============ ============ ============ ============ ============
Basic and diluted net
loss per share ........... $ (0.25) $ (0.34) $ (0.46) $ (0.99)
============ ============ ============ ============
Shares used in
calculating basic and
diluted net loss per share 4,802,799 9,022,496 4,795,744 8,923,612
============ ============ ============ ============
</TABLE>
See accompanying notes.
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INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2,
1995
SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
1997 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ..................................... $ (2,190,275) $(8,815,018) $(16,404,299)
Adjustments to reconcile net loss to
net cash used in operating activities:
Recognition of lapse of NBC's obligation to
return 680,000 shares of Series G
convertible preferred stock issued under
the NBC Strategic Alliance Agreement ......... -- 3,372,580 3,372,580
Compensation related to stock options ........ -- 22,010 22,010
Amortization of deferred compensation ........ 89,234 90,074 363,673
Depreciation and amortization ................ 69,851 171,285 409,812
Changes in operating assets and
liabilities:
Accounts receivable ...................... (19,069) (260,659) (349,344)
Prepaid and other current assets ......... (1,175) (59,330) (128,938)
Accounts payable ......................... 11,020 1,195,113 1,632,177
Accrued liabilities ...................... 86,684 67,075 209,094
------------ ------------ ------------
Net cash used in operating activities......... (1,953,730) (4,216,870) (10,873,235)
INVESTING ACTIVITIES
Purchases of short term investments .......... -- (25,517,727) (25,517,727)
Purchases of property and equipment........... (188,210) (477,999) (1,273,641)
Other assets ................................. -- (75,729) (82,998)
------------ ------------ ------------
Net cash used in investing Activities ........ (188,210) (26,071,455) (26,874,366)
FINANCING ACTIVITIES
Payments on capital leases ................... 25,566 (5,759) (13,823)
Issuance of common stock ..................... -- 18,060,088 36,642,828
Issuance of preferred stock .................. 1,049,884 -- 5,920,352
Advances from stockholders ................... 2,010,000 -- 4,341,612
Repurchase of common stock ................... -- -- (1,200)
Repayment of stockholder notes receivable..... 1,570 500 4,182
------------ ------------ ------------
Net cash provided by financing activities .... 3,087,020 18,054,829 46,893,951
Net increase (decrease) in cash and cash
equivalents ................................ 945,080 (12,233,495) 9,146,350
Cash and cash equivalents at Beginning of
period..................................... 2,507,822 21,379,845 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,452,902 $ 9,146,350 $ 9,146,350
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment ................................ $ -- -- $ 27,486
============ ============ ============
Conversion of advances from stockholders
to Convertible preferred stock ........... $ 26,500 $ -- $ 4,341,612
============ ============ ============
Issuance of common stock in
Exchange for notes receivable ............ $ -- $ -- $ 5,570
============ ============ ============
Cancellation of stockholder notes receivable $ -- $ -- $ 1,388
============ ============ ============
Issuance of Series G convertible
preferred stock as consideration for
the formation of NBC Strategic Alliance
Agreement. ............................... $ -- $ -- $ 1,280
============ ============ ============
Recognition of lapse of NBC's obligation
to return 680,000 shares of series G
Convertible preferred stock issued
Under the NBC Strategic Alliance
Agreement ................................ $ -- $ 3,372,580 $ 3,372,580
============ ============ ============
</TABLE>
See accompanying notes.
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InterVU Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
1. THE COMPANY AND BASIS OF PRESENTATION
InterVU Inc. (the "Company" or "InterVU") 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.
The interim unaudited condensed financial statements of the Company
contained herein have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission. In management's
opinion, the unaudited information includes all adjustments (consisting only of
normal recurring adjustments) necessary for fair presentation of the financial
position, results of operations and cash flows for the periods presented.
Interim results are not necessarily indicative of results to be expected for the
full year.
2. NEW ACCOUNTING STANDARDS
LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which supercedes APB opinion No. 15. SFAS No. 128
replaces the presentation of primary earnings per share (EPS) with basic
earnings per share ("Basic EPS"), which includes no dilution and is based on
weighted average common shares outstanding for the period. Companies with
complex capital structures, including InterVU, will also be required to present
"Diluted EPS" that reflects the potential dilution from securities such as
employee stock options and warrants to purchase common stock. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997. On February 2, 1998, the SEC issued Staff Accounting Bulletin (SAB) No. 98
which revised the previous instructions for determining the dilutive effects of
earnings per share computations of common stock and common stock equivalents at
prices below the IPO price prior to the effectiveness of the IPO.
Included in the shares used in calculating basic and diluted net loss per
share for the three months ended June 30, 1997 and 1998 are the weighted average
effect of assumed conversion of preferred stock totaling 2,782,804 and
4,043,452, respectively, and weighted average common shares totaling 2,019,995
and 4,979,044, respectively. Included in the shares used in calculating basic
and diluted net loss per share for the six months ended June 30, 1997 and 1998
are the weighted average effect of assumed conversion of preferred stock
totaling 2,717,501 and 4,043,452, respectively, and weighted average common
shares totaling 2,012,940 and 4,880,160, respectively. Common equivalent shares
result from stock options, warrants and unvested restricted stock of which
2,542,297 and 2,924,027 shares were excluded from the computation of diluted
earnings per share for the three months and six months ended June 30, 1997 and
1998, respectively, as the effect would be anti-dilutive.
COMPREHENSIVE INCOME AND SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income, and SFAS No. 131, Segment Information. Both
of these standards are effective for the fiscal years beginning after December
15, 1997. SFAS No. 130 requires that all components of comprehensive income,
including net income, be reported in the financial statements in the period in
which they are recognized. Comprehensive income is defined as the change in
equity during the period from transactions and other events and circumstances
from non-owner sources. Net income and other comprehensive income, including
foreign currency translation adjustments, and unrealized gains and losses on
investment shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company does not believe that comprehensive income or
loss will be materially different than net income or loss. SFAS No. 131 amends
the requirements for public enterprises to report financial and descriptive
information about its reportable operating segments. Operating segments, as
defined in SFAS No. 131 are components of an enterprise for which separate
financial information is available and is evaluated regularly by the Company in
deciding how to allocate resources and in assessing performance. The
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InterVU Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
financial information is required to be reported on the basis that is used
internally for evaluating the segment performance. The Company believes it
operates in one business and operating segment and does not believe adoption of
this standard will have a material impact on the Company's financial statements.
8
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ITEM 2. MANAGEMENT'S DISCUSSION & 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 under the caption Item 1. - Business
"Factors that May Affect Future Performance" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
OVERVIEW
The Company was incorporated in August 1995 and launched the InterVU
Network in December 1996. The Company began recognizing revenue during 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 also
generally charges its customers fees for encoding analog video into digital form
for transmission over the Internet.
The Company has incurred net losses in each fiscal period since its
inception and, as of June 30, 1998, had an accumulated deficit of $16.4 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 for the foreseeable future. The Company is in the
early stages of executing its business model, and the profit potential of the
Company's fee based model for the delivery of video content or advertising is
unproven in the Internet industry. Because its success is dependent on the
growth of the video market on the Internet, as well as the growth of the
Internet industry, the Company must, among other things, develop services that
are widely accepted by Web-site owners, advertisers and end-users at prices that
will yield a profit. There can be no assurance that the Company's services will
achieve broad commercial or consumer acceptance.
As consideration for the strategic alliance with NBC Multimedia, Inc. ("NBC
Multimedia"), a subsidiary of National Broadcasting Company, Inc. ("NBC") the
Company issued 1,280,000 shares of its Series G Convertible Preferred Stock
("Series G Preferred") to NBC, and NBC Multimedia granted the Company exclusive
rights to deliver most NBC audio/video entertainment 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 by returning 600,000 shares of Series G Preferred (or Common Stock into
which such shares of Series G Preferred are converted, as the case may be) if
the termination occurs prior to October 10, 1999. The Strategic Alliance
Agreement also provides that if NBC Multimedia had terminated the agreement
prior to January 10, 1998 and NBC had not, at a minimum, displayed a button or
link containing a copy of the Company's logo on the NBC Web site, it would have
been required to return all 1,280,000 shares of Series G Preferred. NBC
Multimedia is not required to return any shares upon termination 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 charged to expense in January 1998 the fair value of
680,000 shares of Series G Preferred (with respect to which NBC's obligation to
return such shares upon termination lapsed) in the amount of $3,372,580, and
expects to charge 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,
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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 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
June 30, 1998 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
1997 and, as such, the Company believes that any comparison of the results of
operations for the three and six months ended June 30, 1998 and 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 encoding and
other customer services are recognized during the period in which services are
provided. In order to attract early customers and achieve penetration of the
market for the Internet video delivery, the Company initially provided up to 90
days of free trial service to certain customers. The Company terminated its free
trial service program in August 1997. The Company may elect to resume the free
trial service program or other sales practices in the future if it determines
they are warranted.
Research and development expenses consist primarily of salaries and related
expenses for personnel, fees to outside contractors and consultants, the
allocated costs of facilities, and the depreciation and amortization of capital
equipment. Research and development expenses to date have focused in three
areas: the development of software tools and enabling platforms for the
load-balanced distribution of video content; the development of tools to analyze
Internet performance to subsequently redirect individual end-users to optimal
servers; the development of tools that allow Web-site producers to post video
web pages onto the InterVU Network; and the development of end-user tools for
displaying multimedia content including installation 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 the Internet
access and telecommunications transport costs ("bandwidth"). These costs have
both fixed and variable components. 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 depreciated over the useful life of the
asset.
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Charges associated with the NBC alliance are comprised of a non-cash charge
related to the lapse of NBC's obligations to return 680,000 shares of Series G
Preferred and non-refundable cash payments due to NBC under the NBC Strategic
Alliance Agreement.
Total revenues for the three months ended June 30, 1998 were $283,200
compared with $21,600 for the comparable period in 1997. Total revenue for the
six months ended June 30, 1998 increased to $396,300 from $31,500 in 1997. The
increase in revenues reflect the expansion of the InterVU Network, which
provides enhanced delivery of rich media content over the Internet, increased
sales of InterVU's V-Banner, a video advertising solution, and other rich media
ads which bring the branding capabilities of major advertising campaigns to the
Web. Additional revenue was generated from InterVU's participation in
VideoSeeker.com, NBC's Internet video search engine and a series of "Rich Media
Day" seminars. Co-hosted by InterVU and Matchlogic, seminar sponsors included
Intel Corporation, AdvertisingAge, and ChannelSeven. Technical sponsors included
Macromedia, Microsoft, RealNetworks, Unicast and Cosmo Software.
Research and development expenses for the second quarter ended June 30,
1998 increased to $955,300 compared to $583,900 for the same period. Research
and development expenses for the six months ended June 30, 1998 increased to
$1,554,500 from $1,157,900 in 1997. The increase in research and development
expenses reflects additions to the Company's research and development staff and
an increase in facilities costs.
Selling, general and administrative expense for the three months ended June
30, 1998 and 1997, were $2,121,400 and $670,800, respectively. Selling, general
and administrative expense for the six months ended June 30, 1998 increased to
$3,710,600 from $1,106,000 for the comparable period in the prior year. The
increase in 1998 is primarily due to costs associated with the expansion of the
administrative staff, expenses relating to trade shows, advertising campaigns,
and other sales and marketing efforts. Increased costs associated with being a
publicly traded company also contributed to the increase in expenses.
Charges associated with the NBC alliance for the three and six months ended
June 30, 1998 were $500,000 and $4.4 million. No such charges were recorded in
the three months and six months ended June 30, 1997. The charges in the 1998
period reflected (i) a non-cash charge of $3.4 million relating to the lapse of
NBC's obligation to return 680,000 shares of Series G Preferred and (ii) a
charge of $1.0 million for a portion of the remaining nonrefundable cash
payments due to NBC under the NBC Strategic Alliance Agreement.
Interest income was $230,600 and $426,300 for the three month and six
months ended June 30, 1998 compared to $20,700 and $42,200 for the same periods
in 1997. Interest income represents interest earned by the Company on its cash,
cash equivalents and short-term investments. The increase in interest income
over the comparable period in 1997 was the result of higher cash, cash
equivalents and short-term investments balances resulting from sales of equity
securities.
The Company's net loss was $3.1 million and $8.8 million for the three and
six months ended June 30, 1998 compared to $1.2 million and $2.2 million for the
same periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities. Through June 30, 1998, the Company had raised $46.9
million from the sale and issuance of preferred stock and common stock. At June
30, 1998, the principal source of liquidity for the Company was $34.7 million of
cash and cash equivalents and short-term investments.
The Company has had significant negative cash flows from operating
activities since inception. Cash used in operating activities for the six months
ended June 30, 1998 and 1997 was $4.2 million and $2.0 million respectively.
Cash used in operating activities in each of these periods was primarily the
result of increased business activity and related operating expenses.
Cash used in investing activities for the six months ended June 30, 1998
and 1997 was $26.1 million and $188,200, respectively, primarily representing
net purchases of short-term investments, capital expenditures for equipment,
software, and furniture and fixtures. Although the Company has no material
commitments for capital
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expenditures, the Company expects to expend significant amounts for equipment,
software and fixtures to expand the InterVU Network, much of which it may elect
to finance through capital leases.
Cash provided by financing activities was $18.1 million and $3.1 million
for the six months ended June 30, 1998 and 1997 respectively. This increase is
due to $18.4 million in net proceeds from the sale of 1,495,000 shares of common
stock at $13.25 per share in a public offering completed on June 15, 1998.
In connection with the strategic alliance with NBC entered into in October
1997, the Company became 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 paid on
the completion of the initial public offering in November 1997, (ii) $500,000
due in February 1998, (iii) $500,000 due in May 1998, and (iv) $250,000 due in
August 1998; provided that all such payments will become immediately due and
payable to NBC Multimedia if the Strategic Alliance Agreement is terminated for
any reason. Through June 30, 1998 a total of $1.3 million in payments have been
made to NBC multimedia.
In June 1998, The Company relocated headquarters to an improved and
equipped office space subleased in San Diego, CA. The sublease commenced in May
1998 and will expire in June 2003. Over the term of the lease the Company will
pay total rents of approximately $1.9 million.
The Company believes that existing cash and cash equivalents, will be
sufficient to meet its working capital and capital expenditure requirements
through at least the end of 1999. 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.
IMPACT OF YEAR 2000
Some older computer programs were written using two digits rather that four
to define the applicable year. As a result, those computer programs have
time-sensitive software that recognizes a date using "00" as the year 1900
rather than 2000. This could cause a system failure or miscalculations causing
disruption of operations, including a temporary inability to process
transactions or engage in similar normal business activities.
The Company is completing an assessment of whether it will have to modify
or replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is not expected to be material. The Year 2000 project is
expected to be completed not later than March 31, 1999, which is prior to any
anticipated impact on its operating systems. The Company believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. There is no assurance that the systems of those other companies on which
the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing resources and other factors. However, there can be
no assurance that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
12
<PAGE> 13
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 1997, the Company filed a registration statement under the
Securities Act of 1993 to sell up to 2.3 million shares of Common Stock in its
IPO. The effective date of registration of the IPO was November 19, 1997, under
Commission file No. 333-33521. The offering was managed by Josephthal Lyon &
Ross and Cruttenden Roth and closed on November 23, 1997 after selling an
aggregate of 2,210,526 shares of Common Stock in the IPO and Direct Offering.
Expenses related to the IPO and Direct Offering incurred through December 31,
1997 were as follows:
<TABLE>
<S> <C> <C>
Proceeds from IPO................................................ $19,000,000
Proceeds from Direct Offering.................................... 2,000,000
-----------
TOTAL PROCEEDS................................................... 21,000,000
Underwriters' Discount........................................... $1,330,000
Underwriter's advisor fee........................................ 140,000
Securities and Exchange Commission registration fee.............. 8,557
NASD filing fee.................................................. 2,625
Nasdaq National Market listing fee............................... 39,917
Non-accountable expense allowance................................ 190,000
Legal fees and expenses.......................................... 199,054
Accounting fees and expenses..................................... 190,800
Printing and engraving expenses.................................. 168,843
Blue Sky fees and expenses....................................... 12,665
Transfer agent and registrar fees................................ 3,131
Miscellaneous.................................................... 146,385
----------
TOTAL OFFERING COSTS........................................... 2,431,977
-----------
NET PROCEEDS..................................................... $18,568,023
===========
</TABLE>
Since completion of the IPO and Direct Offering in November 1997, the
Company has used $6,423,700 of the net proceeds in the following manner:
<TABLE>
<S> <C>
Prepayment to NBC Multimedia, an affiliate of the Company, for
production, operating and advertising costs associated with
certain NBC websites........................................... $ 1,250,000
Purchase of equipment and property............................. 651,935
General and Administrative and working capital................. 779,085
Research and Development expenditures.......................... 1,740,680
Sales & Marketing expenditures................................. 2,001,999
-------------
Total proceeds used through June 30,1998....................... $ 6,423,700
=============
</TABLE>
13
<PAGE> 14
Except where noted, no proceeds were paid directly or indirectly to
directors, officers, general partners of the Company or to persons holding ten
percent or more of any class of equity security issued by the Company, or to any
other affiliate of the Company.
14
<PAGE> 15
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 22, 1998, the Company held an Annual Meeting of Stockholders at
which the following proposals were voted on by the shareholders:
1. Election of two directors for a three-year term to expire at
the 2001 Annual Meeting of Stockholders. The votes cast for,
against, withheld of abstained as to each nominee are set
forth below.
<TABLE>
<CAPTION>
Nominee For Against Withheld
------- --- ------- --------
<S> <C> <C> <C> <C>
Mark Dowley 6,381,073 -- 10,815
Isaac Willis 6,380,673 -- 11,215
</TABLE>
The terms of office of the following directors continued after the meeting:
Harry E. Gruber, Edward E. David, Jr., Alan Senter, and J. William Grimes.
2. To approve the adoption of the Employee Qualified Stock
Purchase Plan and the reservation of 500,000 shares of Common
Stock for the issuance thereunder.
Votes
---------
For 4,969,963
Against 56,001
Withheld 19,490
Broker Non-Vote 1,346,434
3. To approve the adoption of the 1998 Stock Option Plan and the
reservation of 2,000,000 shares of Common Stock for the
issuance thereunder.
Votes
---------
For 3,944,524
Against 1,080,938
Withheld 19,992
Broker Non-Vote 1,346,434
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.1 Sublease Agreement dated as of April 20, 1998 between the
Company and Computervision Corporation (1)
10.2 1998 Stock Option Plan of InterVU Inc. (1)
10.3 Employee Qualified Stock Purchase Plan of InterVU Inc. (1)
27.1 Financial Data Schedule
</TABLE>
(b) No reports on form 8-K were filed for the three months ended June
30, 1998.
(1) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Commission on May 20, 1998.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant duly causes this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
InterVU Inc.
Date: August 14, 1998 By: /s/ Harry Gruber
--------------- ------------------------------------
Harry Gruber
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board and Chief
/s/ Harry Gruber Executive Officer
- --------------------------------------- (Principal Executive Officer) August 14, 1998
Harry Gruber
Vice President and Chief
/s/ Kenneth L. Ruggiero Financial Officer
- --------------------------------------- (Principal Financial and
Kenneth L. Ruggiero Accounting Officer) August 14, 1998
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,146,350
<SECURITIES> 25,517,727
<RECEIVABLES> 364,949
<ALLOWANCES> (15,605)
<INVENTORY> 0
<CURRENT-ASSETS> 35,142,359
<PP&E> 1,301,127
<DEPRECIATION> (409,812)
<TOTAL-ASSETS> 36,116,672
<CURRENT-LIABILITIES> 1,853,865
<BONDS> 0
0
1,280
<COMMON> 10,875
<OTHER-SE> 34,249,585
<TOTAL-LIABILITY-AND-EQUITY> 36,116,672
<SALES> 0
<TOTAL-REVENUES> 396,349
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,626,396
<LOSS-PROVISION> 11,315
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,815,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,815,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,815,017)
<EPS-PRIMARY> (.99)
<EPS-DILUTED> 0.00
</TABLE>
