<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 March 31, 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.)
201 Lomas Santa Fe Drive, Solana Beach CA 92075 (Address
of principal executive offices)
Registrant's telephone number, including area code: (619) 350-1600
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 April
30, 1998, was 9,380,032.
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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 from 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 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS PAGE
----
Balance Sheets ............................................. 4
Statements of Operations ................................... 5
Statements of Cash Flows ................................... 6
Notes to Financial Statements .............................. 7-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 9-12
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 5 - OTHER INFORMATION .......................................... 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ........................... 14
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PART I
ITEM 1. FINANCIAL STATEMENTS
INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
------------ ------------
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 21,379,845 $ 12,060,083
Short-term investments ............................................... -- 7,026,065
Accounts receivable .................................................. 88,685 156,420
Prepaid and other current assets ..................................... 69,608 69,765
------------ ------------
Total current assets ................................................... 21,538,138 19,312,333
Property and equipment, net ............................................ 584,601 722,190
Other assets ........................................................... 7,269 46,738
------------ ------------
Total assets ................................................... $ 22,130,008 $ 20,081,261
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 437,064 $ 672,775
Accrued liabilities .................................................. 142,018 172,614
Current portion, lease commitments ................................... 11,814 12,248
------------ ------------
Total current liabilities ...................................... 590,896 857,637
Lease commitments ...................................................... 7,608 4,378
Stockholders' equity:
Series G convertible preferred stock, Designated -- 1,280,000 shares;
Issued and outstanding -- 1,280,000 shares at December 31, 1997 and
March 31, 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 9,380,032 shares at
December 31, 1997 and March 31, 1998, respectively ................. 9,377 9,380
Additional paid-in capital ........................................... 29,821,121 33,215,708
Notes receivable from common stockholders ............................ (500) --
Deferred compensation ................................................ (710,493) (665,704)
Deficit accumulated during the development stage ..................... (7,589,281) (13,341,418)
------------ ------------
Total stockholders' equity ..................................... 21,531,504 19,219,246
------------ ------------
Total liabilities and stockholders' equity ..................... $ 22,130,008 $ 20,081,261
============ ============
</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)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED AUGUST 2, 1995
MARCH 31, (INCEPTION) TO
---------------------------- MARCH 31,
1997 1998 1998
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues ................. $ 9,907 $ 113,153 $ 256,694
Operating expenses:
Research and
development ........... 448,252 599,170 3,755,396
Selling, general and
administrative ........ 560,958 1,589,258 5,663,854
Charges associated with
the NBC Strategic
Alliance Agreement .... -- 3,872,580 4,622,580
------------ ------------ ------------
Total operating expenses . 1,009,210 6,061,008 14,041,830
------------ ------------ ------------
Loss from operations ..... (999,303) (5,947,855) (13,785,136)
Interest income .......... 21,427 195,718 443,718
------------ ------------ ------------
Net loss ................. $ (977,876) $ (5,752,137) $(13,341,418)
============ ============ ============
Basic and diluted net loss
per share ................ $ (.21) $ (.66)
============ ============
Shares used in calculating
basic and diluted net loss
per share ................ 4,657,815 8,694,332
============ ============
</TABLE>
See accompanying notes.
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INTERVU INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Non-U.S. Holders PERIOD FROM
AUGUST 2,
THREE MONTHS ENDED 1995
MARCH 31, (INCEPTION) TO
---------------------------- MARCH 31,
1997 1998 1998
------------ ------------ --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .................................. $ (977,876) $ (5,752,137) $ (13,341,418)
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 .......................... -- 44,789 318,388
Depreciation and amortization ........... 41,123 70,373 308,900
Changes in operating assets and
liabilities:
Accounts receivable ................... (9,966) (67,735) (156,420)
Prepaid and other current
assets .............................. 1,983 (157) (69,765)
Accounts payable ...................... 18,614 235,711 672,775
Accrued liabilities ................... 22,571 30,596 172,614
------------ ------------ --------------
Net cash used in operating
activities .............................. (903,551) (2,043,970) (8,700,336)
INVESTING ACTIVITIES
Purchase of short-term investments ........ -- (7,026,065) (7,026,065)
Purchases of property and
equipment ............................... (101,431) (207,962) (1,003,604)
Other assets .............................. -- (39,469) (46,738)
------------ ------------ --------------
Net cash used in investing
activities .............................. (101,431) (7,273,496) (8,076,407)
FINANCING ACTIVITIES
Payments on capital leases ................ -- (2,796) (10,860)
Issuance of common stock .................. -- 18,582,740
Issuance of preferred stock ............... 1,050,684 -- 5,920,352
Advances from stockholders ................ -- -- 4,341,612
Repurchase of common stock ................ -- -- (1,200)
Repayment of stockholder notes
receivable .............................. -- 500 4,182
------------ ------------ --------------
Net cash provided by (used in)
financing activities .................... 1,050,684 (2,296) 28,836,826
Net increase in cash and cash
equivalents ............................. 45,702 (9,319,762) 12,060,083
Cash and cash equivalents at
beginning of period ..................... 2,507,822 21,379,845 --
------------ ------------ --------------
Cash and cash equivalents at end
of period ................................. $ 2,553,524 $ 12,060,083 $ 12,060,083
============ ============ ==============
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
============ ============ ==============
Compensation related to stock options ... $ -- $ 22,010 $ 22,010
============ ============ ==============
</TABLE>
See accompanying notes.
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InterVU Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
1. THE COMPANY AND BASIS OF PRESENTATION
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.
The interim unaudited condensed financial statements of InterVU Inc. (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 accruals) 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 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 of 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 March 31, 1997 and 1998 are the weighted
average effect of assumed and actual conversion of preferred stock totaling
2,717,500 and 4,043,452, respectively, and weighted average common shares
totaling 1,940,315 and 4,650,880, respectively. Common equivalent shares result
from stock options, warrants and unvested restricted stock of which 2,532,584
and 2,605,678 shares were excluded from the computation of diluted earnings per
share for the three months ended March 31, 1997 and 1998, respectively, as the
effect would be anti-dilutive.
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InterVU Inc.
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
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 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.
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ITEM 2. 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 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 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.
The Company has incurred net losses in each fiscal period since its
inception and, as of March 31, 1998, had an accumulated deficit of $13.3
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, 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 by
means of NBC Web sites. NBC Multimedia may terminate the NBC Strategic Alliance
Agreement without cause by giving 90 days prior written notice and is required
to return 600,000 shares of Series G Preferred (or the shares of Common Stock
issuable upon conversion thereof, as the case may be) if the termination occurs
at any time on or before October 10, 1999. 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 nonrefundable payments described below under
"-- Liquidity and Capital Resources." In January 1998, a requirement that NBC
return 680,000 shares of Series G Preferred upon termination of the NBC
Strategic Alliance Agreement lapsed. As a result, in January 1998 the Company
expensed the then-fair value of the 680,000 shares of Series G Preferred in the
amount of $3.4 million. The Company expects to expense the then-fair value of
the remaining 600,000 shares of Series G Preferred in the quarter ending
December 31, 1999. Should the Company renegotiate or waive the provisions
obligating NBC to return the remaining 600,000 shares of Series G Preferred (or
the shares of Common Stock issuable upon conversion thereof, as the case may
be), removing NBC's obligation to return the shares, 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. The non-cash charge with
respect to the
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remaining 600,000 shares of Series G Preferred is likely to be substantial and
is likely to have a material adverse impact on the Company's results of
operations in the period such expense is 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 that perform various functions, including analyzing
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
ISPs. It is the Company's intention to continue to contract with selected ISPs
in the future for Internet services, as well as to continue to procure and
install selected servers over a variety of Internet backbones and selected
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 depreciation 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
GENERAL
The financial results for the period from August 2, 1995 (Inception) to
March 31, 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 months ended March 31, 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 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; and the development of end-user tools for displaying multimedia content
including 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
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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.
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 nonrefundable cash payments due to NBC under the NBC Strategic
Alliance Agreement.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1997
Total revenues for the three months ended March 31, 1998 and 1997 were
$113,000 and $10,000, respectively. During the first quarter of 1998, the
Company expanded the InterVU Network to service larger volumes of multimedia
content and, as a result, performed services with respect to Intel advertising
campaigns which accounted for $40,000 of revenues for the three months ended
March 31, 1998. The balance of the increase is comprised of revenues from video
delivery or V-Banner service to a variety of other customers and reflects
expansion of the Company's sales force from three employees at March 31, 1997 to
eight employees at March 31, 1998.
Research and development expenses for the three months ended March 31, 1998
and 1997 were $599,000 and $448,000, respectively. 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 expenses for the three months ended
March 31, 1998 and 1997 were $1.6 million and $561,000, respectively. The
increase is primarily attributable to an increase in expenses related to the
addition of 16 sales, marketing and administrative positions and associated
recruiting costs of $382,000, an increase in expenses relating to trade shows,
advertising campaigns and other sales and marketing efforts of $350,000,
increased bandwidth and related production costs of $141,000 and an increase in
legal, accounting and other fees associated with being a publicly traded company
of $73,000.
Charges associated with the NBC alliance for the three months ended March
31, 1998 were $3.9 million. No such charges were recorded in the three months
ended March 31, 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 $500,000 for a portion
of the remaining nonrefundable cash payments due to NBC under the NBC Strategic
Alliance Agreement.
Interest income was $196,000 and $21,000 for the three months ended March
31, 1998 and 1997, respectively. Interest income represents interest earned by
the Company on its cash, cash equivalents and short-term investments. The
increase was primarily the result of higher cash and cash equivalents and short-
term investments balances resulting from sales of equity securities.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
sales of equity securities. Through March 31, 1998, the Company had raised $28.8
million from the sale and issuance of preferred stock and Common Stock. At March
31, 1998, the principal source of liquidity for the Company was $19.1 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 three
months ended March 31, 1998 and 1997 was $2.0 million and $904,000,
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 three months ended March 31, 1998
and 1997 was $7.3 million and $101,000, respectively, primarily representing
purchases of short-term investments, 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 to expand the InterVU Network, a
portion of which it may finance through capital leases.
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Cash used in financing activities was $2,000 for the three months ended
March 31, 1998 and represented payments on capital leases. Cash provided by
financing activities of $1.1 million in the three months ended March 31, 1997
represented proceeds 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 nonrefundable payments to
NBC Multimedia for certain production, operating and advertising costs
associated with certain NBC Web sites. Of this amount, $750,000 was paid in the
fourth quarter of 1997, $500,000 was accrued in the first quarter of 1998 and
paid in the second quarter of 1998, and the balance of $750,000 is scheduled to
be paid prior to the end of 1998. All amounts currently remaining unpaid would
become immediately due if the NBC Strategic Alliance Agreement is terminated for
any reason.
The Company believes that the net proceeds from the Offering, together with
existing cash, cash equivalents, short-term investments and capital lease
financing, 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 than 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 failure to use four digits to define the applicable year
has created what is commonly referred to as the "Year 2000 Issue" and 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 recognizes the need to ensure that its operations will not be
adversely impacted by the Year 2000 Issue. The Company does not believe that it
has material exposure to the Year 2000 Issue with respect to its own information
systems since its existing systems correctly define the Year 2000. Any required
expenditures will be expensed as incurred. The Company intends to assess its
position regarding the Year 2000 Issue with respect to external information
systems by the end of 1998. This process will entail communications with
significant business partners, customers, suppliers, financial institutions,
insurance companies and other parties that provide significant services to the
Company. The Company is currently unable to predict the extent the Year 2000
Issue will affect these parties or the extent to which the Company would be
vulnerable to any such party's failure to remediate any Year 2000 Issue on a
timely basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II - OTHER INFORMATION
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
Initial Public Offering ("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 $3,615,759 of the 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 ........................................ $ 750,000
Purchase of equipment and property .............. 381,898
General and Administrative and working capital .. 714,276
Research and Development expenditures ........... 701,132
Sales & Marketing expenditures .................. 1,068,452
----------
Total proceeds used through March 31, 1998 ...... $3,615,759
</TABLE>
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.
13
<PAGE> 14
ITEM 5. OTHER INFORMATION
In April 1998, The Company entered into a sublease agreement for
23,575 square feet of improved and equipped office space in San Diego. The
sublease expires in June 2003. Over the term of the lease the Company will pay
total rents of approximately $1.9 million. The sublease commences May 1, 1998
and the Company expects to relocate its headquarters to the subleased facility
in June 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the 3 months ended March 31,
1998.
14
<PAGE> 15
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: April 30, 1998 By: /s/ Harry Gruber
--------------------------------
Harry Gruber
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: April 30, 1998 By: /s/ Kenneth L. Ruggiero
--------------------------------
Kenneth L. Ruggiero
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,060,083
<SECURITIES> 7,026,065
<RECEIVABLES> 172,025
<ALLOWANCES> (15,605)
<INVENTORY> 0
<CURRENT-ASSETS> 19,312,333
<PP&E> 1,031,089
<DEPRECIATION> (308,899)
<TOTAL-ASSETS> 20,081,261
<CURRENT-LIABILITIES> 857,637
<BONDS> 0
0
1,280
<COMMON> 9,380
<OTHER-SE> 19,208,586
<TOTAL-LIABILITY-AND-EQUITY> 20,081,261
<SALES> 0
<TOTAL-REVENUES> 113,153
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,049,693
<LOSS-PROVISION> 11,315
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,752,137)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,752,137)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,752,137)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> 0.00
</TABLE>
