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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, 1999
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: (858) 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, 1999 was 13,956,574.
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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
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS PAGE
----
<S> <C> <C>
Balance Sheets............................................ 4
Statements of Operations.................................. 5
Statements of Cash Flows.................................. 6
Notes to the Financial Statements......................... 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 8-12
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... 13
ITEM 5 OTHER INFORMATION......................................... 13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K........................... 13
SIGNATURES......................................................... 14
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
INTERVU INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 56,736 $ 9,346
Short-term investments .................................................. 58,740 17,700
Accounts receivable, net of $223,000 and $122,000 allowance,
respectively ....................................................... 1,710 729
Prepaid and other current assets ........................................ 137 75
--------- ---------
Total current assets ...................................................... 117,323 27,850
Property and equipment, net ............................................... 5,916 2,469
Other assets .............................................................. 123 45
--------- ---------
Total assets ...................................................... $ 123,362 $ 30,364
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 2,606 $ 1,334
Accrued liabilities ..................................................... 588 299
Payable to NBC Multimedia ............................................... 750 750
Accrued payroll and related ............................................. 596 661
Current portion, lease commitments ...................................... 363 7
--------- ---------
Total current liabilities ......................................... 4,903 3,051
Lease commitments ......................................................... 701 --
Stockholders' equity:
Preferred stock,$0.001 par value: 5,000,000 shares authorized
1,280,000 shares designated as Series G convertible preferred stock;
1,280,000 shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively ............................... 1 1
Common stock, $0.001 par value: Authorized -- 20,000,000 shares;
Issued and outstanding -- 13,904,246 shares and 10,894,487 shares at
June 30, 1999 and December 31, 1998, respectively ................... 14 11
Additional paid-in capital .............................................. 149,126 51,346
Deferred compensation ................................................... (1,008) (746)
Accumulated deficit ..................................................... (30,375) (23,299)
--------- ---------
Total stockholders' equity ........................................ 117,759 27,313
--------- ---------
Total liabilities and stockholders' equity ........................ $ 123,362 $ 30,364
========= =========
</TABLE>
Note: The balance sheet at December 31, 1998 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.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues ........................ $ 1,734 $ 283 $ 2,966 $ 396
Operating expenses:
Research and development ...... 1,999 846 3,221 1,406
Sales & marketing ............. 2,123 1,080 3,882 2,034
General & administrative ...... 2,300 1,151 3,972 1,825
------------ ------------ ------------ ------------
Total operating expenses ........ 6,422 3,077 11,075 5,265
------------ ------------ ------------ ------------
Loss from operations ............ (4,688) (2,794) (8,109) (4,869)
Charges associated with the NBC
Strategic Alliance Agreement . -- 500 -- 4,373
------------ ------------ ------------ ------------
Interest income ............... 735 231 1,033 427
------------ ------------ ------------ ------------
Net loss ........................ $ (3,953) $ (3,063) $ (7,076) $ (8,815)
============ ============ ============ ============
Basic and diluted net loss per
share ......................... $ (.34) $ (.28) $ (.65) $ (.99)
============ ============ ============ ============
Shares used in calculating basic
and diluted net loss per share 11,734,589 9,022,496 10,965,960 8,923,612
============ ============ ============ ============
</TABLE>
See accompanying notes.
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INTERVU INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .............................................. $ (7,076) $ (8,815)
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 ........................................ -- 3,373
Issuance of common stock for services ............... 62 22
Amortization of deferred compensation ............... 131 90
Depreciation and amortization ....................... 763 171
Changes in operating assets and liabilities:
Accounts receivable .............................. (981) (261)
Prepaid and other current assets ................. (62) (59)
Accounts payable ................................. 1,272 695
Accrued liabilities .............................. 289 3
Payable to NBC Multimedia ........................ -- 500
Accrued payroll and related ...................... (65) 64
--------- ---------
Net cash used in operating activities ................. (5,667) (4,217)
INVESTING ACTIVITIES
Purchase of short-term investments .................... (104,240) (33,318)
Proceeds from sale of short-term investments .......... 63,200 7,800
Purchases of property and equipment ................... (3,063) (478)
Other assets .......................................... (78) (76)
--------- ---------
Net cash used in investing activities ................. (44,181) (26,072)
FINANCING ACTIVITIES
Payments on capital leases ............................ (91) (6)
Issuance of common stock .............................. 97,331 18,060
Repurchase of common stock ............................ (2) --
Repayment of stockholder notes receivable ............. -- 1
--------- ---------
Net cash provided by (used in) financing activities ... 97,238 18,055
Net decrease in cash and cash equivalents ............. 47,390 (12,234)
Cash and cash equivalents at beginning of period ...... 9,346 21,380
--------- ---------
Cash and cash equivalents at end of period ............ $ 56,736 $ 9,146
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations entered into for equipment .. $ 1,147 $ --
========= =========
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 ........................................... $ -- $ 3,373
========= =========
Expense related to issuance of common stock ........... $ 62 $ 22
========= =========
</TABLE>
See accompanying notes.
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INTERVU INC
NOTES TO FINANCIAL STATEMENT
1. THE COMPANY AND BASIS OF PRESENTATION
InterVU Inc. (the "Company" or "INTERVU") was incorporated in Delaware on
August 2, 1995 to provide services for the delivery or "streaming" of live and
on-demand video and audio content over the Internet. The Company utilizes a
distributed network to accelerate the speed and improve the quality of video and
audio delivery. In 1998, the Company emerged from 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
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Segment Information. 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 investments shall be reported, net of their
related tax effect, to arrive at comprehensive income. Comprehensive loss was
not materially different than net loss. SFAS No. 131 amends the requirements for
public enterprises to report financial and descriptive information about their
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 a 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 adoption of this standard did not have a material impact on the
Company's financial statements.
3. CONTINGENCIES
The Company is a party to certain claims and legal actions arising in the
normal course of business. Although the ultimate outcome of these matters is not
presently determinable, management believes that the resolution of all such
pending matters will not have a material adverse affect on the Company's
financial position or liquidity; however, there can be no assurance that the
ultimate resolution of these matters will not have a material impact on the
Company's results of operations in any period.
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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, 1998.
OVERVIEW
INTERVU provides Web site owners and content publishers with services for
the delivery or "streaming" of live and on-demand video and audio content over
the Internet. INTERVU's customers use its video and audio distribution services
to transmit entertainment, sports, news, business to business, advertising and
distance learning content. INTERVU's services automate the publishing,
distribution and programming of video and audio content.
Revenues
INTERVU derives revenues from delivering live and on-demand video and audio
content over the Internet and providing related services, including production,
encoding, uplinking, Web site integration, distribution, audience building,
reporting and archiving. INTERVU typically charges its customers fees with fixed
and variable components. The fixed component consists of a monthly fee based on
the particular bundle of services provided and an agreed upon amount of content
to be stored and streams to be delivered. To the extent that a customer exceeds
agreed upon storage and delivery amounts, INTERVU typically charges variable
fees based on the amount by which content delivered exceeds the agreed upon
amount. For customers for which INTERVU performs specific projects, it charges a
combination of fixed and variable fees depending on the project. INTERVU also
derives revenues from consulting services relating to streaming media
technologies, although this is not expected to constitute a material portion of
INTERVU's revenues in the future.
Expenses
INTERVU's expenses consist of research and development and selling, general
and administrative expenses. Research and development expenses consist primarily
of salaries and related expenses for personnel, fees to outside contractors and
consultants, allocated costs of facilities and depreciation and amortization of
capital equipment. Research and development expenses to date have been focused
in three areas: (1) development of software to improve the INTERVU Network's
ability to deliver video and audio content, (2) development of software to
analyze Internet performance and redirect individual end-users to optimal
servers and (3) development of software to help Web sites publish and promote
their events.
Selling, general and administrative expenses consist primarily of salaries,
commissions, promotional expenses, professional services and general operating
costs. Also included are the
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costs INTERVU incurs for bandwidth. INTERVU expects that as it adds additional
customers, the corresponding increase in video delivery volumes will allow
INTERVU to generate economies of scale relative to its bandwidth costs because
it will be able to obtain larger volume discounts. To the extent that INTERVU
does not realize such economies of scale, INTERVU's business will be adversely
affected.
As INTERVU expands its business in 1999 and beyond, its research and
development and selling, general and administrative expenses will increase
substantially. Research and development expenses will increase as INTERVU adds
engineers to its in-house software development team. INTERVU's selling, general
and administrative expenses will increase as INTERVU, among other things, hires
additional personnel, increases its advertising expenditures and establishes
additional sales offices.
INTERVU also expects to expand the INTERVU Network by adding servers in
additional Internet hosting centers. INTERVU will depreciate equipment added to
the INTERVU Network over the useful life of the asset and include this expense
in selling, general and administrative expense.
NBC Strategic Alliance
In connection with entering into a strategic alliance with NBC Multimedia,
Inc., INTERVU issued 1,280,000 shares of its Series G Convertible Preferred
Stock to NBC. INTERVU charged $3.4 million to expense in January 1998,
representing the fair value of 680,000 shares of Series G Preferred Stock at the
time NBC's obligation to return those shares lapsed. INTERVU expects to charge
the then fair value of the remaining 600,000 shares of Series G Preferred Stock
to expense during the fourth quarter of 1999 when NBC's obligation to return
those shares is expected to lapse, although if INTERVU breaches, renegotiates or
removes the provision of the NBC strategic alliance agreement relating to this
obligation, it may need to expense the charge at that time. INTERVU believes
that the fair value of each share of Series G Preferred Stock will roughly
approximate the price per share at which INTERVU's common stock is then trading,
multiplied by the 0.6298 conversion ratio applicable to the Series G Preferred
Stock. The non-cash charge with respect to the remaining 600,000 shares of
Series G Preferred Stock is expected to be substantial and to materially impact
INTERVU's results of operations in the period the expense is recognized. NBC
Multimedia is not required to return any shares upon termination until it
receives $2.0 million of non-refundable payments from INTERVU.
RESULTS OF OPERATIONS
INTERVU has incurred net losses in each fiscal period since its inception
and, as of June 30, 1999, had an accumulated deficit of $30.4 million. To date,
INTERVU has not generated any significant revenues, and, as a result of the
significant expenditures INTERVU plans to make as described above, INTERVU
expects to continue to incur significant operating losses and negative cash
flows from operations for the foreseeable future.
Total revenues for the three months ended June 30, 1999 increased to $1.7
million from $283,000 in the comparable period in 1998. Total revenues for the
six months ended June 30, 1999 increased to $3.0 million from $396,000 in the
comparable period in 1998.The increase in revenues is primarily due the
expansion of INTERVU's streaming media services and its
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customer base. INTERVU also generated additional revenue from its services to
NBC's VideoSeeker Web site.
Research and development expenses for the three months ended June 30, 1999
increased to $2.0 million from $846,000 the prior year. Research and development
expenses for the six months ended June 30, 1999 increased to $3.2 million from
$1.4 million the prior year. The increase in research and development expenses
was attributable to the increase in personnel and related expenses.
Sales and marketing expenses for the three months ended June 30, 1999
increased to $2.1 million compared to $1.1 million for the comparable period
from the prior year. Sales and marketing expenses for the six months ended
increased to $3.9 million from $1.8 million for the comparable period in the
prior year. The increase was attributable primarily to an increase in personnel
and associated costs, in expenditures for trade shows and other marketing
efforts.
General and administrative expenses for the three months ended June 30,
1999 increased to $2.3 million compared to $1.2 million for the comparable
period from the prior year. Sales and marketing expenses for the six months
ended increased to $4.0 million from $1.8 million for the comparable period in
the prior year. The increase was attributable primarily to an increase in
personnel and associated costs, consulting fees and Internet Service
Provider costs.
Charges associated with the NBC strategic alliance agreement for the three
months ended and the six months ended June 30, 1998 were $500,000 and $4.4
million, respectively. No such charges were recorded in the three months ended
and six months ended June 30, 1999, respectively. The charges in the 1998 period
reflected: (1) 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 Stock to INTERVU and
(2) a charge of $1.0 million relating to nonrefundable cash payments due to NBC
Multimedia under the strategic alliance agreement for the costs of producing and
operating NBC's VideoSeeker Web site and the costs of advertising and promotions
to be placed by INTERVU on NBC Internet sites.
Interest income was $735,000 and $1.0 million for the three and six months
ended June 30, 1999 respectively, compared to $231,000 and $426,000 for the same
periods in 1998 respectively,. Interest income represents interest earned by
INTERVU on its cash, cash equivalents and short-term investments. The increase
in interest income over the comparable period in 1998 was the result of higher
cash, cash equivalents and short-term investments balances INTERVU obtained from
sales of equity securities.
INTERVU's net loss was $4.0 million and $7.1 million for the three and six
months ended June 30, 1999 respectively, compared to $3.1 million and $8.8
million for the same periods in 1998 respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, INTERVU has financed its operations primarily through
sales of stock. Through June 30, 1999, INTERVU had raised $144.1 million from
the sale of preferred stock and common stock. At June 30, 1999, INTERVU had
$115.5 million of cash, cash equivalents and short-term investments.
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INTERVU has had significant negative cash flows from operating activities
since inception. Cash used in operating activities for the six months ended June
30, 1999 and 1998 was $5.7 million and $4.2 million, respectively. Cash used in
operating activities increased primarily as a result of increased business
activity and related operating expenses.
Cash used in investing activities was $44.2 million and $26.1 million for
the six months ended June 30, 1999 and 1998, respectively, which represented
purchases of short-term investments and capital expenditures for equipment,
software and furniture and fixtures. In March 1999, INTERVU financed $1.1
million of equipment under a three-year non-cancelable leaseline with an
interest rate of 7.75%. Additionally, INTERVU expects to expend significant
amounts for equipment, software and fixtures over the next 24 months to expand
the INTERVU Network, much of which it plans to finance through capital leases.
Cash provided by financing activities was $97.3 million for the six months
ended June 30, 1999, primarily representing net proceeds of $97.0 million
received upon completion of a public offering of 2,875,000 shares of Common
Stock at a price to the public of $36.00 per share. Cash provided by financing
activities was $18.1 million for the six months ended June 30, 1998, primarily
representing net proceeds of $17.8 million received upon completion of a public
offering of 1,495,000 shares of Common Stock at a price to the public of $13.25
per share.
In connection with the strategic alliance agreement INTERVU entered into
with NBC in October 1997, INTERVU became obligated to make $2,000,000 in
non-refundable payments to NBC Multimedia for certain production, operating and
advertising costs associated with some of NBC's Web sites, including payments of
(1) $750,000 paid on the completion of the initial public offering in November
1997, (2) $500,000 paid in April 1998, (3) $500,000 due in May 1998 and (4)
$250,000 due in August 1998. Through March 31, 1999, INTERVU has made a total of
approximately $1.3 million in payments to NBC Multimedia and $750,000 is
currently payable.
INTERVU believes existing cash and cash equivalents will be sufficient to
meet its working capital and capital expenditure requirements for the next
several years. However, if cash generated by operations is insufficient to
satisfy INTERVU's liquidity requirements, INTERVU may need to sell additional
equity or debt securities or obtain credit facilities. INTERVU currently does
not have any lines of credit.
On August 2, 1999, we entered into an Agreement and Plan of Merger to
acquire Netpodium Inc., a Seattle-based innovator of live, interactive
Web-based communication software and event hosting services. For additional
information regarding the proposed acquisition of Netpodium, see "Item 5. Other
Information." Although we will use our common stock as consideration for the
acquisition of Netpodium, the acquisition will affect our cash position because
we will be required to invest cash in Netpodium to maintain and expand its
business.
IMPACT OF YEAR 2000
Many computer systems and software products are coded to accept only
two-digit entries in date code fields. Beginning the year 2000, these date code
fields will need to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software used by many companies may need to be
upgraded to comply with "Year 2000" requirements. Although INTERVU believes that
the INTERVU Network is Year 2000 compliant, INTERVU may discover coding errors
or other defects in the future. INTERVU has appointed a Year 2000 Task Force to
assess the scope of its risks and bring its applications into compliance. This
Task Force is undertaking its assessment of INTERVU's compliance and has begun
testing its corporate business and information systems. To date, INTERVU has
discovered few problems during its Year 2000 testing, and INTERVU has fixed
those identified in its day to day operating environment. INTERVU intends to
complete the compliance testing in September 1999. To date,
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INTERVU has incurred minimal expenses related to Year 2000 compliance. It
expects to incur approximately $50,000 of expenses in 1999 related to Year 2000
compliance. INTERVU has not adopted a contingency plan to address possible risks
to its systems.
INTERVU relies on a number of software and systems provided by third
parties to operate the INTERVU Network, any of which could contain coding which
is not Year 2000 compliant. These systems include server software used to
operate the network servers, software controlled routers, switches and other
components of the data network, firewall, security, monitoring and back-up
software used by INTERVU, as well as desktop PC applications software. In each
case, INTERVU employs widely available software applications from leading
third-party vendors and expects that such vendors will provide any required
upgrades or modifications in a timely fashion. However, if any third party
software suppliers fail to provide Year 2000 compliant versions of the software,
INTERVU's operations, including the INTERVU Network, could be disrupted.
Year 2000 compliance problems also could undermine the general
infrastructure necessary to support INTERVU's operations. For instance, INTERVU
depends on third-party Internet service providers (known as "ISPs") or hosting
centers to provide connections to the Internet and to customer information
systems. Any interruption of service from ISPs or hosting centers could result
in a temporary interruption of the INTERVU Network and other services. INTERVU
has attempted to address this risk by obtaining the same service capacity from
multiple ISPs. Any interruption in the security, access, monitoring or power
systems at the ISPs or hosting centers could result in an interruption of
services. Moreover, it is difficult to predict what effects Year 2000 compliance
problems will have on the integrity and stability of the Internet. If businesses
and consumers are not able to reliably access the Internet, the demand for
INTERVU's services could decline, resulting in an adverse impact to INTERVU's
business, financial condition and results of operations.
INTERVU's operations also could be adversely affected if its customers fail
to ensure that their software systems are Year 2000 compliant. INTERVU cannot
assess or control the degree of Year 2000 compliance in its customers'
information systems. Disruptions in the information systems of customers could
temporarily prevent such customers from accessing or using the INTERVU Network,
which could materially affect INTERVU's business, financial condition and
results of operations. The spending patterns of current or potential customers
may be affected by Year 2000 issues as companies expend significant resources to
correct or update their systems for Year 2000 compliance. Because of these
expenditures, INTERVU's customers may have less money available to pay for
services, which could have a material adverse affect on INTERVU's business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTERVU is exposed to change in interest rates primarily from its
investments in certain available for sale securities. Under its current
policies, INTERVU does not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical one-percent change in interest
rates on instruments of all maturities would not materially effect the fair
value of interest sensitive financial instruments at June 30, 1999.
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PART II
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 27, 1999, INTERVU 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 2002 Annual
Meeting of Stockholders. The votes cast for, against, withheld of abstained as
to each nominee are set forth below.
NOMINEE FOR AGAINST WITHHELD
Edward E. David, Jr. 11,063,889 0 58,135
Alan Z. Senter 11,063,889 0 58,135
2. To consider and vote upon a proposal to amend the Amended and Restated
Articles of Incorporation of INTERVU's common stock from 20,000,000 to
45,000,000 shares.
Votes
For 10,829,042
Against 283,135
Withheld 9,847
Broker Non-Vote 0
ITEM 5. OTHER INFORMATION
On July 14, 1999, INTERVU acquired VideoLinx Communications, Inc., a
Virginia based visual communication services company, through a merger of an
INTERVU subsidiary with and into VideoLinx. INTERVU acquired VideoLinx to
strengthen INTERVU's focus on providing high-quality service to the Internet
audio and video conferencing space. The acquisition also provided INTERVU with
the ability to provide streaming customers with redundant call centers located
in San Diego, CA and Fairfax, VA. The new center in Virginia will provide
additional back up to enhance staffing for various time zones, reliability and
peak load management. Under the terms of the acquisition agreement, INTERVU
issued 38,399 shares of INTERVU common stock to VideoLinx's former stockholders
and repaid approximately $145,000 of VideoLinx's indebtedness upon the closing.
On August 2, 1999, INTERVU entered into an Agreement and Plan of Merger to
acquire Netpodium Inc., a Seattle-based innovator of live, interactive web-based
communication software and event hosting services. INTERVU believes the
acquisition will expand INTERVU's audio and video Internet broadcasting
offerings in the business services market. Under the terms of the definitive
agreement, INTERVU will issue 1,011,236 shares of common stock to Netpodium's
shareholders and assume all outstanding Netpodium options. The parties intend
for the transaction to be accounted for as a pooling of interests. The
acquisition, which is subject to certain conditions, is scheduled to close by
September 7, 1999. Following the acquisition, Netpodium will be a wholly owned
subsidiary of INTERVU.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
3.1 Amended and Restated certificate of Incorporation
(incorporated by reference to INTERVU's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission on March 31, 1998).
3.2 Amendment to Amended and Restated certificate of
Incorporation
27.1 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed for the six months ended June 30, 1999.
13
<PAGE> 14
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 13, 1999 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 Executive Officer
/s/ Harry Gruber (Principal Executive Officer) August 13, 1999
- ----------------------------------------- -------------------
Harry Gruber
Vice President and Chief Financial Officer
/s/ Kenneth L. Ruggiero (Principal Financial and Accounting Officer) August 13, 1999
- ----------------------------------------- -------------------
Kenneth L. Ruggiero
</TABLE>
14
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTERVU INC.
InterVU Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
First: That the Board of Directors of said Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board of
Directors, duly adopted resolutions proposing and declaring advisable the
following amendments of the Amended and Restated Certificate of Incorporation of
said Corporation and seeking the consent of the stockholders of said Corporation
to said amendments. The resolutions setting forth the proposed amendments are as
follows:
RESOLVED, that the Amended and Restated Certificate of Incorporation of
InterVU Inc. be amended by changing the Article FOURTH thereof so that, as
amended, said Article FOURTH shall read in its entirety as follows:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue shall be fifty million
(50,000,000), divided as follows: (i) forty-five million
(45,000,000) shares of Common Stock with a par value of $.001 per
share, and (ii) five million (5,000,000) shares of Preferred
Stock with a par value of $.001 per share, of which one million
two hundred eighty thousand (1,280,000) are hereby designated
Series G Convertible Preferred Stock ("Series G Preferred
Stock").
Shares of Preferred Stock may be issued from time to time in
one or more series, each of such series to have such terms as
stated in the resolution or resolutions providing for the
establishment of such series adopted by the Board of Directors of
the Corporation as hereinafter provided. Except with respect to
the Series G Preferred Stock which is described below, authority
is hereby expressly granted to the Board of Directors of the
Corporation to issue, from time to time, shares of Preferred
Stock in one or more series, and, in connection with the
establishment of any such series by resolution or resolutions, to
determine and fix such voting powers, full or limited, or no
voting powers, and such other powers, designations, preferences
and relative, participating, optional, and other special rights,
and the qualifications, limitations, and restrictions thereof, if
any including, without limitation, dividend rights, conversion
rights, redemption privileges and liquidation preferences, as
shall be stated in such resolution or resolutions, all to the
fullest extent permitted by the General Corporation Law of the
State of
<PAGE> 2
Delaware. Without limiting the generality of the foregoing, the
resolution or resolutions providing for the establishment of any
series of Preferred Stock may, to the extent permitted by law,
provide that such series shall be superior to, rank equally with
or be junior to the Preferred Stock of any other series. Except
as otherwise expressly provided in the resolution or resolutions
providing for the establishment of any series of any series of
Preferred Stock, no vote of the holders of shares of Preferred
Stock or Common Stock shall be a prerequisite to the issuance of
any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Amended and Restated
Certificate of Incorporation. The rights, preferences, privileges
and restrictions of the Series G Preferred Stock and the holders
thereof shall be as follows:
1. Dividend Provisions. The holders of shares of Series G
Preferred Stock shall be entitled to receive dividends, out of
any assets legally available therefor, prior and in preference to
any declaration or payment of any dividend (payable other than in
Common Stock of the Corporation) on the Common Stock of the
Corporation, at the rate of $0.64 per share per annum, payable
quarterly, when, as and if declared by the Board of Directors.
Dividends payable on the Series G Preferred Stock and any other
class or series of stock ranking on a parity as to dividends with
the Series G Preferred Stock shall be payable on a pari passu
basis in accordance with the following sentence. All dividends
declared, paid or set apart with respect to the Series G
Preferred Stock and any other class or series of stock ranking on
a parity as to dividends with such Series G Preferred Stock shall
be declared, paid or set apart ratably on a proportionate basis,
based on the respective annual dividend rates fixed therefor. All
payments due under this Section 1 shall be made to the nearest
cent. Dividends on the Series G Preferred Stock shall not be
cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary (a
"Liquidation Event"), the holders of Series G Preferred Stock
shall 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, by reason of their ownership thereof, an
amount per share equal to the sum of (i) the Liquidation Price
(as hereinafter defined) for each outstanding share of Series G
Preferred Stock, and (ii) an amount equal to all declared but
unpaid dividends on each such share. With respect to any
Liquidation Event, the Series G Preferred Stock shall rank on a
parity with each other and shall all rank prior to the Common
Stock. If upon the occurrence of a Liquidation Event the assets
and funds thus distributed among the holders of the Series G
Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of
the Series G Preferred Stock, based upon the respective amounts
which would be
2
<PAGE> 3
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full. As used herein, the term "Liquidation
Price" shall mean $8.00 for each outstanding share of Series G
Preferred Stock.
(b) After the distribution of all amounts due to the holders
of Series G Preferred Stock above has been paid, the remaining
assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of common Stock held
by each.
3. Conversion. The holders of Series G Preferred Stock shall
have the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each share of Series G Preferred Stock
shall be convertible, at the option of the holder thereof, at any
time nine months after the date of issuance of such share, at the
office of the Corporation or any transfer agent for the Series G
Preferred Stock, into one (1) share of Common Stock, subject to
adjustment as set forth in subsection 3(c).
(b) Mechanics of Conversion. The holder of any shares of
Series G Preferred Stock may exercise the conversion right
provided in subsection 3(a) as to any shares thereof by
delivering to the Corporation the certificate or certificates
therefor, duly endorsed, at the office of the Corporation, and
such holder shall give written notice to the Corporation of the
election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of
Common Stock are to be issued. Conversion shall be deemed to have
been effected on the date when the aforesaid delivery is made,
and such date is hereinafter referred to as the "Conversion
Date." As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or
certificates for the number of full shares of Common Stock to
which such holder is entitled. The person in whose names the
certificate or certificates for Common Stock are to be issued
shall be deemed to have become a stockholder of record on the
applicable Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event he shall be
deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open. Upon
conversion of only a portion of the number of shares covered by a
certificate representing shares of Series G Preferred Stock
surrendered for conversion, the Corporation shall issue and
deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of
Series G Preferred Stock representing the unconverted portion of
the certificate so surrendered, which new certificate shall
entitle the holder thereof to dividends on the shares of Series G
Preferred Stock represented thereby to the same extent as if
3
<PAGE> 4
the certificate theretofore covering such unconverted shares had
not been surrendered for conversion.
(c) Adjustments to Conversion Ratio. The ratio for the
conversion of Series G Preferred Stock into Common Stock (the
"Conversion Ratio") shall be subject to adjustment from time to
time as follows:
(i) In the event the Corporation should at any time or
from time to time after the issuance of the Series G
Preferred Stock fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable
in additional shares of Common Stock without payment of any
consideration by such holder for the additional shares of
Common Stock, then, as of such record date (or the date of
such dividend, distribution, split or subdivision, if no
record date is fixed), the Conversion Ratio shall be
appropriately adjusted so that the number of shares of
Common Stock issuable on conversion of each share of the
Series G Preferred Stock shall be increased in proportion to
such increase of outstanding shares.
(ii) If the number of shares of Common Stock
outstanding at any time after the issuance of the Series G
Preferred Stock is decreased by a combination of the
outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Ratio shall
be appropriately adjusted so that the number of shares of
Common Stock issuable on conversion of each share of such
Series G Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(d) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other
persons, or assets (excluding cash dividends), then, in each such
case for the purpose of this subsection 3(d), the holder of
Series G Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into
which their shares of Series G Preferred Stock are convertible as
of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such
distribution.
(e) Recapitalization. If, at any time or from time to time
there shall be a recapitalization of the Common Stock (other then
a subdivision, combination or merger or sale of assets
transaction provided for elsewhere in this Section 3 or in
Section 4), provisions shall be made so that the holders of
Series G Preferred Stock shall thereafter be entitled to receive
upon conversion of their Preferred Stock the number of shares of
stock or other securities or property of
4
<PAGE> 5
the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 3
with respect to the rights of the holders of Series G Preferred
Stock after the recapitalization to the end that the provisions
of this Section 3 (including adjustment of the Series G
Conversion Price then in effect and the number of shares
purchasable upon conversion of Series G Preferred Stock) shall be
applicable after the event as nearly equivalent as may be
practicable.
(f) No Impairment. The Corporation will not, by amendment of
its Restated Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of
this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series G Preferred Stock against
impairment.
(g) No Fractional Shares and Certificates as to Adjustments.
(i) No fractional shares shall be issued upon conversion of the
Series G Preferred Stock and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Ratio pursuant to this
Section 3, the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to each holder of
Series G Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of
any holder of Series G Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion
Ratio at the time in effect, and (C) the number of shares of
Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share
of Series G Preferred Stock.
(iii) If any adjustment in the number of shares of
Common Stock into which each share of Series G Preferred
Stock may be converted required pursuant to this Section 3
would result in an increase or decrease of less than 1% in
the number of shares of Common Stock into which each share
of Series G Preferred Stock is then convertible, the amount
of any such adjustment shall be carried forward and
adjustment with respect thereto shall be made at the time of
and together with any
5
<PAGE> 6
subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall
aggregate at least 1% of the number of shares of Common
Stock into which each share of Series G Preferred Stock is
then convertible. All calculations under this paragraph
(iii) shall be made to the nearest one-hundredth of a share.
(h) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a cash dividend)
or other distribution, the Corporation shall mail to each holder
of Series G Preferred Stock, at least 20 days prior to the date
specified therein, notice for specifying the date on which any
such record is to be taken for the purpose of such dividend or
distribution.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock
solely for the purpose of effecting the conversion of the
shares of Series G Preferred Stock such number of its shares
of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series G
Preferred Stock; and, if at any time the number of
authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding
shares of Series G Preferred Stock, in addition to such
other remedies as shall be available to the holder of such
Series G Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purposes.
(j) Notices. Any notice required by the provisions of
this Section 3 to be given to the holders of shares of
Series G Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books
of the Corporation.
4. Merger, Consolidation. If at any time there is a merger or
consolidation of the Corporation with or into another corporation or other
entity or person, or any other corporate reorganization, in which the
Corporation shall not be the continuing or surviving entity of such merger,
consolidation or reorganization, or the sale of all or substantially all of
the Corporation's properties and assets to any other person, then, as a
part of such reorganization, merger, consolidation or sale, provision shall
be made so that the holders of the Series G Preferred Stock shall be
entitled to receive (on a per share basis), prior to any distribution to
holders of Common Stock, the number of shares of stock or other securities
or property to be issued to the Corporation or its stockholders resulting
6
<PAGE> 7
from such reorganization, merger, consolidation or sale in an amount per
share equal to the applicable Liquidation Price for the Series G Preferred
Stock plus a further amount equal to any dividends declared but unpaid on
such shares.
5. Voting Rights. The holder of each share of Series G Preferred Stock
shall have the right to one vote for each share of Common Stock into which
such Series G Preferred Stock could then be converted or could be converted
without regard to the limitation on conversions set forth at Subsection
3(a) (with any fractional share determined on an aggregate conversion basis
being rounded to the nearest whole share), and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting
rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be
entitled to vote, together with holders of Common Stock, with respect to
any question upon which holders of Common Stock, have the right to vote, in
the same manner and with the same effect as such holders of Common Stock,
as one class.
6. Status of Converted or Redeemed Stock. In the event any shares of
Series G Preferred Stock shall be converted pursuant to Section 3, the
shares so converted shall be canceled and shall not be issuable by the
Corporation.
7. Preemptive Rights. The holders of Series G Preferred Stock shall
not have any preemptive rights."
Second: That thereafter, the stockholders have approved said amendment
in accordance with the provisions of Section 222 of the General Corporation Law
of the State of Delaware.
Third: That the aforesaid amendments were duly adopted in accordance with
the provisions of Sections 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said InterVU Inc. has caused this certificate to be
signed by an authorized officer thereof, this 12th day of August, 1999.
InterVU Inc.,
a Delaware corporation
By: /s/ Harry E. Gruber
----------------------------------------
Harry E. Gruber, Chief Executive Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 56,736
<SECURITIES> 58,740
<RECEIVABLES> 1,933
<ALLOWANCES> (223)
<INVENTORY> 0
<CURRENT-ASSETS> 117,323
<PP&E> 7,396
<DEPRECIATION> (1,480)
<TOTAL-ASSETS> 123,362
<CURRENT-LIABILITIES> 4,903
<BONDS> 0
0
1
<COMMON> 14
<OTHER-SE> 117,744
<TOTAL-LIABILITY-AND-EQUITY> 117,759
<SALES> 0
<TOTAL-REVENUES> 2,966
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,075
<LOSS-PROVISION> 203
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,076)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,076)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,076)
<EPS-BASIC> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
