<PAGE> 1
This filing is made pursuant
to Rule 424(b)(4)
under the Securities Act of
1933 in connection with
Registration No. 333-75283
PROSPECTUS
- --------------------------------------------------------------------------------
2,500,000 Shares
INTERVU INC.
Common Stock
[INTERVU LOGO]
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INTERVU Inc. is offering shares of its common stock. The shares of INTERVU are
quoted in the Nasdaq National Market under the symbol ITVU. On May 10, 1999, the
last reported sale price in the Nasdaq National Market was $37.125 per share.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price............................... $36.00 $90,000,000
Underwriting discounts and commissions.............. $1.98 $4,950,000
Proceeds, before expenses, to INTERVU............... $34.02 $85,050,000
</TABLE>
SEE "RISK FACTORS" ON PAGES 4 TO 10 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF INTERVU.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under some circumstances, purchase up to 375,000
additional shares from INTERVU at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on May
14, 1999.
PRUDENTIAL SECURITIES
ING BARING FURMAN SELZ LLC
SG COWEN
CRUTTENDEN ROTH JOSEPHTHAL & CO. INC. RYAN, BECK & CO.
INCORPORATED
May 10, 1999
<PAGE> 2
FRONT COVER:
[The front cover has a dark background border with integrated designs and
images.]
[INTERVU Logo]
INSIDE FRONT COVER:
[The inside front cover has a dark background with integrated designs and images
and text is printed in white.]
WHERE
IS THE
WEB
MOVING?
INSIDE SPREAD:
[The two-page spread has a dark background with various integrated designs and
text.]
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<CAPTION>
[A column of the following text
appears on the left side of the [The following fifteen Internet
inside spread.] screen shots appear on the inside spread.]
<S> <C> <C> <C> <C> <C>
NEWS AND INFORMATION [Screen shot] [Screen shot] [Screen shot] [Screen shot] [Screen shot]
To maintain their leadership, CNN.com: NBC: Saturday NBC: MSNBC: Live Saatchi &
premier news organizations Live event Night Live Homicide event coverage Saatchi:
turn to INTERVU to get their coverage Multimedia
online video events moving. agency-client
communications
SPORTS
What are sports without
motion? INTERVU has the
infrastructure and services to [Screen shot] [Screen shot] [Screen shot] [Screen shot] [Screen shot]
make online sports events DVD EXPRESS: Onradio.com: NBC: New England CCBN.com:
move. Movie trailers Internet Videoseeker Patriots: Internet
strategies for Postgame solutions for
radio shows investor relations
ENTERTAINMENT
From rock stars to film stars,
the best entertainment moves.
INTERVU provides leaders in
entertainment with the
impact of audio.
BUSINESS TO BUSINESS [Screen shot] [Screen shot] [Screen shot] [Screen shot] [Screen shot]
Enhancing communications Earnings NATPE: Vcall: Bloomberg RadioWave.com:
for the business world and Announcements: Convention Investor event Television: Visually
education, INTERVU provides With INTERVU Webcasting broadcasting Business and interactive radio
cost-effective solutions that Presents financial news
are moving with high-quality
video.
</TABLE>
[INTERVU LOGO] WHERE THE WEB IS MOVING
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Forward-Looking Statements.......... 11
Use of Proceeds..................... 12
Price Range of Common Stock......... 12
Dividend Policy..................... 12
Dilution............................ 13
Capitalization...................... 14
Selected Financial Data............. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................ 22
Management.......................... 31
Principal Stockholders.............. 34
Description of Capital Stock........ 36
Underwriting........................ 40
Legal Matters....................... 41
Experts............................. 41
Where You Can Find More Information... 42
Index to Financial Statements....... F-1
</TABLE>
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the common stock of INTERVU. You should read
the entire prospectus carefully. The terms "INTERVU," "we," "our" and "us" refer
to INTERVU Inc. unless the context suggests otherwise. The term "you" refers to
a prospective investor.
INTERVU
We provide Web site owners and content publishers with cost-effective
solutions and automated features for the streaming of live and on-demand video
and audio content over the Internet. Streaming media technology allows the
delivery of a continuous flow of video and audio content over the Internet to
end-users. Our customers use our video and audio distribution services to
transmit entertainment, sports, news, business to business, advertising and
distance learning content. Our current customers include Bloomberg, CNN, House
of Blues, Intel, Microsoft, MovieFone, MSNBC, NBC, OnRadio, RadioWave.com,
Saatchi and Saatchi and Turner Broadcasting.
We are a full-service provider, offering all of the services necessary for
both live Webcasting and video and audio on-demand. We have developed software
solutions that automate the publishing, distribution and programming of video
and audio content. Our scalable, patent-pending distribution network, comprised
of servers strategically located in major Internet hosting centers, also
enhances our ability to provide streaming video and audio services to our
customers. In addition, we offer advanced data management services that enable
our customers to manage video and audio files and better tailor content to meet
end-user demand. We typically charge our customers monthly fees based on the
particular bundle of services to be provided and the amount of video and audio
content to be stored and delivered.
Our objective is to establish ourselves as the leading service provider for
Internet video and audio distribution solutions. Our strategy for achieving this
goal includes:
- targeting leading Web sites and content publishers,
- designing our service solutions to drive traffic to our customers' Web
sites,
- developing additional automated publishing, promotion and reporting
solutions,
- providing full-services for our customers' live and on-demand video and
audio delivery needs and
- expanding our network to further improve the speed, quality and
reliability of streaming video and audio.
We were incorporated in Delaware in August 1995 and commenced operations in
December 1996. Our principal executive offices are located at 6815 Flanders
Drive, San Diego, California 92121. Our telephone number is (619) 623-8400.
This prospectus refers to trade names and trademarks of INTERVU as well as
other companies. See "Where You Can Find More Information" for more information
relating to these trade names and trademarks.
1
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THE OFFERING
Shares offered by INTERVU................. 2,500,000 shares
Total shares outstanding after this
offering.................................. 13,446,622 shares
Use of proceeds........................... Increased sales and marketing
efforts; additional software
development; capital expenditures;
and working capital and other
general corporate purposes,
including possible future
strategic alliances and
acquisitions.
Nasdaq National Market symbol............. ITVU
The information above is stated as of March 31, 1999. You should be aware
that the aggregate number of shares of common stock that will be outstanding
after the offering does not include:
- 2,206,052 shares subject to outstanding options with a weighted average
exercise price of $13.88 per share,
- 209,000 shares subject to outstanding warrants with a weighted average
exercise price of $14.20 per share,
- 806,144 shares issuable upon conversion of 1,280,000 shares of Series G
preferred stock held by National Broadcasting Company, Inc.,
- 787,175 shares reserved for issuance under options that we may grant
under our 1998 stock option plan,
- 494,844 shares reserved for issuance under our qualified stock purchase
plan and
- 375,000 shares issuable upon exercise of the underwriters' over-allotment
option.
RISK FACTORS
You should consider the risks of investing in our common stock and the
impact from various events which could adversely affect our business. See "Risk
Factors" for a more detailed discussion of these risks.
2
<PAGE> 6
SUMMARY FINANCIAL DATA
The following tables summarize the financial data for our business and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes included elsewhere in this prospectus. INTERVU did not emerge from the
development stage until 1998. As a result, we believe that any comparison of our
results of operations is not meaningful. The As Adjusted column in the Balance
Sheet Data table below reflects our receipt of the net proceeds from our sale of
common stock in this offering at a public offering price of $36.00 per share.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------
1995 1996 1997 1998
-------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ -- $ -- $ 144 $ 1,712
Operating expenses:
Research and development............ 33 1,420 1,703 3,154
Selling, general and
administrative.................... 16 910 3,148 10,892
Charges associated with the NBC
Strategic Alliance Agreement...... -- -- 750 4,622
---- ---------- ---------- ----------
Total operating expenses............... 49 2,330 5,601 18,668
---- ---------- ---------- ----------
Loss from operations................... (49) (2,330) (5,457) (16,956)
Interest income........................ 3 52 192 1,246
---- ---------- ---------- ----------
Net loss............................... $(46) $ (2,278) $ (5,265) $ (15,710)
==== ========== ========== ==========
Basic and diluted net loss per share... $ (0.66) $ (0.95) $ (1.73)
========== ========== ==========
Shares used in computing basic and
diluted net loss per share.......... 3,441,000 5,571,000 9,074,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................... $ 27,046 $111,396
Working capital..................................................... 24,799 109,149
Total assets........................................................ 30,364 114,714
Long-term liabilities............................................... -- --
Total stockholders' equity.......................................... 27,313 111,663
</TABLE>
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RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information included in this prospectus, before purchasing shares of
common stock of INTERVU. Each of these risks could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO BASE AN EVALUATION OF OUR
BUSINESS AND PROSPECTS
INTERVU was incorporated in August 1995 and launched the INTERVU Network in
December 1996. INTERVU did not emerge from the development stage until 1998.
Accordingly, we have a limited operating history on which to base an evaluation
of our business and prospects. You must consider our prospects in light of the
risks and uncertainties encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets such as
the delivery of video and audio over the Internet.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
Since the formation of our business, we have incurred substantial net
losses. As of December 31, 1998, we had an accumulated deficit of $23.3 million.
As we continue to implement our growth strategy, we intend to spend significant
amounts on sales and marketing, research and development and general and
administrative activities. We expect that we generally will incur these costs in
advance of anticipated related revenues, which may further increase operating
losses in some periods. As a result of our expansion, we expect to continue to
incur significant operating losses and negative cash flows from operations for
the next several years. It is possible that we may never achieve favorable
operating results or profitability.
POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAY IMPAIR THE TRADING PRICE OF
OUR COMMON STOCK
We expect our revenues and operating results to vary significantly from
quarter to quarter. As a result, quarter to quarter comparisons of our revenues
and operating results may not be meaningful and you should not rely on them as
indicators of future performance. In addition, due to our limited operating
history, we cannot predict our future revenues or results of operations
accurately. It is likely that in one or more future quarters our financial
results will fall below the expectations of analysts and investors. If this
happens, the trading price of our common stock would likely decrease. Many of
the factors that cause our quarter to quarter financial results to be
unpredictable are largely beyond our control.
These factors include:
- our ability to retain existing customers and attract a significant number
of new ones,
- the growth of the market for streaming media content over the Internet,
- our ability to implement our growth strategy, especially our sales and
marketing efforts, and
- the introduction of new technologies and Internet services by us and our
competitors.
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<PAGE> 8
WE EXPECT TO INCUR A SIGNIFICANT NON-CASH CHARGE RELATING TO OUR NBC STRATEGIC
ALLIANCE THAT WILL ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
Under the terms of our strategic alliance agreement with NBC, NBC acquired
shares of our Series G preferred stock, which, under some circumstances must be
returned to us. As the requirement to return shares to us lapses, we must incur
a non-cash charge for the fair value of those shares of Series G preferred stock
for which this requirement has lapsed. In January 1998, we expensed $3.4 million
for the then fair value of 680,000 shares of Series G preferred stock and expect
to expense the then fair value of the remaining 600,000 shares of Series G
preferred stock during the fourth quarter of 1999. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview; NBC
Strategic Alliance" for a more detailed discussion of expenses relating to our
strategic alliance with NBC Multimedia. This non-cash charge is expected to
materially adversely affect our results of operations in the period we recognize
the expense, which could impair the price of our common stock.
OUR SPECIALIZED SERVICES MAY NOT BE WIDELY ADOPTED BY CUSTOMERS
Our services are highly specialized and are designed solely to meet Web
site owners' Internet video and audio delivery needs. If Internet-based content
incorporating streaming media technology does not become widely adopted by Web
site owners, it would materially harm our business and impair the price of our
common stock. The market for streaming media content on the Internet has only
recently developed, is rapidly evolving and historically has been limited.
Demand for streaming media content on the Internet must develop further in order
to offer significant revenue opportunities for video and audio distribution
service providers such as INTERVU.
Many of our customers may cease using our services either without notice or
upon short notice, including customers with which we have contracts. For
example, NBC may terminate its strategic alliance agreement with us for any
reason upon 90 days prior notice. If we were to lose customers that are well
known in their industry, it could impair our ability to retain customers and
attract new ones.
ANY FAILURE BY US TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
We have rapidly expanded our operations since INTERVU was founded in August
1995. Continued expansion of our business may place increasing strains on our
ability to manage our growth, including our ability to monitor operations, bill
customers, control costs and maintain effective quality controls. In connection
with the expansion of our operations, we have grown from 34 employees on October
15, 1997 to 124 employees on March 31, 1999. We plan to significantly expand our
sales and marketing and research and development activities, hire a significant
number of additional employees, expand our internal information, accounting and
billing systems and establish additional sales offices. In addition, we plan to
expand the infrastructure of the INTERVU Network by investing in additional
software and hardware consisting primarily of additional servers. In order to
successfully manage our growth we must identify, attract, motivate, train and
retain highly skilled managerial, financial, engineering, business development,
sales and marketing and other personnel. Competition for this type of personnel
is intense. If we fail to manage our growth effectively, it could materially
harm our business and impair the price of our common stock.
WE MAY FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES
The Internet industry is characterized by rapidly changing technology,
evolving industry standards and frequent new product and service introductions.
These factors will require us to
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<PAGE> 9
continually improve the performance, features and reliability of our services
and the INTERVU Network. We may not successfully respond quickly or
cost-effectively to these developments. We also may not achieve widespread
acceptance of our services before our competitors offer products and services
with speed, performance, features and quality similar to or better than ours or
that are more cost-effective than our services. In addition, the widespread
adoption of new technologies could require substantial expenditures by us to
modify or adapt our technology. Furthermore, new or emerging technologies such
as satellite transmission of content may reduce demand for our services.
WE FACE SIGNIFICANT COMPETITION
The market for Internet-based services is relatively new, rapidly evolving
and highly competitive. Many of our competitors and potential competitors have
substantially greater financial, technical, managerial and marketing resources,
longer operating histories, greater name recognition and more established
relationships with content providers than we do. We face substantial competition
from (1) Internet service providers, (2) Web sites and content publishers, (3)
hardware and system vendors and (4) companies that utilize other streaming
technologies.
We currently compete to a large extent with Web site operators and content
publishers that employ in-house technical personnel to develop streaming media
technology and manage their streaming media. Our competitors also currently
include Broadcast.com, which recently entered into an agreement to be acquired
by Yahoo!, and RealNetworks. Since our business is dependent on the overall
success of the Internet as a communication medium, we also compete with
traditional media such as radio and television. We expect competition from these
and other types of competitors to increase significantly.
WE RUN THE RISK OF SYSTEM FAILURES THAT COULD IMPAIR OUR ABILITY TO PROVIDE
SERVICE
Our success in marketing our services requires us to provide reliable
service. Our operations depend on our ability to protect our networks from
physical damage, power loss, capacity limitations, software defects and other
disruptive problems, many of which are beyond our control. Our ability to
provide reliable services also depends on the reliability of Internet service
providers and online service providers, which have in the past had operational
problems and experienced outages. We expect these problems and outages to
continue to occur periodically. Any failure to provide reliable service could
impair our customer satisfaction, lead to a loss of customers or increase our
costs, which could materially harm our business and impair the price of our
common stock.
OUR NETWORK MAY BE VULNERABLE TO COMPUTER VIRUSES AND SECURITY BREACHES
Security breaches or problems caused by computer viruses could adversely
affect our ability to provide services and could materially impair customer
acceptance of our services. The INTERVU Network may be vulnerable to
unauthorized access, computer viruses and other disruptive problems despite our
implementation of security measures. Computer viruses or problems caused by
third parties, such as hackers, could lead to interruptions, delays or
termination of service to our customers. To alleviate problems caused by
computer viruses or security breaches, we may have to interrupt, delay or cease
service to our customers, which could materially harm our business.
THE INTERNET MAY FAIL TO SUPPORT AN INCREASING NUMBER OF USERS
The wide-spread commercial use of the Internet is a relatively new
development. Critical issues regarding the stability of the Internet's
infrastructure remain unresolved. For example, the rapid rise in the number of
Internet users and increased transmission of multimedia content over the Web
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<PAGE> 10
continues to place increasing strains on the Internet's communications and
transmission infrastructures. If these trends continue it could lead to
significant declines in transmission speeds and reliability of the Internet,
reducing the usage of the Internet by businesses and individuals. The failure of
the Internet to support an increasing numbers of users could materially harm our
business and impair the price of our common stock.
WE MAY EXPERIENCE DIFFICULTIES IN INTEGRATING BUSINESSES, PRODUCTS AND
TECHNOLOGIES WE MAY ACQUIRE INTO OUR BUSINESS
As part of our growth strategy, we may acquire businesses, products and
technologies and enter into joint ventures and strategic relationships with
other companies. Any of these transactions would expose us to additional risks,
including:
- the difficulty of assimilating and integrating the operations of the
combined companies and retaining key personnel,
- the potential disruption of our ongoing business and
- the potential additional expenses associated with amortization of
acquired intangible assets, integration costs and unanticipated
liabilities or contingencies.
We do not have significant experience in the identification and management
of acquisitions. If we are unable to successfully address any of the foregoing
risks, it could materially harm our business and impair the price of our common
stock.
THE LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS
Given the early stage of development of our business, we depend on the
performance and efforts of our senior management team and other key employees.
If we lost the service of any members of our senior management or other key
employees it could materially harm our business and impair the price of our
common stock. Our senior management includes Harry E. Gruber, our chief
executive officer and chairman of the board, Brian Kenner, our vice president
and chief technology officer, Kenneth L. Ruggiero, our vice president and chief
financial officer, and Edward L. Huguez, our vice president and chief operating
officer. We do not have employment agreements with any of our officers or
employees.
THE ENACTMENT OF NEW LAWS OR CHANGES IN GOVERNMENT REGULATIONS COULD ADVERSELY
AFFECT OUR BUSINESS
We are not currently required to comply with direct regulation by any
domestic or foreign governmental agency, other than regulations applicable to
businesses generally and laws or regulations directly applicable to the
Internet. However, due to the increasing popularity of the Internet, it is
possible that additional laws may be adopted regarding the Internet, any of
which could materially harm our business. The adoption of any additional laws
may decrease the growth of Internet use, which could lead to a decrease in the
demand for our services or increase the cost of doing business.
Although we do not actively program or edit the content on our network, we
could be held liable if customers use our network to distribute content deemed
to be indecent or obscene. While we do not actively market our services to sites
that host adult video content, one or more of our customers may in the future
use our services to transmit this type of content. The law relating to liability
for transmitting obscene or indecent material over the Internet remains
unsettled. The imposition of potential liability for materials distributed
through the Internet could require us to implement measures to reduce our
exposure to this liability. These measures may require the expenditure of
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<PAGE> 11
substantial resources or the discontinuation of some services, which could
materially harm our business and impair the price of our common stock.
OUR INABILITY TO OBTAIN PATENT PROTECTION FOR OUR TECHNOLOGY OR MISAPPROPRIATION
OF OUR INTELLECTUAL PROPERTY COULD IMPAIR OUR COMPETITIVE POSITION
Our success depends on our internally developed technologies and other
intellectual property. We regard our technology as proprietary and attempt to
protect it with patents, copyrights, trade secret laws and confidentiality and
nondisclosure agreements. Despite these precautions, it may be possible for a
third party to obtain and use our services or technology without authorization.
Third parties also may develop similar technology independently.
We have applied for 19 United States and foreign patents and have received
notices of allowances on three of these applications. Some or all of these
patents may not be issued and, even if they are issued, they may not
sufficiently protect our technology. If any patents are not issued or if they
fail to provide protection to our technology, it may make it easier for our
competitors to offer technology equivalent or superior to ours. Moreover, we
have applied for registration of a number of key trademarks and service marks
and intend to introduce new trademarks and service marks. We may not be
successful in obtaining registration for one or more of these trademarks.
We may need to resort to litigation in the future to enforce or to protect
our intellectual property rights, including our patent and trademark rights. In
addition, our technologies and trademarks may be claimed to conflict with or
infringe upon the patent, trademark or other proprietary rights of third
parties. If this occurred, we would have to defend ourselves against the
challenge, which could result in substantial costs and the diversion of
resources. We also may have to obtain a license to use those proprietary rights
or possibly cease using those rights altogether. Any of these events could
materially harm our business and impair the price of our common stock.
YEAR 2000 PROBLEMS COULD DISRUPT OUR BUSINESS
During the next year, many software programs may not recognize calendar
dates beginning in the Year 2000. This problem could force computers or machines
which utilize date dependent software to either shut down or provide incorrect
information. To address this problem, we have examined our computer and
information systems, contacted our software and hardware providers, and, where
necessary, made upgrades to our systems.
Although we believe that the INTERVU Network and our software solutions are
Year 2000 compliant, undetected errors or defects may remain. Disruptions to our
business or unexpected costs may arise because of undetected errors or defects
in the technology and software we use to provide video and audio delivery
services to our customers and in our internal information systems. Disruptions
also may arise as a result of third parties not being Year 2000 compliant. If
we, or any of our key suppliers, customers or Internet service providers, fail
to mitigate internal and external Year 2000 risks, we may temporarily be unable
to provide services or engage in other business activities, including billing,
which could have a material adverse effect on our business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of Year 2000" for a more extensive discussion of these
risks.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE
The market price of our common stock has fluctuated in the past and is
likely to continue to fluctuate in the future. In addition, the market prices of
securities of other technology companies,
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<PAGE> 12
particularly Internet-related companies, currently are highly volatile. Factors
that may have a significant effect on the market price of our common stock, many
of which are beyond our control, include:
- fluctuations in our operating results,
- analysts' reports and projections,
- changes in the market valuations of other Internet companies and
- announcements by us or our competitors relating to technological
innovations, new products or services, significant acquisitions,
strategic relationships or customer relationships.
Fluctuations in the market price of our common stock may in turn adversely
affect (1) our ability to complete any targeted acquisitions, (2) our access to
capital and financing and (3) our ability to attract and retain qualified
personnel. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation against that
company often results. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could materially harm our business.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS OF THIS
OFFERING AND MAY NOT APPLY THEM EFFECTIVELY
Management will have significant flexibility in applying the net proceeds
of this offering and may apply the proceeds in ways with which you do not agree.
The failure of management to apply these funds effectively could materially harm
our business. See "Use of Proceeds" for a discussion of our intended uses of the
net proceeds of this offering.
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE SUBSTANTIAL CONTROL OVER OUR VOTING
STOCK AND CAN MAKE DECISIONS THAT COULD ADVERSELY AFFECT OUR STOCK PRICE
Our present executive officers and directors and their affiliates will
beneficially own approximately 26.4% of our outstanding common stock upon
completion of this offering. As a result, these stockholders will continue to
significantly influence our management and affairs and all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, such as a merger, consolidation or sale of
substantially all of our assets.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR BUSINESS AT A PREMIUM PRICE
Some of the provisions of our certificate of incorporation and bylaws could
discourage, delay or prevent an acquisition of our business at a premium price.
These provisions:
- permit the board of directors to increase its own size and fill the
resulting vacancies,
- provide for a board comprised of three classes of directors with each
class serving staggered three year terms,
- authorize the issuance of preferred stock in one or more series and
- prohibit stockholder action by written consent.
In addition, Section 203 of the Delaware General Corporation Law also imposes
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our common stock. See "Description of Capital
Stock -- Preferred Stock" and "-- Delaware Law and Certificate of Incorporation
and Bylaw Provisions" for a more detailed discussion of these anti-takeover
provisions.
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SALES OF SHARES ELIGIBLE FOR FUTURE SALE COULD IMPAIR OUR STOCK PRICE
The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that these sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 13,446,622 of our shares of common stock will be
outstanding. If the underwriters' over-allotment option is exercised in full,
13,821,622 shares of our common stock will be outstanding. Of these shares, the
shares sold in this offering will be freely tradeable without restrictions under
the Securities Act, except for any shares purchased by people who may be
considered our affiliates under Rule 144 under the Securities Act. In addition,
10,946,622 shares will otherwise be eligible for sale in the public market,
which includes shares of restricted stock that have not yet vested but will be
eligible for sale upon vesting. Our officers and directors, the other
stockholders listed in the table under the caption "Principal Stockholders" and
holders of warrants to purchase our common stock, subject to exceptions, have
entered into lock-up agreements under which they have agreed not to offer or
sell any shares of common stock for a period of 120 days from the date of this
prospectus without the prior written consent of Prudential Securities, on behalf
of the underwriters. Prudential Securities may, at any time and without notice,
waive the terms of these lock-up agreements. Also, 806,144 shares of our common
stock issuable upon conversion of the Series G preferred stock are eligible for
sale under Rule 144 under the Securities Act of 1933. An additional 2,415,052
shares of common stock are issuable upon the exercise of options and warrants,
although a substantial number of our options currently are not exercisable.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
You will experience an immediate and substantial dilution of $27.66 per
share in the net tangible book value per share of common stock from the public
offering price. In addition, the exercise of options and warrants currently
outstanding could cause additional substantial dilution to you. See "Dilution"
for more detailed information regarding the potential dilution you may incur.
10
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
INTERVU, including:
- Our successful implementation of our growth strategy,
- Competition, including the introduction of new products or services by
our competitors,
- Anticipated trends in our business,
- Technological innovations,
- Fluctuations in our operating results,
- Future regulations affecting our business,
- Additions or departures of key personnel,
- General economic and business conditions, nationally, in our markets and
in our industry and
- Other risk factors described under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to INTERVU, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information or future events. In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
11
<PAGE> 15
USE OF PROCEEDS
The net proceeds to INTERVU from the sale of the common stock in this
offering are approximately $84.4 million, after deducting underwriting discounts
and commissions and estimated offering expenses of $700,000. If the
underwriters' over-allotment option is exercised in full, the net proceeds will
be approximately $97.1 million. INTERVU intends to use these net proceeds for
(1) sales and marketing, including hiring additional sales personnel and opening
new sales offices, (2) additional software development, (3) capital
expenditures, consisting primarily of servers to expand the INTERVU Network, and
(4) working capital and other general corporate purposes.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses or to obtain the right to use complementary
technologies, including through strategic alliances. Although INTERVU from time
to time evaluates potential acquisitions of businesses, products and
technologies, it has no present understandings, commitments or agreements
regarding any acquisition.
Pending these uses, INTERVU may invest the net proceeds temporarily in
short-term, investment-grade, interest-bearing securities or guaranteed
obligations of the U.S. government.
PRICE RANGE OF COMMON STOCK
INTERVU completed its initial public offering on November 25, 1997. Since
November 20, 1997, INTERVU's common stock has been quoted in the Nasdaq National
Market. The following table provides the high and low sales prices for INTERVU's
common stock during the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
4th Quarter (from November 20, 1997)................... $10.25 $ 8.13
1998
1st Quarter............................................ 14.50 7.63
2nd Quarter............................................ 32.38 12.63
3rd Quarter............................................ 21.50 5.13
4th Quarter............................................ 19.50 6.00
1999
1st Quarter............................................ 54.50 12.75
2nd Quarter (through May 10, 1999)..................... 82.00 35.94
</TABLE>
On May 10, 1999, the last reported sale price of INTERVU's common stock in
the Nasdaq National Market was $37.125 per share. As of March 31, 1999, there
were 125 holders of record of INTERVU's common stock.
DIVIDEND POLICY
INTERVU has never paid and does not anticipate paying any dividends on its
common stock. Any future determination regarding the payment of dividends will
be made at the discretion of INTERVU's board of directors and will depend on
then existing conditions, including INTERVU's financial condition, results of
operations, contractual restrictions, capital requirements and business
prospects.
12
<PAGE> 16
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock from
this offering. Net tangible book value per share represents the amount of
INTERVU's total tangible assets less its total liabilities, divided by the total
number of shares of common stock outstanding. At December 31, 1998, INTERVU had
net tangible book value of $27.3 million or $2.51 per share of common stock.
After giving effect to the sale of 2,500,000 shares of common stock offered by
INTERVU at a public offering price of $36.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses,
INTERVU's pro forma net tangible book value at December 31, 1998 would have been
$111.7 million or $8.34 per share. This represents an immediate increase in the
pro forma net tangible book value of $5.83 per share to existing stockholders
and an immediate and substantial dilution of $27.66 per share to new investors
purchasing common stock in this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Public offering price....................................... $36.00
Net tangible book value as of December 31, 1998........... $ 2.51
Increase attributable to new investors.................... $ 5.83
Pro forma net tangible book value after this offering....... 8.34
------
Dilution to new investors................................... $27.66
======
</TABLE>
The following table summarizes the differences between existing
stockholders and new investors in this offering with respect to the number of
shares of common stock purchased from INTERVU, the total consideration paid to
INTERVU and the average consideration paid per share. The following table
excludes the deduction of underwriting discounts and commissions and estimated
offering expenses payable by INTERVU.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 10,894,487 81.3% $ 51,328,000 36.3% $ 4.71
New investors........................ 2,500,000 18.7% 90,000,000 63.7% 36.00
---------- ----- ------------ -----
Total...................... 13,394,487 100.0% $141,328,000 100.0%
========== ===== ============ =====
</TABLE>
The information presented in the table above with respect to existing
stockholders assumes (1) no conversion of Series G preferred stock into common
stock, (2) no exercise of outstanding options to purchase 1,822,000 shares of
common stock granted under the 1996 stock plan and the 1998 stock option plan
and (3) no exercise of warrants to purchase 330,000 shares of common stock.
If the underwriters' over-allotment option is exercised in full, INTERVU
will issue an additional 375,000 shares of common stock to new investors
representing 2.7% of the total of 13,769,487 shares of its common stock
outstanding. In addition, the total consideration from new investors will be
$103.5 million, which is 66.8% of the total of $154.8 million paid for all
shares of common stock outstanding. The issuance of additional common stock by
INTERVU will result in further dilution to you.
13
<PAGE> 17
CAPITALIZATION
The following table provides, as of December 31, 1998: (1) the actual
capitalization of INTERVU and (2) the capitalization of INTERVU as adjusted to
reflect the receipt of the net proceeds of this offering. The following table
assumes no exercise of the underwriters' over-allotment option. The information
regarding our common stock excludes an aggregate of 1,822,000 shares of common
stock issuable upon exercise of outstanding options under the 1996 stock plan
and the 1998 stock option plan, 806,144 shares of common stock issuable upon
conversion of the Series G preferred stock and 330,000 shares of common stock
issuable upon the exercise of warrants. The following table should be read in
conjunction with the financial statements and the related notes appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Long-term lease commitments................................. $ -- $ --
Stockholders' equity........................................
Preferred stock, par value $0.001 per share; 5,000,000
shares authorized, 1,280,000 shares issued and
outstanding, actual and as adjusted.................... 1 1
Common stock, par value $0.001 per share; 20,000,000
shares authorized, 10,894,487 shares issued and
outstanding, actual; 20,000,000 shares authorized,
13,394,487 shares issued and outstanding, as
adjusted............................................... 11 13
Additional paid-in capital................................ 51,346 135,694
Deferred compensation..................................... (746) (746)
Accumulated deficit....................................... (23,299) (23,299)
-------- --------
Total stockholders' equity.................................. 27,313 111,663
-------- --------
Total capitalization........................................ $ 27,313 $111,663
======== ========
</TABLE>
14
<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes included elsewhere in this
prospectus. These financial statements have been audited by Ernst & Young LLP,
independent auditors. INTERVU did not emerge from the development stage until
1998. As a result, INTERVU believes that any comparison of its results of
operations is not meaningful.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 2, 1995
(INCEPTION) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------- ------------------------------------
1995 1996 1997 1998
-------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ -- $ -- $ 144 $ 1,712
Operating expenses:
Research and development............ 33 1,420 1,703 3,154
Selling, general and
administrative.................... 16 910 3,148 10,892
Charges associated with the NBC
Strategic Alliance Agreement(1)... -- -- 750 4,622
---- ---------- ---------- ----------
Total operating expenses............... 49 2,330 5,601 18,668
---- ---------- ---------- ----------
Loss from operations................... (49) (2,330) (5,457) (16,956)
Interest income........................ 3 52 192 1,246
---- ---------- ---------- ----------
Net loss............................... $(46) $ (2,278) $ (5,265) $ (15,710)
==== ========== ========== ==========
Basic and diluted net loss per
share(2)............................ $ (0.66) $ (0.95) $ (1.73)
========== ========== ==========
Shares used in computing basic and
diluted net loss per share(2)....... 3,441,000 5,571,000 9,074,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments... $ 2,508 $21,380 $27,046
Working capital..................................... 2,365 20,947 24,799
Total assets........................................ 2,776 22,130 30,364
Long-term liabilities............................... 27 7 --
Total stockholders' equity.......................... 2,597 21,532 27,313
</TABLE>
- ---------------
(1) In January 1998, INTERVU expensed the then fair value of 680,000 shares of
the Series G preferred stock in the amount of $3.4 million. The charges also
include nonrefundable cash payments due to NBC under the strategic alliance
agreement of $750,000 expensed during the fourth quarter of 1997 and
$1,250,000 expensed during 1998.
(2) See Note 1 of Notes to Financial Statements for an explanation of the number
of shares used in computing basic and diluted net loss per share.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. For a discussion of these risks and uncertainties, see
"Risk Factors" and "Forward-Looking Statements."
OVERVIEW
INTERVU provides Web site owners and content publishers with services for
the 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 expenses 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 costs INTERVU incurs for Internet transmission
capacity, known as bandwidth. INTERVU expects that as it adds additional
customers, the corresponding increase in video and audio 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 these 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. Selling, general and
administrative expenses will also increase as INTERVU increases its sales
personnel and sales and marketing efforts.
16
<PAGE> 20
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 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. However, 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 December 31, 1998, had an accumulated deficit of $23.3 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 next several years.
Selected First Quarter 1999 Results
On May 3, 1999, INTERVU reported first quarter results for the three months
ended March 31, 1999. Revenue for the three months ended March 31, 1999
increased to $1.2 million from $113,000 in the corresponding period last year.
First quarter revenue also increased approximately 50% compared to the fourth
quarter of 1998. The increase in revenue was primarily due to the expansion of
INTERVU's streaming media services and customer base. INTERVU also generated
additional revenue from providing services to NBC's VideoSeeker Web site.
The net loss for the three months ended March 31, 1999 amounted to $3.1
million, or $0.31 per basic and diluted share, compared with a net loss in the
corresponding period last year of $5.8 million, or $0.73 per basic and diluted
share. INTERVU's net loss decreased during the first quarter of 1999 compared to
the first quarter of 1998 because INTERVU incurred a $3.9 million charge in the
first quarter of 1998 relating to the formation of its strategic alliance with
NBC in 1997 and did not record a charge relating to the NBC strategic alliance
in the first quarter of 1999. The decrease in INTERVU's net loss for the first
quarter of 1999 compared to the same quarter in 1998 was offset by increased
personnel and associated costs, increased bandwidth costs and increased research
and development costs.
17
<PAGE> 21
The following tables contain selected unaudited financial information
concerning INTERVU's financial performance for the quarters ended March 31, 1998
and 1999. This quarterly information has been prepared on the same basis as the
audited financial statements and, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1999
------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues.................................................. $ 113 $ 1,232
Operating expenses:
Research and development............................... 560 744
Selling, general and administrative.................... 1,628 3,909
Charges associated with the NBC strategic alliance
agreement............................................. 3,873 --
---------- -----------
Total Operating Expenses.................................. 6,061 4,653
---------- -----------
Net loss.................................................. $ (5,752) $ (3,123)
========== ===========
Basic and diluted net loss per share...................... $ (0.73) $ (0.31)
========== ===========
Shares used in computing basic and diluted net loss per
share.................................................. 7,889,459 10,038,343
========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and short-term investments......... $ 27,046 $ 22,164
Working capital........................................... 24,799 20,909
Total assets.............................................. 30,364 28,499
Long-term liabilities..................................... -- 794
Total stockholders' equity................................ 27,313 24,493
</TABLE>
1998 Compared to 1997
Total revenue for 1998 increased to $1.7 million from $144,000 in the prior
year. The increase in revenues reflects the expansion of INTERVU's streaming
media services. INTERVU also generated additional revenue from its services
relating to NBC's VideoSeeker Web site and from consulting and seminar
management services.
Research and development expenses for 1998 increased to $3.2 million from
$1.7 million in the prior year. The increase in research and development
expenses was attributable to the increase in personnel and related expenses.
Selling, general and administrative expenses for 1998 increased to $10.9
million from $3.1 million in the prior year. The increase was attributable
primarily to an increase of $4.3 million in personnel and associated costs, an
increase of $1.3 million in expenditures for trade shows and other marketing
efforts, an increase of $529,000 in consulting fees, an increase of $554,000 for
bandwidth costs and an increase of $382,000 for travel and entertainment
expenses.
Charges associated with the NBC strategic alliance agreement for the year
ended December 31, 1998 increased to $4.6 million from $750,000 in the prior
year. 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 $1.3 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
18
<PAGE> 22
promotions to be placed by INTERVU on NBC Internet sites. The 1997 charges
reflected the payment of $750,000 of nonrefundable cash payments to NBC
Multimedia under the strategic alliance agreement.
Interest income for 1998 increased to $1.2 million from $192,000 in the
prior year. 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 1997 was the result of higher cash, cash
equivalents and short-term investments balances INTERVU obtained from sales of
stock.
INTERVU's net loss for 1998 increased to $15.7 million from $5.3 million
for the prior year.
INTERVU has not recorded any income tax benefit for net losses and credits
incurred for any period from inception to December 31, 1998. The utilization of
these losses and credits depends on INTERVU's ability to generate taxable income
in the future. Because of that uncertainty, INTERVU has recorded a full
valuation allowance with respect to these deferred tax assets.
1997 Compared to 1996
Total revenues were $144,000 for 1997, most of which was derived from
delivery fees and customer services provided to INTERVU's initial customers.
INTERVU had no revenues for 1996.
Research and development expenses for 1997 increased to $1.7 million from
$1.4 million in the prior year. The increase in research and development
expenses was attributable to the increase in personnel and related expenses.
Selling, general and administrative expenses for 1997 increased to $3.1
million from $910,000 in the prior year. The increase in 1997 over 1996 was
attributable primarily to an increase of $1.2 million in personnel and
associated costs, primarily related to sales and marketing, an increase of
$297,000 in expenditures for trade shows and other public relations expenses, an
increase of $237,000 in amortization of deferred compensation, an increase of
$229,000 for bandwidth costs and an increase of $175,000 for travel and
entertainment expenses.
Charges associated with the strategic alliance agreement with NBC for 1997
were $750,000. None of these charges were recorded in 1996. The 1997 charges
reflected the payment of $750,000 of nonrefundable cash payments to NBC
Multimedia under the strategic alliance agreement.
Interest income for 1997 increased to $192,000 from $52,000 in the prior
year. The increase in interest income for 1997 was the result of higher cash and
cash equivalents balances resulting from sales of stock.
INTERVU's net loss for 1997 increased to $5.3 million from $2.3 million in
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, INTERVU has financed its operations primarily through
sales of stock. Through December 31, 1998, INTERVU had raised $46.8 million from
the sale of preferred stock and common stock. At December 31, 1998, the
principal source of liquidity for INTERVU was $27.0 million of cash, cash
equivalents and short-term investments.
INTERVU has had significant negative cash flows from operating activities
since inception. Cash used in operating activities was $9.8 million for 1998,
$4.6 million for 1997 and $2.1 million for 1996. 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 was $20.1 million for 1998, primarily
representing purchases of short-term investments and capital expenditures for
equipment, software and furniture and fixtures.
19
<PAGE> 23
Cash used in investing activities was $485,000 for 1997 and $305,000 for 1996,
primarily representing capital expenditures for equipment, software and
furniture and fixtures. As of December 31, 1998, INTERVU had no material
commitments for capital expenditures. However, 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 spend significant
amounts for equipment, software and fixtures over the next 24 months to expand
the INTERVU Network, a portion of which it plans to finance through capital
leases.
Cash provided by financing activities was $17.9 million for 1998, $23.9
million for 1997 and $4.4 million for 1996. In 1998, the cash provided by
financing activities was primarily from the $17.8 million in net proceeds from
the sale of common stock in a public offering completed in June 1998. Cash
provided in 1997, was primarily due to net proceeds received by INTERVU from the
sale of preferred stock and completion of INTERVU's initial public offering and
direct offering to NBC in November 1997. Net proceeds from INTERVU's initial
public offering and direct offering to NBC in 1997 aggregated $18.6 million.
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 production, operating and
advertising costs associated with some of NBC's Web sites. These payments
include (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 December 31, 1998, INTERVU has made a
total of approximately $1.3 million in payments to NBC Multimedia and $750,000
is currently payable.
In June 1998, INTERVU relocated its headquarters to office space subleased
in San Diego, California. The sublease commenced in May 1998 and will expire in
June 2003. Over the term of the lease INTERVU will pay total rents of
approximately $1.9 million.
INTERVU believes that the net proceeds from this offering, together with
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.
INTEREST RATE RISK
INTERVU is exposed to changes in interest rates primarily from its
investments in 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 adverse change in interest
rates on instruments of all maturities would not materially affect the fair
value of interest sensitive financial instruments at December 31, 1998.
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 software used by many companies may need to be
upgraded to comply with Year 2000 requirements. Although INTERVU believes that
the INTERVU Network and related software are 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 recently began 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
20
<PAGE> 24
to complete the compliance testing in September 1999. To date, 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, 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 these 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 or hosting centers to provide
connections to the Internet and to customer information systems. Any
interruption of service from Internet service providers 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 Internet service providers. Any interruption in the
security, access, monitoring or power systems at the Internet service providers
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 those 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 spend 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.
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BUSINESS
INTERVU provides Web site owners and content publishers with cost-effective
services and automated features for the 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 current customers
include Bloomberg, CNN, House of Blues, Intel, Microsoft, MovieFone, MSNBC, NBC,
OnRadio, RadioWave.com, Saatchi and Saatchi and Turner Broadcasting.
INTERVU's streaming media services allow Internet users to:
- view news, sports and other events from around the world,
- listen to live radio broadcasts,
- watch and listen to specialized content not widely available on
television or radio,
- hear a company's quarterly earnings report live, accompanied by a
graphical presentation,
- view a movie trailer before purchasing a movie ticket, videotape or DVD
and
- watch music videos or listen to songs on demand.
INTERVU has developed software solutions that automate the publishing,
distribution and programming of video and audio content. INTERVU is a
full-service provider, offering all of the services necessary for delivery of
both live Webcasting and video and audio on-demand, including production,
encoding, uplinking, Web site integration, distribution, reporting and
archiving. Web site owners and content publishers use INTERVU's solutions to:
(1) more quickly and efficiently add video and audio content to Web sites, (2)
avoid purchasing or developing costly software and hardware and hiring employees
with video and audio expertise and (3) benefit from the economies of scale
INTERVU can generate by buying Internet transmission capacity, known as
bandwidth, in bulk. INTERVU typically charges its customers monthly fees based
on the particular bundle of services to be provided and the amount of video
content to be stored and delivered.
The cornerstone of INTERVU's service strategy is a scalable, patent-pending
distribution network. The INTERVU Network uses servers strategically located in
major Internet hosting centers. INTERVU's dispersed network architecture enables
it to deliver streaming content to larger numbers of simultaneous end-users than
other service providers can achieve from centrally located servers. The INTERVU
Network also allows customers to make large numbers of video and audio files
available for on-demand viewing and listening. INTERVU believes that its
proprietary software for managing and distributing video and audio content and
its use of multiple delivery centers significantly improve the quality, speed
and reliability of delivery.
INDUSTRY BACKGROUND
The Internet and many Internet software, hardware and service providers
have experienced dramatic growth in recent years. The development of improved
search engines and Web browsers has led to substantial end-user interest in the
Internet. International Data Corporation estimates that the number of Web users
will increase from approximately 97 million at the end of 1998 to approximately
320 million by the end of 2002, representing an average annual growth rate of
35%. A 1998 study completed by the Georgia Institute of Technology estimates
that approximately 32% of Internet users spend 20 or more hours using a Web
browser each week.
The development of video and audio delivery solutions has contributed to
the transition of the Internet from a static environment of text-oriented Web
pages to a more attractive and dynamic environment. INTERVU believes that as the
Internet continues to evolve as a mass communication
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medium, end users will spend an increasing percentage of their time online
visiting sites that offer high-quality video and audio content.
The rising popularity of the Internet also has spurred the development of
commercial applications, including online commerce and advertising.
International Data Corporation estimates that the total purchases made over the
Internet will grow from $32.4 billion in 1998 to $425.7 billion by 2002.
Industry observers also expect that as the number of Internet users grows,
advertisers will devote increasing portions of their budgets to Internet
advertising. INTERVU believes that growth in commercial applications on the
Internet will increase demand for streaming media services as companies seek to
increase the effectiveness of their Web sites and Internet advertising.
The delivery of streaming content over the Internet can present numerous
challenges. Web site owners that want to stream video and audio can either do so
from their own servers or through third-party service providers. Many Web site
owners begin to encounter capacity and technological limitations as they seek to
deliver video to large numbers of end-users. Similarly, third-party service
providers that offer streaming media solutions from centrally located servers
face increased reliability problems because these servers are more likely to
become overloaded during peak usage periods than distributed servers.
THE INTERVU SOLUTION
INTERVU's services allow Web site owners and content publishers to transmit
streaming content more quickly and cost-effectively. Specifically, INTERVU
provides its customers with the following service features:
Automation of the Publishing Process
INTERVU has developed services that automate the process of publishing
video and audio to the Internet, making this process less expensive and less
labor-intensive. For example, INTERVU Workbench allows Web site owners with
large amounts of content to publish video and audio clips to their Web sites,
dynamically generate new Web pages containing their clips and link the clips to
files with searchable identifying information about the clip. The INTERVU
AUDIENCE service includes an automated e-mail ticketing function for live events
and automatically provides desktop reminders to end-users before requested
events. INTERVU AUDIENCE also simplifies the posting of multimedia content on
the Internet by combining publishing features with automated file labeling,
which allows end-users to quickly find video and audio through a directory
function.
Automated, Cost-Effective and Scalable Distribution
INTERVU's distributed network allows it to deliver video and audio more
cost effectively and with better quality than Web site owners can achieve from a
single location. The INTERVU Network manages bandwidth limitations and
automatically directs end-users' requests for video and audio to the delivery
center that can provide the content most quickly and efficiently. The INTERVU
Network also allows Web site operators to deliver video and audio without
incurring start-up costs associated with purchasing the hardware and software
required to stream multimedia content, maintenance costs and fixed bandwidth
costs. INTERVU's proprietary software allows INTERVU to expand the capacity of
its network by installing additional servers at Internet hosting centers.
Advanced Data Management Services
INTERVU provides Web site owners and content publishers with demographic
data, user preferences and other information. INTERVU continues to add features
to its data management services, including data capture, which provides
information about the technical attributes of video and audio files and streams,
and data reporting, which aggregates end-user data from multiple
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sources. Data reporting enables INTERVU customers to better market their Web
events and tailor their content to meet end-user demand. INTERVU believes that
its ability to provide meaningful data will be an important factor in its
ability to attract and retain customers.
STRATEGY
INTERVU's objective is to establish itself as the leading service provider
for Internet video and audio distribution solutions. INTERVU's strategy for
achieving this goal includes the following key components:
Target Leading Web Sites and Content Publishers
INTERVU targets its sales and marketing efforts at Web site owners and
content publishers with significant video and audio volume and quality
requirements, primarily in the areas of entertainment, news and sports. INTERVU
also targets leading Web sites in part to create awareness for the INTERVU
brand. INTERVU has established relationships with key customers that provide
INTERVU with the opportunity to promote its brand identity by placing its logo
on the customer's Web site next to the video being delivered. During 1999,
INTERVU intends to expand both its sales force and the geographic areas in which
INTERVU maintains a sales presence.
Drive Traffic to Customers' Web Sites and Maximize Customer Brand Awareness
Web site owners devote substantial resources to establishing online brand
recognition and increasing traffic. INTERVU does not compete with its customers
for Web site traffic or brand awareness because it does not maintain a Web site
that end-users must visit to access its customers' video and audio content.
End-users visiting an INTERVU customer's Web site receive video and audio
directly through that site without knowing that it is coming from the INTERVU
Network.
Further Develop Automated Delivery Solutions
INTERVU intends to further develop automated delivery solutions to attract
new customers and remain a technology leader. INTERVU recently introduced the
INTERVU AUDIENCE, INTERVU Workbench and INTERVU Presents delivery solutions,
which automate the publishing, delivery and programming processes. INTERVU
AUDIENCE, for example, includes automated ticketing and messaging services to
bring viewers to live events and helps INTERVU's customers develop ongoing
relationships with a community of end-users. INTERVU plans to expand the
features of its automated solutions while also developing new, innovative
solutions.
Provide Full-Service Solutions
INTERVU is a full-service provider, offering its customers production
services, software solutions, content distribution and storage. INTERVU tailors
its services to each customer's needs and provides ongoing 24-hour customer
support. INTERVU believes that its customized full-service approach increases
customer satisfaction, facilitates the sale of additional services to its
existing customers and significantly enhances its ability to increase its
customer base.
Expand the INTERVU Network
INTERVU intends to expand the INTERVU Network by installing additional
delivery centers in Internet hosting centers and at Internet points of presence,
commonly known as POPs. INTERVU believes it can further improve the speed,
quality and reliability of streaming video and audio by reducing the number of
Internet connections that content must traverse before its reaches the end-
user. INTERVU plans to locate network resources in POPs with broadband
technologies, such as Digital Subscriber Line or cable modem technology, to
facilitate faster transmission to end-users.
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Expansion of the network also will allow INTERVU to store and deliver larger
numbers of video and audio files and to increase the number of simultaneous
streams it can deliver.
MARKETING AND SALES
INTERVU employs a variety of marketing methods, including advertising,
trade show and conference participation, the INTERVU Web site, sales literature,
Internet promotions and placement of its name and logo on customers' Web sites.
A key element of INTERVU's marketing strategy is to continue to heighten
awareness for the INTERVU brand as it expands its sales and marketing
activities.
INTERVU has identified five principal target customer categories:
-- Entertainment and Sports. INTERVU's largest target market is
entertainment providers, especially providers of music, movies and
sports. INTERVU believes that entertainment content has the greatest
end-user demand and therefore targets providers of this content.
INTERVU's entertainment and sports customers include AIME (ComedyNet),
DVD EXPRESS, House of Blues, MovieFone, CDNow, NBC, New England
Patriots, RadioWave.com, Showtime, Turner Broadcasting, Universal
Studios and Warner Brothers.
-- News and Information. News and information providers increasingly are
using the Internet as a distribution channel. End-users also are
accessing the Internet as a source for news and information with
increasing frequency. INTERVU's current customers in the news market
include Bloomberg and MSNBC. We also provide services to CNN.com for
its live Internet broadcasts.
-- Business to Business. INTERVU believes there is a growing market for
video and audio used in business to business communications on the
Internet. The business to business market consists of investor
relations, internal corporate communications, business training,
online sales, conferences and tradeshows and government. For example,
INTERVU provides a virtual private network that allows Saatchi and
Saatchi to share work in progress with customers and employees.
INTERVU provides a similar service to BMG that archives recordings of
over 8,000 CDs and allows retailers to preview music CDs and packaging
before placing orders. In addition, INTERVU provides services to Vcall
for the delivery of audio broadcasts for Vcall's customers' investor
communication events, including earnings releases, shareholder
meetings, investor conferences and interviews.
-- Advertising. INTERVU believes that Internet advertisements will move
increasingly toward ads that include video because these ads are more
engaging to consumers than static advertisements. INTERVU believes
advertisements containing video also increase traffic from the host
Web site to the advertiser's own site. INTERVU provides a variety of
multimedia formats to meet the needs of advertisers, including
Macromedia Shockwave, Macromedia Flash and V-Banners, the last of
which is INTERVU's own video banner advertising technology.
-- Distance Learning. The distance learning market is growing each year
as more higher education institutions put courses online to reach
students who otherwise would be unable to attend because of access
limitations or lack of institutions in students' home towns. INTERVU
believes that its presentation broadcasting service, INTERVU Presents,
is well suited to meet the needs of distance learning providers.
INTERVU also is seeking to develop relationships with companies that
provide distance learning products, which will resell INTERVU's
services to their customers.
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INTERVU employs a dedicated sales force of 31 sales professionals to sell
its audio and video distribution services. INTERVU plans to significantly expand
its sales force during 1999 both in its current geographic markets and new
markets. INTERVU divides its sales representatives into groups, with each group
selling services to only one of INTERVU's target customer categories. INTERVU
believes that it can more effectively sell its services by using sales
professionals who specialize in a single target customer category. INTERVU has a
sales office or presence in San Diego, San Francisco, New York, Chicago, Los
Angeles, Atlanta and Detroit and plans to add a sales presence in Seattle,
Denver and the Mid-Atlantic region in 1999. INTERVU also seeks to leverage its
relationships with other Internet companies that resell INTERVU's delivery
services.
INTERVU SERVICE SOLUTIONS
INTERVU provides live Webcasting and video and audio on-demand. Live
Webcasting includes both live events and 24-hour per day streaming services such
as continuous radio broadcasts. On-demand services allow INTERVU customers to
store video and audio clips on the INTERVU Network and to make them available to
end-users through their Web sites. INTERVU is a full-service provider, offering
all of the services necessary for both live Webcasting and video and audio
on-demand, including production, encoding, uplinking, Web site integration,
distribution, audience building, reporting and archiving. INTERVU supports and
enhances these services with the following software solutions and other
services:
INTERVU Workbench
INTERVU Workbench allows customers with large amounts of content to publish
video and audio clips to their Web pages, dynamically generate new pages that
offer end-user access to the clips, link the clips to files containing
searchable identifying information about the clip and collect usage data on a
clip by clip basis. INTERVU currently provides these services to NBC's
VideoSeeker Web site. INTERVU is marketing a version of this publishing and
reporting solution to other customers.
INTERVU AUDIENCE
INTERVU AUDIENCE, an Internet audience management system, provides Web site
owners with an easy to use, comprehensive solution for bringing people to live
events. INTERVU AUDIENCE includes an automated e-mail ticketing function and
generates a desktop reminder before the requested event. INTERVU AUDIENCE
automatically launches the end-user's browser, takes the end-user to the Web
page with the video or audio content, launches the appropriate streaming media
player and starts the audio or video stream. INTERVU AUDIENCE also simplifies
the posting of multimedia content on the Internet by combining publishing
features with automated labeling of the files, which allows end-users to quickly
find video and audio through a directory function. INTERVU AUDIENCE also
incorporates the processor serial number feature of Intel's Pentium III
processor, designed to provide INTERVU customers with the ability to limit
access to specific events and on-demand clips to recognized serial numbers.
INTERVU AUDIENCE also allows Web site owners to:
- customize the presentation of content on their Web sites,
- program and schedule events on their Web sites,
- conduct pay-per-view events and
- track content usage, which enables Web site owners to make more effective
programming decisions.
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INTERVU Presents
INTERVU Presents enables Web site owners to distribute video and audio
presentations with synchronized Microsoft PowerPoint slides over the Internet.
This service is intended primarily for businesses and educational institutions.
INTERVU Presents includes a fully automated registration process to manage
end-user access to the content. In addition, INTERVU Presents interfaces with
the processor serial number feature of Intel's Pentium III processor, enabling
Web site owners to limit end-user access to confidential presentations. This
security feature allows businesses to conduct confidential sales training,
business meetings and investor roadshows and presentations.
V-Banner
V-Banners enable Web site owners and advertisers to more easily integrate
video into Web sites by turning an ordinary Internet advertising banner into a
video display. INTERVU's V-Banners are compatible with most video players
currently used by end-users. This enables INTERVU's advertising customers to
reach most end-users with their video advertisements.
Production Services
INTERVU provides production services for Web site owners that deliver
content through INTERVU. These production services include filming and producing
live events that Web site owners broadcast over the Internet. INTERVU's
customers have used its production services to broadcast events such as NASA's
coverage of the John Glenn Space Shuttle Discovery Launch, the X-Files movie
premier, the National Association of Television Program Executives' conference
and various Turner Broadcasting productions.
Encoding Services
INTERVU offers encoding and compression services to its customers through
its internal staff and through a subcontracting relationship with Encoding.com.
INTERVU offers encoding in a number of digital formats, including MPEG,
Quicktime, AVI, Vivo, Microsoft's Media Player and RealNetworks' RealPlayer G2.
INTERVU NETWORK
INTERVU uses the INTERVU Network as the cornerstone for providing video and
audio distribution solutions to INTERVU customers. The INTERVU Network uses
proprietary software, systems and processes to manage large amounts of content
stored on more than 100 servers in Internet hosting centers. The INTERVU
Network's dispersed network architecture enables INTERVU to deliver streaming
content to larger numbers of simultaneous end-users than other service providers
can achieve from centrally located servers. INTERVU's dispersed network
architecture is designed to more evenly distribute streaming media traffic
across the Internet infrastructure. INTERVU has received three notices of
allowance on patents that cover the design and operation of INTERVU's dispersed
network and the method by which video and audio files are indexed and retrieved.
The INTERVU Network enables Web site owners to provide video and audio
content to end-users more cost-effectively and conveniently than through
traditional Internet distribution mechanisms. Customers can deliver video and
audio to the INTERVU Network instead of managing large video and audio files and
maintaining expensive hardware. To an end-user visiting an INTERVU customer's
Web site, the content appears to come directly from that site, rather than from
INTERVU. INTERVU provides software for the customer's Web site that links
end-users to the INTERVU Network.
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Reduces Transmission Time and Improves Quality
INTERVU's use of delivery centers in multiple Internet hosting centers
provides significant advantages in multimedia delivery. Through the use of
INTERVU's Smart Mirror technology, the INTERVU Network helps users bypass slow
transmission points on the Internet by determining which of its servers is
electronically closest to the end-user and sending the video and audio content
from that location. The electronically closest server is the one that provides
the best combination of delivery time and quality.
Scalable Network
The delivery servers on the INTERVU Network consist of a title manager and
multiple video pumps which are designed to optimize and manage the delivery of
video and audio over the Internet. The title manager contains INTERVU's patent
pending software and acts as the brain of the network. The video pumps are
computers that have been customized to accelerate video and audio delivery. The
title manager selectively stores, allocates and replicates video and audio
content among the pumps based on end-user demand and directs end-users' requests
for multimedia content to the video pump capable of delivering the highest
quality content and responding most quickly to the request. Because the delivery
centers use off-the-shelf hardware and INTERVU software, INTERVU can add
additional centers to the network quickly and cost-effectively. This enables
INTERVU to deploy network resources as additional scale becomes necessary.
Fully Compatible With Leading Multimedia Players
INTERVU's All Eyes software allows its customers to reach nearly all
end-users, regardless of the multimedia player software used by the end-user.
All Eyes software determines the capabilities of the end-user's software and
ensures that any video and audio requested can be played by the end-user's
multimedia player even if the end-user has not downloaded All Eyes software. By
contrast, traditional methods of Internet video and audio distribution limit the
number of end-users able to view multimedia content to those who have the
appropriate software for a specific encoding format.
End-User Software Technologies
In conjunction with its automated delivery solutions, INTERVU provides its
EyeQ Multimedia Manager software package. This package includes MPEG video
players, as well as INTERVU's Get Smart technology. Get Smart installs and
manages the EyeQ multimedia software and keeps end-users' computers current with
other multimedia software players, such as Microsoft's MediaPlayer,
RealNetworks' Real Player G2, Vivo, VDO and Apple Computer's QuickTime. With a
single mouse click, Get Smart downloads and installs software updates to the
end-user's computer from the Internet. Both the EyeQ Multimedia Manager and Get
Smart are available via INTERVU's Web site or its customers' Web sites.
KEY WORKING RELATIONSHIPS
INTERVU seeks to leverage its relationships with key customers and
technology leaders to support the development of its automated delivery
solutions and build INTERVU's brand identity.
In October 1997, INTERVU entered into a strategic alliance with NBC
Multimedia and became the exclusive distributor of most NBC entertainment
multimedia content over NBC Internet sites. The NBC strategic alliance agreement
provides for revenue sharing from the VideoSeeker Web site, which offers
end-users a single source for online multimedia entertainment and information.
INTERVU created the automated video search engine and directory functions used
on the VideoSeeker site and developed the proprietary software underlying the
site. A major benefit to
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INTERVU of the strategic relationship with NBC is the opportunity VideoSeeker
provides INTERVU to develop and test new solutions for multimedia publishing,
programming and delivery.
INTERVU also has worked with Intel and Microsoft to integrate their
products into INTERVU's delivery solutions. For example, INTERVU has integrated
the security features of Intel's Pentium III Processor into INTERVU AUDIENCE and
INTERVU Presents to limit end-user access to specific events, on-demand clips
and presentations. INTERVU also has incorporated the features of Microsoft's
PowerPoint presentation software into INTERVU Presents to allow Web site owners
to integrate PowerPoint slides into streaming video presentations.
Moreover, INTERVU has established co-marketing arrangements with key
customers that provide INTERVU with the opportunity to promote its brand
identity by placing its logo on the customer's Web site next to the video being
delivered. For example, as part of INTERVU's agreement to provide video services
for CNN.com's live news coverage, CNN has agreed that INTERVU's banners will
appear on CNN.com/videoselect and in CNN's live video pop-up windows.
COMPETITION
The market for Internet services is relatively new, rapidly evolving and
highly competitive. INTERVU expects that competition will continue to intensify.
The streaming media distribution industry is characterized by rapidly changing
technology, evolving industry standards and frequent new product and service
introductions. Although INTERVU believes it is the only business utilizing a
dispersed network architecture supported by automated software solutions to
deliver multimedia content over the Internet, INTERVU faces substantial
competition from a number of companies. These competitors include: (1) Internet
service providers, (2) Web sites and content publishers, (3) hardware and system
vendors and (4) companies that utilize other streaming technologies. INTERVU
currently competes to a large extent with Web site owners and content publishers
that employ in-house technical personnel to develop streaming media technology
and to manage their streaming media. INTERVU's competitors also currently
include Broadcast.com, which recently entered into an agreement to be acquired
by Yahoo!, and RealNetworks. However, unlike these competitors, INTERVU does not
compete with its customers for Web site traffic or sell software. Competitive
factors in the Internet streaming media distribution market include the quality
and reliability of service, price, customer support, brand recognition and
traffic flow directed to Web sites. See "Risk Factors -- We Face Significant
Competition" for further discussion of the competitive conditions facing
INTERVU.
SOFTWARE DEVELOPMENT; INTELLECTUAL PROPERTY
INTERVU develops most of its technologies itself and maintains a software
development staff of 32 people that designs and develops INTERVU's new services.
INTERVU had research and development expenses of approximately $1.4 million in
1996, $1.7 million in 1997 and $3.2 million in 1998. INTERVU believes that by
performing most of its software development itself it can more quickly and
cost-effectively develop new and innovative technologies and services. As a
result, INTERVU believes it is better equipped to incorporate customer
preferences identified by INTERVU's marketing and sales groups into development
plans.
INTERVU regards its technology as proprietary and attempts to protect it
with patents, copyrights, trade secret laws and restrictions on disclosure. The
U.S. Patent & Trademark Office has issued to INTERVU notices of allowance for
three patents covering the management, distribution and delivery of multimedia
content over the Internet as well as the architecture of the INTERVU Network.
INTERVU has ten United States patent applications and six international patent
applications pending. INTERVU also is in the process of preparing additional
patent applications for its technology.
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INTERVU pursues registration of its trademarks and service marks in the
U.S. as well as other countries, although it has not secured registration of all
of its marks. As of March 29, 1999, INTERVU had one registered U.S. trademark
and had applications pending for an additional 14 U.S. trademarks.
LEGAL PROCEEDINGS
From time to time, INTERVU may be involved in litigation arising in the
ordinary course of its business. INTERVU is not presently a party to any
material legal proceedings.
EMPLOYEES
As of March 31, 1999, INTERVU had 124 full-time employees, of whom 32 were
in software development, 45 in operations, 35 in sales and marketing and 12 in
administration. None of INTERVU's employees is represented by a labor union, and
INTERVU considers its relations with its employees to be good.
FACILITIES
INTERVU is headquartered in facilities consisting of approximately 23,575
square feet in San Diego, California, under a sublease expiring in 2003.
Additionally, INTERVU maintains offices in New York City, San Francisco and
Chicago. INTERVU anticipates opening additional regional sales offices in 1999
and beyond as it increases the size of its sales force and expands its sales and
marketing initiatives.
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MANAGEMENT
The following table provides the age and position of each of INTERVU's
executive officers, directors and key employees:
<TABLE>
<CAPTION>
NAME AGE
---- --- POSITION
<S> <C> <C>
Harry E. Gruber........................ 47 chairman and chief executive officer
Brian Kenner........................... 40 vice president and chief technology officer
Kenneth L. Ruggiero.................... 32 vice president and chief financial officer
Edward L. Huguez....................... 41 vice president and chief operating officer
Stephen H. Klein....................... 35 vice president of business development, networks
Larry Behmer........................... 51 vice president, engineering
Charles Bragg.......................... 47 vice president and general manager, sales
Stephen Condon......................... 35 vice president, marketing
Scott Crowder.......................... 36 vice president, operations
J. William Grimes...................... 58 vice chairman
Edward E. David, Jr.................... 74 director
Mark Dowley............................ 34 director
Alan Z. Senter......................... 57 director
Isaac Willis........................... 58 director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
Harry E. Gruber is a founder of INTERVU and has served as chairman and
chief executive officer of INTERVU since July 1996. From July 1996 to July 1997,
Dr. Gruber served as INTERVU's president, and from July 1997 to February 1998,
Dr. Gruber served as INTERVU's chief financial officer. Before founding INTERVU,
Dr. Gruber founded two start-up biotech ventures, Gensia Inc., which completed
an initial public offering in 1990, and Viagene Inc., which completed an initial
public offering in 1993. From July 1995 to July 1996, Dr. Gruber served as chief
scientific officer of Gensia, and from 1988 to July 1995, he served as vice
president, research of Gensia. Dr. Gruber serves as a director of Vascular
Genomics, Inc., a privately held company, and as a director of the UCSD
Foundation and a member of the board of overseers for the University of
Pennsylvania College of Arts and Sciences. Dr. Gruber obtained his M.D. and B.A.
degrees from the University of Pennsylvania.
Brian Kenner is a founder of INTERVU and has served as vice president and
chief technology officer of INTERVU since February 1996. From 1989 to January
1996, Mr. Kenner was a project engineer at Science Applications International
Corporation, an advanced-technology development and research organization. As
project engineer, Mr. Kenner had responsibility for products ranging from
advanced hand-held instrumentation to devices which digitize, compress, and
transmit both moving and still images over public and proprietary communications
networks. Mr. Kenner obtained a B.S. in electrical engineering from the
University of California, San Diego.
Kenneth L. Ruggiero joined INTERVU in February 1998 and serves as vice
president and chief financial officer. From April 1996 to February 1998, Mr.
Ruggiero was employed by NBC. From December 1996 to February 1998, he was the
chief financial officer of NBC Interactive Media, NBC's Internet division. In
this capacity he performed and managed financial reporting, implemented various
policies and procedures and structured and negotiated business development
activities. From April 1996 to December 1996, Mr. Ruggiero was a manager in
NBC's Business Development and International Finance division. From September
1989 to April 1996, he was employed by Arthur Andersen, an independent public
accounting firm, where he held a number of positions, including most recently
manager of corporate consulting. Mr. Ruggiero is a certified public accountant.
He
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received an M.B.A. from Columbia University Graduate School of Business and a
B.A. in accounting from the University of Massachusetts, Amherst.
Edward L. Huguez joined INTERVU in May 1998 and serves as vice president
and chief operating officer. From October 1992 to May 1998, Mr. Huguez was
employed by DIRECTV, a direct broadcast satellite entertainment company. Mr.
Huguez held a number of different positions at DIRECTV, most recently vice
president, new media and interactive programming and platforms. In this
capacity, Mr. Huguez was responsible for the business unit that managed
DIRECTV's new media and interactive business. From March 1987 to September 1992,
Mr. Huguez was employed by ESPN, Inc., most recently as director, affiliate
sales and marketing, western division. He received an M.B.A. from the John E.
Anderson Graduate School of Management at UCLA and a B.A. in political science
from Arizona State University.
Stephen H. Klein joined INTERVU in May 1996 as director of business
development and sales and has served as vice president of business development,
networks since March 1997. From 1994 to 1996, he served as new business
development manager for General Instrument Corporation where he was one of the
originating founders of the SURFboard Program, General Instrument's Internet
cable modem technology and product line. From 1988 to 1992, Mr. Klein held
various product management and technical management positions at General
Instrument's VideoCipher division. Mr. Klein obtained an M.B.A. from San Diego
State University and a B.S. in engineering from Ohio State University.
Larry Behmer joined INTERVU in November 1998 as vice president of
engineering. Before joining INTERVU, Mr. Behmer was employed with U.S. West from
July 1987 to November 1998, including most recently as executive director of
engineering. From May 1970 to July 1987, Mr. Behmer held various positions at
Bell Labs and Northern Telecom. Mr. Behmer earned a M.S. in computer science
from Northwestern University and a B.S. in computer science from University of
Dayton.
Charles Bragg joined INTERVU in September 1998 and serves as vice president
and general sales manager. From June 1996 to September 1998, Mr. Bragg held a
number of management positions at Cybergold, an online marketing and incentives
company, including most recently vice president of sales. While at Cybergold,
Mr. Bragg was responsible for managing new business development and advertising
sales. Mr. Bragg's previous management experience includes developing
advertising sales operations for both cable television and Internet Web site
marketing venues. From 1985 to 1996, Mr. Bragg held various senior management
positions at Bigbook, Katz Media Corporation and Cable Adnet. He received a B.A.
in psychology from the University of North Carolina.
Stephen Condon joined INTERVU in September 1998 as vice president of
marketing from DIRECTV, where he most recently held the position of senior
marketing director. While at DIRECTV, from January 1996 to August 1998, he was
responsible for national promotions, launching subscriber marketing programs,
developing partnership programs and customer communications. From February 1983
to January 1996, Mr. Condon also held various positions with Campbell-Ewald
Advertising, Chiat/Day, and J. Walter Thompson Pty. Ltd. Mr. Condon earned an
undergraduate degree from Kuring-gai College of Advanced Education, Sydney,
Australia.
Scott Crowder joined INTERVU in June 1998 as vice president of operations.
From July 1985 through May 1998, Mr. Crowder held a number of positions at
Sprint Long Distance, including most recently director-advanced product support.
Mr. Crowder has more than 16 years of industry and experience and held various
management roles at Sprint in the areas of switch data services, ISDN, video
conferencing, and drums multimedia collaboration solutions.
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<PAGE> 36
J. William Grimes joined INTERVU as a director in September 1997 and has
served as vice chairman of the board since October 1997. Since July 1995, Mr.
Grimes has worked as a consultant with JWG Communications, Inc., a
communications consulting company he founded in July 1995. He also is a partner
of BG Media Investors and serves as a faculty member in the Media Studies
Program at the New School for Social Research, a position he has held since
September 1996. From September 1994 to August 1996, Mr. Grimes held the position
of president and chief executive officer with Zenith Media, a media buying
service company. From October 1991 to December 1993, Mr. Grimes served as
president and chief executive officer of Multimedia, Inc. From November 1988 to
September 1991, Mr. Grimes served as president and chief executive officer of
Univision Holdings, Inc. Mr. Grimes served as president and chief executive
officer of ESPN, Inc. from June 1982 to October 1988. Before June 1982, Mr.
Grimes held various positions with CBS, Inc., including his final position as
executive vice president of the CBS Radio division. He obtained a B.A. in
English from West Virginia Wesleyan College.
Edward E. David, Jr. has served as a director of INTERVU since its
inception in August 1995, and has served as president of Edward E. David, Inc.,
a telecommunications consulting firm since 1992. In addition, since April 1996,
Dr. David has served as vice president and principal of Washington Advisory
Group, LLC. He has been science advisor to the President of the United States
and director of the White House Office of Science and Technology. Dr. David was
also president of Exxon Research and Engineering Company and executive director
of Bell Telephone Laboratories. Mr. David serves as a director for
Intermagnetics General Corporation, Spacehab, Inc. and Protein Polymar
Technologies, all of which are publicly traded companies. Until recently, he
served as the U.S. representative to the NATO Science Committee.
Mark Dowley joined INTERVU as a director in January 1997 and is the chief
executive officer of Momentum IMC, an advertising agency division of
McCann-Erickson, a national advertising firm. Mr. Dowley has over ten years
experience in major event management, promotion and sponsorship. Mr. Dowley's
past and current clients include the NBA, the PGA Tour, NCAA, The Walt Disney
Company and Universal Studios. Mr. Dowley received a B.A. in economics from the
College of Wooster.
Alan Z. Senter joined INTERVU as a director in September 1997. From
September 1994 to May 1996, Mr. Senter served as executive vice president, chief
financial officer and as a member of the policy council of Nynex Corporation.
From November 1993 to August 1994 and since June 1996, Mr. Senter has served as
chairman of Senter Associates, a consulting firm founded by Mr. Senter in
November 1993. From August 1992 to November 1993, Mr. Senter served as executive
vice president, chief financial officer and a director of GAF/ISP Corporation.
From January 1990 to July 1992, Mr. Senter served as vice president of finance
for Xerox Corporation. Mr. Senter serves on the boards of directors of Exel,
Ltd. and Advanced Radio Telecom, both publicly traded companies. Mr. Senter
obtained a B.S. in economics and political science from the University of Rhode
Island and an M.B.A. from the University of Chicago.
Isaac Willis has served as a director of INTERVU since November 1995. Dr.
Willis is a private investor with experience in venture financing and banking,
including the founding of Heritage Bank, Commercial Bank of Georgia and
Commercial Bank of Gwinnett. Dr. Willis has been a professor and director of
dermatology research at Morehouse School of Medicine since 1983 and was a past
commander of the 3297th U.S. Army Hospital. Dr. Willis obtained a M.D. from
Howard University and a B.S. in chemistry and mathematics from Morehouse
College.
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<PAGE> 37
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of INTERVU's common stock, assuming no exercise of the underwriters'
over-allotment option, as of March 31, 1999, and as adjusted for this offering,
by:
- INTERVU's directors and executive officers,
- each person who is known by INTERVU to own beneficially more than 5% of
INTERVU's common stock and
- all directors and executive officers as a group.
Beneficial ownership includes shares of outstanding common stock and shares
of common stock that a person has the right to acquire within 60 days after the
date of this table. Except as indicated in the footnotes to this table and under
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
Except as indicated, the address of each person named in the table below is
c/o INTERVU Inc., 6815 Flanders Drive, San Diego, California 92121.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF SHARES ----------------------------
OF COMMON STOCK BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED THE OFFERING THE OFFERING
---------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Harry E. Gruber(1)............................ 1,037,852 9.5% 7.7%
Brian Kenner(2)............................... 1,041,752 9.5 7.7
Isaac Willis(3)............................... 1,257,211 11.5 9.3
Stephen H. Klein(4)........................... 67,370 * *
Edward E. David, Jr.(5)....................... 28,700 * *
Kenneth L. Ruggiero(6)........................ 25,775 * *
Edward L. Huguez(7)........................... 41,861 * *
J. William Grimes(8).......................... 18,011 * *
Mark Dowley(9)................................ 15,871 * *
Alan Z. Senter(10)............................ 11,885 * *
All directors and executive officers as a
group (10 persons)(11)...................... 3,546,288 32.4 26.4
Douglas A. Augustine(12)...................... -- * *
National Broadcasting Company, Inc.(13)....... 1,016,670 9.3 7.6
Westchester Group LLC(14)..................... 800,000 7.3 5.9
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 329,841 shares subject to INTERVU's repurchase right under an
amended and restated vesting agreement and 1,037,852 shares held in a
family trust.
(2) Includes 329,841 shares subject to INTERVU's repurchase right under an
amended and restated vesting agreement.
(3) Includes 1,036,938 shares owned by the Willis Family Trust, of which Dr.
Willis is settlor. Includes 7,243 shares subject to INTERVU's repurchase
right under a restricted stock agreement and 19,193 shares issuable upon
exercise of options that are currently exercisable or that will become
exercisable within 60 days after the date of this table. Includes 17,994
shares held in an individual retirement account.
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<PAGE> 38
(4) Includes 27,586 shares subject to INTERVU's repurchase right under a
restricted stock agreement and 3,214 shares issuable upon exercise of
options that are currently exercisable or that will become exercisable
within 60 days after the date of this table.
(5) Includes 7,174 shares subject to INTERVU's repurchase right under a
restricted stock agreement and 3,508 shares issuable upon exercise of
options that are currently exercisable or that will become exercisable
within 60 days after the date of this table.
(6) Includes 25,585 shares issuable upon exercise of options that are currently
exercisable or that will become exercisable within 60 days after the date
of this table.
(7) Consists of 41,861 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(8) Consists of 18,011 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(9) Consists of 15,871 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(10) Consists of 11,885 shares issuable upon exercise of options that are
currently exercisable or that will become exercisable within 60 days after
the date of this table.
(11) See Notes (1) - (10) regarding beneficial ownership of INTERVU's executive
officers and directors.
(12) Mr. Augustine resigned as INTERVU's vice president, marketing and sales on
November 20, 1998.
(13) Includes shares of Series G preferred stock owned by NBC that are
convertible into common stock at the option of the holder and 210,526
shares of common stock owned by NBC Multimedia. The holder of each share of
Series G preferred stock has the right to vote on an as-converted basis
with the common stock. As the ultimate parent of NBC, General Electric
Company may be deemed to be the beneficial owner of all these shares. The
address for NBC is 30 Rockefeller Plaza, New York, New York 10112.
(14) The membership interests of Westchester Group LLC are owned by Marcia
Berman individually, with respect to 99.4% of the interests, and as
custodian for her minor children under the New York Uniform Gifts to Minors
Act, with respect to 0.6% of the interests. The address for Westchester
Group LLC is c/o Duckor Spradling & Metzger, 401 West A Street, Suite 2400,
San Diego, CA 92101.
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<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The following summary description of the material terms of the capital
stock of INTERVU is not intended to be complete. Since the terms of INTERVU's
capital stock must comply with the provisions of its certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement, and the Delaware General Corporation Law, you should read each of
these documents very carefully. See "-- Delaware Law and Certificate of
Incorporation and Bylaw Provisions" for a discussion of the provisions of
INTERVU's certificate of incorporation and bylaws and the Delaware General
Corporation Law.
INTERVU has the authority to issue up to 20,000,000 shares of common stock,
par value $0.001 per share, and 5,000,000 shares of preferred stock, par value
$0.001 per share.
COMMON STOCK
As of March 31, 1999, there were 10,946,622 shares of common stock
outstanding, held of record by 125 stockholders.
Holders of common stock are entitled to one vote per share on all matters
to be voted on by the stockholders of INTERVU. Subject to the preferences of the
preferred stock, the holders of common stock are entitled to a proportional
distribution of any dividends that may be declared by the board of directors. In
the event of a liquidation or dissolution of INTERVU, the holders of common
stock are entitled to share equally in all assets remaining after payment of
liabilities and any payments due to holders of preferred stock. INTERVU's common
stock has no preemptive, redemption or conversion rights. The outstanding shares
of common stock are, and the shares offered by INTERVU in the offering when
issued and paid for will be, fully paid and nonassessable. The rights of holders
of common stock are subject to, and may be adversely affected by, the rights of
the holders of shares of Series G preferred stock or any other preferred stock
which INTERVU may designate and issue in the future.
PREFERRED STOCK
The certificate of incorporation authorizes the board of directors to issue
up to 5,000,000 shares of preferred stock in one or more series. The board of
directors previously designated 1,280,000 shares of preferred stock as Series G
preferred stock, all of which were issued to NBC. The board of directors of
INTERVU may issue up to 3,720,000 additional shares of preferred stock without
additional stockholder approval. INTERVU's board of directors may also fix the
rights of any unissued shares of preferred stock and fix the number of shares of
any series and the designations of the series.
The holders of Series G preferred stock are entitled to receive
non-cumulative dividends, before any payment of any dividend, other than in
common stock, on INTERVU's common stock, at the rate of $0.64 per share per
year, payable quarterly, when, as and if declared by the board of directors. In
the event of any liquidation, dissolution or winding up of INTERVU, the holders
of Series G preferred stock will be entitled to receive, before any distribution
of any of the assets of INTERVU to the holders of common stock, an amount equal
to $8.00 per share plus all declared but unpaid dividends, if any. Each share of
Series G preferred stock is convertible into 0.6298 shares of common stock. This
conversion rate may be adjusted for stock splits, stock dividends or
combinations of outstanding shares of common stock. The holder of each share of
Series G preferred stock has the right to one vote for each share of common
stock into which the Series G preferred stock is convertible. With respect to
this vote, each holder of Series G preferred stock will have full voting rights
and powers equal to those of the holders of common stock. INTERVU has granted
NBC rights to include shares of common stock issuable upon conversion of the
Series G preferred stock in
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<PAGE> 40
future registrations of common stock. NBC also has the right to one demand that
INTERVU register these shares of common stock after INTERVU becomes eligible to
use Form S-3 under the Securities Act of 1933.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of INTERVU. The issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of INTERVU's common stock. In some
circumstances, the issuance of preferred stock could have the effect of
decreasing the market price of INTERVU's common stock.
WARRANTS
In connection with INTERVU's initial public offering, INTERVU issued to
Josephthal & Co. Inc. and Cruttenden Roth Incorporated warrants to purchase from
INTERVU a total of 200,000 shares of common stock. These warrants are
exercisable at a price per share of $11.40 for four years commencing in November
1998.
In connection with a subsequent offering, INTERVU issued to Josephthal &
Co. Inc. and Cruttenden Roth Incorporated warrants to purchase from INTERVU a
total of 130,000 shares of common stock. These warrants are initially
exercisable at a price per share equal to $15.90 for four years commencing June
1999 and are restricted from sale, transfer, assignment or hypothecation until
June 1999, except to officers of Josephthal & Co. Inc. and Cruttenden Roth
Incorporated.
Each of INTERVU's warrants provide for adjustment in the number of shares
of common stock issuable upon the exercise of the warrant as a result of
subdivisions and combinations of INTERVU's common stock. In addition, INTERVU's
warrants grant registration rights for the common stock issuable upon exercise
of the warrants.
DELAWARE LAW AND CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The following summary description of provisions of the Delaware General
Corporation Law and INTERVU's certificate of incorporation and bylaws is not
intended to be complete. You should read each of these documents carefully.
INTERVU must comply with the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner. A business combination includes mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder. An interested stockholder is generally a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.
The provisions of the certificate of incorporation and the bylaws could
also have anti-takeover effects. See "Risk Factors -- We Have Implemented
Anti-Takeover Provisions that Could Prevent an Acquisition of Our Business at a
Premium Price" for a further discussion of these anti-takeover effects. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the policies formulated by the board of directors. In
addition, these provisions are intended to ensure that the board of directors
will have sufficient time to act in what it believes to be in the best interests
of INTERVU and its stockholders. These provisions also are designed to reduce
the vulnerability of INTERVU to an unsolicited proposal for a takeover of
INTERVU that does not contemplate the acquisition of all of its outstanding
shares or an unsolicited proposal for the
37
<PAGE> 41
restructuring or sale of all or part of INTERVU. The provisions are also
intended to discourage some tactics that may be used in proxy fights.
Classified Board of Directors
The certificate of incorporation provides for the board of directors to be
divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year. The
directors in class I are Mark Dowley and Isaac Willis, whose terms will expire
at the 2001 annual meeting of stockholders. The directors in class II are Edward
David and Alan Senter, whose terms will expire at the 1999 annual meeting of
stockholders. The directors in class III are William Grimes and Harry Gruber,
whose terms will expire at the 2000 annual meeting of stockholders. The
classified board provision will help to assure the continuity and stability of
the board of directors and the business strategies and policies of INTERVU as
determined by the board of directors. The classified board provision could have
the effect of discouraging a third party from making a tender offer or
attempting to obtain control of INTERVU. In addition, the classified board
provision could delay stockholders who do not agree with the policies of the
board of directors from removing a majority of the board of directors for two
years.
No Stockholder Action by Written Consent; Special Meetings
The certificate of incorporation provides that stockholder action can only
be taken at an annual or special meeting of stockholders and prohibits
stockholder action by written consent in lieu of a meeting. The certificate of
incorporation also provides that special meetings of stockholders may be called
only by the board of directors, its chairman, the president or the secretary of
INTERVU. Stockholders are not permitted to call a special meeting of
stockholders or to require that the board of directors call a special meeting.
Advance Notice Requirements for Stockholder Proposals and Director Nominees
The bylaws establish an advance notice procedure for stockholders to
nominate candidates for election as directors or to bring other business before
an annual meeting of stockholders of INTERVU. INTERVU's advance notice procedure
for stockholders provides that only persons who are nominated by the board of
directors or by a stockholder before the meeting at which directors are to be
elected will be eligible for election as directors of INTERVU. INTERVU's advance
notice procedure for stockholders also provides that the only business that may
be conducted at an annual meeting is business that has been brought before the
meeting by the board of directors or by a stockholder who has given timely
written notice to the secretary of INTERVU. Under INTERVU's advance notice
procedure for stockholders, if a stockholder desires to submit a proposal or
nominate persons for election as directors at an annual meeting, the stockholder
must submit written notice to the secretary not less than 60 days nor more than
90 days before the first anniversary of the previous year's annual meeting.
However, if the date of the annual meeting is not within 30 days before or after
this anniversary date, then, to be timely, notice must be submitted not more
than 90 days before the annual meeting and not less than the later of (1) 60
days before the annual meeting and (2) the tenth day after notice of the meeting
was mailed or after public announcement of the date of the meeting is first
made. In addition, under INTERVU's advance notice procedure for stockholders, a
stockholder's notice to INTERVU proposing to nominate a person for election as a
director or relating to the conduct of business other than the nomination of
directors must contain information specified by the bylaws. If the chairman of a
meeting determines that business was not properly brought before the meeting, in
accordance with INTERVU's advance notice procedure for stockholders, the
business will not be discussed or transacted.
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<PAGE> 42
Number of Directors; Removal; Filling Vacancies
The certificate of incorporation provides that the board of directors will
consist of between three and eleven members, the exact number to be fixed by
resolution adopted by affirmative vote of a majority of the board of directors.
The board of directors currently consists of six directors. Further, the
certificate of incorporation authorizes the board of directors to fill newly
created directorships other than directorships that are to be filled by holders
of preferred stock. Accordingly, this provision could prevent a stockholder from
obtaining majority representation on the board of directors by permitting the
board of directors to enlarge the size of the board of directors and fill the
new directorships with its own nominees. A director so elected by the board of
directors holds office until the next election of the class for which the
director has been chosen and until his or her successor is elected and
qualified. The certificate of incorporation also provides that directors, other
than directors that are elected by holders of preferred stock, may be removed
only for cause and only by the affirmative vote of holders of two-thirds of the
outstanding voting securities. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the board of directors by filling the vacancies created by
the removal with its own nominees.
Indemnification
INTERVU has included in its certificate of incorporation and bylaws
provisions to (1) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware General Corporation Law and (2) indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, including circumstances in which indemnification is discretionary.
INTERVU believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
Bylaws
The certificate of incorporation provides that the bylaws are subject to
adoption or amendment either by (a) the board of directors or (b) the
affirmative vote of the holders of at least two-thirds of the total voting power
of all outstanding securities voting together as a single class. This provision
will make it more difficult for stockholders to make changes in the bylaws by
allowing the holders of a minority of the voting securities to prevent the
holders of a majority of voting securities from amending the bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for INTERVU's common stock is Norwest
Shareowner Services, Norwest Bank Minnesota N.A.
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<PAGE> 43
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, ING Baring Furman Selz LLC,
SG Cowen Securities Corporation, Cruttenden Roth Incorporated, Josephthal & Co.
Inc. and Ryan, Beck & Co. are acting as representatives. We are obligated to
sell, and the underwriters are obligated to purchase, all of the shares offered
on the cover page of this prospectus, if any are purchased. Subject to the
conditions of the underwriting agreement, each underwriter has severally agreed
to purchase the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Prudential Securities Incorporated.......................... 791,334
ING Baring Furman Selz LLC.................................. 791,333
SG Cowen Securities Corporation............................. 791,333
Cruttenden Roth Incorporated................................ 42,000
Josephthal & Co. Inc. ...................................... 42,000
Ryan, Beck & Co. ........................................... 42,000
---------
Total.................................................. 2,500,000
=========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 375,000 additional shares from INTERVU. If any additional shares are
purchased, the underwriters will severally purchase the shares in the same
proportion as provided in the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $1.15 per share and these dealers may reallow a concession not
in excess of $0.10 per share to other dealers. After the shares are released for
sale to the public, the representatives may change the offering price and the
concessions.
We have agreed to pay the underwriters the following fees, assuming both no
exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------------
FEE WITHOUT EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by INTERVU.................... $1.98 $4,950,000 $5,692,500
</TABLE>
In addition, we estimate that we will spend approximately $700,000 in
expenses for this offering. We will indemnify the underwriters against some
liabilities, including liabilities under the Securities Act, or contribute to
payments that the underwriters may make in respect of these liabilities.
We, our officers and directors, the other stockholders listed in the table
under the caption "Principal Stockholders" and holders of warrants to purchase
our common stock, subject to exceptions, have entered into lock-up agreements
under which we and they have agreed not to offer or sell any shares of common
stock or securities convertible into or exchangeable or exercisable for shares
of common stock for a period of 120 days from the date of this prospectus
without the prior written consent of Prudential Securities, on behalf of the
underwriters. Prudential Securities may, at any time and without notice, waive
the terms of these lock-up agreements specified in the underwriting agreement.
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<PAGE> 44
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising the over-allotment option.
- Stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
- Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or on
any trading market. Also and before the pricing of the shares, and until the
time when a stabilizing bid may have been made, some or all of the underwriters
who are market makers in the shares may make bids for or purchases of shares
subject to restrictions, known as passive market making activities.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connections with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995,
- the Financial Services Act 1986, and
- the Financial Services Act 1986, (Investment Advertisement) (Exemptions)
order 1996.
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our officers, directors, employees and other business
affiliates or related third parties. The number of shares available for sale to
the general public in the offering will be reduced to the extent these persons
purchase the reserved shares.
LEGAL MATTERS
The legality of INTERVU's common stock offered by this prospectus will be
passed upon for INTERVU by Latham & Watkins, San Diego, California. Some legal
matters in connection with the offering will be passed upon for the underwriters
by Schulte Roth & Zabel LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited INTERVU's financial
statements at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, as described in their report. INTERVU has
included its financial statements in this prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
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<PAGE> 45
WHERE YOU CAN FIND MORE INFORMATION
INTERVU files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document INTERVU files at the Securities and Exchange Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of its public reference rooms.
INTERVU's Securities and Exchange Commission filings also are available to the
public on the Securities and Exchange Commission's Internet site at
http://www.sec.gov. In addition, you may obtain a copy of INTERVU's Securities
and Exchange Commission filings at no cost by writing or telephoning INTERVU's
secretary at:
INTERVU Inc.
6815 Flanders Road
San Diego, California 92121
(619) 623-8400
The Securities and Exchange Commission allows INTERVU to incorporate by
reference in this prospectus information it files with the Securities and
Exchange Commission, which means that it may disclose important information in
this prospectus by referring the reader to the document that contains the
information. The information incorporated by reference is considered to be a
part of this prospectus, and information filed later with the Securities and
Exchange Commission will update and supersede this information. INTERVU
incorporates by reference the document listed below and any future filings it
makes with the Securities and Exchange Commission under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, until the offering of
securities covered by this prospectus is completed:
- The Annual Report on Form 10-K of INTERVU for the fiscal year ended
December 31, 1998.
INTERVU's Internet address is www.intervu.net. Information contained on
INTERVU's Web site is not part of this prospectus.
This prospectus is part of a registration statement INTERVU filed with the
Securities and Exchange Commission, but does not contain all of the information
in the registration statement. You should only rely on the information provided
or incorporated by reference in this prospectus or in the applicable supplement
to this prospectus. You should not assume that the information in this
prospectus and the applicable supplement is accurate as of any date other than
the date on the front cover of this document.
INTERVU(TM), INTERVU AUDIENCE(TM), INTERVU Presents(TM), V-Banner(TM), All
Eyes(R), EyeQ(TM), Get Smart(TM), INTERVU Player(TM), INTERVU Network(TM), Smart
Mirror(TM), Virtual URL(TM) and the INTERVU logo are trademarks of INTERVU.
INTERVU has filed applications for trademark registration on the following
trademarks, among others: INTERVU, Smart Mirror, Virtual URL, V-Banner, INTERVU
AUDIENCE and the INTERVU logo. NBC and the Peacock logo are registered
trademarks of National Broadcasting Company, Inc. MediaPlayer(TM) is a trademark
of Microsoft Corporation. RealPlayer G2(TM) is a trademark of RealNetworks, Inc.
This prospectus also includes additional trademarks of companies other than
INTERVU. The photo contained in the screen view of CNN.com on the inside cover
of this prospectus is provided with the courtesy of Cable News Network, a Time
Warner Company. All rights reserved.
42
<PAGE> 46
INTERVU INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1998 and 1997............. F-3
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996....................................... F-4
Statement of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-5
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 47
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
InterVU Inc.
We have audited the accompanying balance sheets of InterVU Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the three years ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterVU Inc. at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
February 12, 1999
except for the last paragraph of Note 6, as to which the date is
March 19, 1999
F-2
<PAGE> 48
INTERVU INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 9,346 $21,380
Short-term investments.................................... 17,700 --
Accounts receivable, net of $122,000 and $4,000 allowance,
respectively........................................... 729 88
Prepaid and other current assets.......................... 75 70
------- -------
Total current assets........................................ 27,850 21,538
Property and equipment, net................................. 2,469 585
Other assets................................................ 45 7
------- -------
Total assets...................................... $30,364 $22,130
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,334 $ 437
Accrued liabilities....................................... 299 10
Payable to NBC Multimedia................................. 750 --
Accrued payroll and related............................... 661 132
Current portion, lease commitments........................ 7 12
------- -------
Total current liabilities......................... 3,051 591
Lease commitments........................................... -- 7
Stockholders' equity:
Preferred stock, $0.001 par value: 5,000,000 shares
authorized
Series G convertible preferred stock,
Designated -- 1,280,000 shares;
Issued and outstanding -- 1,280,000 shares at
December 31, 1998
and 1997, respectively............................... 1 1
Common stock, $0.001 par value: Authorized -- 20,000,000
shares;
Issued and outstanding 10,894,487 shares and 9,377,404
shares at
December 31, 1998 and 1997, respectively............... 11 9
Additional paid-in capital................................ 51,346 29,821
Deferred compensation..................................... (746) (710)
Accumulated deficit....................................... (23,299) (7,589)
------- -------
Total stockholders' equity........................ 27,313 21,532
------- -------
Total liabilities and stockholders' equity........ $30,364 $22,130
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 49
INTERVU INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues.......................................... $ 1,712 $ 144 $ --
Operating expenses:
Research and development........................ 3,154 1,703 1,420
Selling, general and administrative............. 10,892 3,148 910
Charges associated with the NBC
Strategic Alliance Agreement................. 4,622 750 --
---------- ---------- ----------
Total operating expenses.......................... 18,668 5,601 2,330
---------- ---------- ----------
Loss from operations.............................. (16,956) (5,457) (2,330)
Interest income................................... 1,246 192 52
---------- ---------- ----------
Net loss.......................................... $ (15,710) $ (5,265) $ (2,278)
========== ========== ==========
Basic and diluted net loss per
share........................................... $ (1.73) $ (0.95) $ (0.66)
========== ========== ==========
Shares used in calculating basic
and diluted net loss per share.................. 9,073,876 5,570,609 3,440,931
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 50
INTERVU INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
------------------- ------------------- PAID-IN COMMON DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... 172,500 $-- 2,398,278 $ 2 $ 154 $-- $ --
Issuance of common stock......... -- -- 1,608,509 2 17 (6) --
Issuance of convertible preferred
stock, net of issuance costs of
$81............................ 1,021,638 1 -- -- 4,733 -- --
Deferred compensation............ -- -- -- -- 421 -- (421)
Amortization of deferred
compensation................... -- -- -- -- -- -- 18
Net loss......................... -- -- -- -- -- -- --
---------- -- ---------- --- ------- -- -----
Balance at December 31, 1996....... 1,194,138 1 4,006,787 4 5,325 (6) (403)
Issuance of common stock in
initial public offering, net of
issuance costs of $2,432....... -- -- 2,210,526 2 18,566 -- --
Issuance of convertible preferred
stock, net of issuance costs of
$39............................ 832,164 1 -- -- 5,395 -- --
Conversion of preferred stock.... (2,026,302) (2) 3,237,286 3 (1) -- --
Issuance of Series G convertible
preferred stock, net of
issuance costs of $24.......... 1,280,000 1 -- -- (25) -- --
Repayments of notes receivable
from common shareholders....... -- -- -- -- -- 4 --
Repurchase of restricted stock... -- -- (108,685) -- (3) 2 --
Issuance of shares for exercise
of stock options............... -- -- 31,490 -- 1 -- --
Deferred compensation............ -- -- -- -- 563 -- (563)
Amortization of deferred
compensation................... -- -- -- -- -- -- 256
Net loss......................... -- -- -- -- -- -- --
---------- -- ---------- --- ------- -- -----
Balance at December 31, 1997....... 1,280,000 1 9,377,404 9 29,821 -- (710)
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under
The Strategic Alliance
Agreement...................... -- -- -- -- 3,373 -- --
Issuance of Common Stock in
connection with a public
offering net of issuance costs
of $1,973...................... -- -- 1,495,000 2 17,834 -- --
Repurchase of restricted stock... -- -- (28,334) -- (1) -- --
Issuance of common stock for
services....................... -- -- 2,628 -- 22 -- --
Issuance of shares for exercise
of stock options............... -- -- 47,789 -- 80 -- --
Deferred compensation............ -- -- -- -- 217 -- (217)
Amortization of deferred
compensation................... -- -- -- -- -- -- 181
Net loss......................... -- -- -- -- -- -- --
---------- -- ---------- --- ------- -- -----
Balance at December 31, 1998....... 1,280,000 $1 10,894,487 $11 $51,346 $-- $(746)
========== == ========== === ======= == =====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance at December 31, 1995....... $ (46) $ 110
Issuance of common stock......... -- 13
Issuance of convertible preferred
stock, net of issuance costs of
$81............................ -- 4,734
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 18
Net loss......................... (2,278) (2,278)
-------- --------
Balance at December 31, 1996....... (2,324) 2,597
Issuance of common stock in
initial public offering, net of
issuance costs of $2,432....... -- 18,568
Issuance of convertible preferred
stock, net of issuance costs of
$39............................ -- 5,396
Conversion of preferred stock.... -- --
Issuance of Series G convertible
preferred stock, net of
issuance costs of $24.......... -- (24)
Repayments of notes receivable
from common shareholders....... -- 4
Repurchase of restricted stock... -- (1)
Issuance of shares for exercise
of stock options............... -- 1
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 256
Net loss......................... (5,265) (5,265)
-------- --------
Balance at December 31, 1997....... (7,589) 21,532
Recognition of lapse of NBC's
obligation to return 680,000
shares of Series G convertible
preferred stock issued under
The Strategic Alliance
Agreement...................... -- 3,373
Issuance of Common Stock in
connection with a public
offering net of issuance costs
of $1,973...................... -- 17,836
Repurchase of restricted stock... -- (1)
Issuance of common stock for
services....................... -- 22
Issuance of shares for exercise
of stock options............... -- 80
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 181
Net loss......................... (15,710) (15,710)
-------- --------
Balance at December 31, 1998....... $(23,299) $ 27,313
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 51
INTERVU INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(15,710) $(5,265) $(2,278)
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..................... 22 -- --
Amortization of deferred compensation..................... 181 256 18
Depreciation and amortization............................. 495 178 59
Changes in operating assets and liabilities:
Accounts receivable.................................... (641) (89) --
Prepaid and other current assets....................... (5) (59) (10)
Accounts payable....................................... 897 350 87
Accrued liabilities.................................... 289 -- 10
Payable to NBC Multimedia.............................. 750 -- --
Accrued payroll and related............................ 529 76 56
-------- ------- -------
Net cash used in operating activities....................... (9,820) (4,553) (2,058)
INVESTING ACTIVITIES
Purchase of short-term investments.......................... (42,232) -- --
Proceeds from sale of short-term investments................ 24,532 -- --
Purchases of property and equipment......................... (2,390) (484) (299)
Loss on disposal of property and equipment.................. 11 -- --
Other assets................................................ (38) (1) (6)
-------- ------- -------
Net cash used in investing activities....................... (20,117) (485) (305)
FINANCING ACTIVITIES
Payments on capital leases.................................. (12) (8) --
Issuance of common stock.................................... 17,916 18,569 13
Issuance of preferred stock................................. -- 3,336 2,429
Advances from stockholders.................................. -- 2,010 1,920
Repurchase of common stock.................................. (1) (1) --
Repayment of stockholder notes receivable................... -- 4 --
-------- ------- -------
Net cash provided by financing activities................... 17,903 23,910 4,362
Net increase (decrease) in cash and cash equivalents........ (12,034) 18,872 1,999
Cash and cash equivalents at beginning of year.............. 21,380 2,508 509
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 9,346 $21,380 $ 2,508
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment........ $ -- $ 27 $ --
-------- ------- -------
Conversion of advances from stockholders to convertible
preferred stock........................................... $ -- $ 2,036 $ 2,305
-------- ------- -------
Issuance of common stock in exchange for notes receivable... $ -- $ -- $ 6
-------- ------- -------
Cancellation of stockholder notes receivable................ $ -- $ 1 $ --
-------- ------- -------
Issuance of Series G convertible preferred stock as
consideration for the formation of NBC Strategic Alliance
Agreement................................................. $ -- $ 1 $ --
-------- ------- -------
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................. $ 22 $ -- $ --
-------- ------- -------
</TABLE>
See accompanying notes.
F-6
<PAGE> 52
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, INTERVU emerged from the development stage.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. Such investments are made in accordance with the Company's investment
policy, which establishes guidelines relating to diversification, maturities and
credit quality designed to maintain safety and liquidity. The Company applies
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115), to its short-term
investments. Under SFAS No. 115, the Company classifies its short-term
investments as "Available-for-Sale" and records such assets at estimated fair
value in the balance sheets with unrealized gains and losses, if any, reported
in stockholders' equity. As of December 31, 1998, the cost of short-term
investments approximated fair value. The Company has not experienced any losses
on its cash, cash equivalents, or short-term investments.
Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued liabilities, payable to NBC
Multimedia, accrued payroll and related and lease commitments approximates fair
value.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and depreciated over the estimated useful lives of the assets, ranging from
three to five years, using the straight-line method. Leasehold improvements are
stated at cost and amortized using the straight-line method over the shorter of
the estimated useful lives of the assets or the lease term. Amortization of
equipment under capital leases is reported with depreciation of property and
equipment.
Software Development Costs
SFAS No. 86, Accounting for Costs of Computer Software to be Sold, Leased
or Otherwise Marketed, provides for the capitalization of certain software
development costs after technological feasibility of the software is attained.
No such costs have been capitalized to date because costs incurred subsequent to
reaching technological feasibility have not been material.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs incurred during the
application development stage and amortize them over the software's useful life.
In 1998, the Company capitalized $872,000 of development costs related to
internal use software. Such costs will be amortized once the software is placed
in service over the software's useful life, three years, and the amortization
will be reported with depreciation of property and equipment.
F-7
<PAGE> 53
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
Revenue Recognition
Revenue is generated primarily from video encoding and distribution
services. Revenue from video encoding services is recognized as the service is
provided and revenue from video distribution services is recognized at the time
of delivery. The Company also performs services on development contracts and
recognizes related revenues on a percentage-of-completion method as services are
performed. Substantially all revenue is generated from domestic customers.
Concentration of Credit Risk
Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required. Credit losses have been
minimal and such losses have been within management's expectations. Revenue from
two customers accounted for 26% and 13%, respectively, of the Company's total
revenue for the year ended December 31, 1998, the largest of which is from NBC
Multimedia. The Company had significant accounts receivable balances due from
three customers individually representing 38%, 15% and 12% of total accounts
receivable at December 31, 1998.
The Company from time to time maintains a substantial portion of its cash
and cash equivalents in money market accounts with one financial institution.
The Company invests its excess cash in debt instruments of governmental
agencies. The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity.
Research and Development Costs
Costs incurred in connection with research and development are charged to
operations as incurred.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future undiscounted net cash flows is less than the
carrying amount of the asset. The Company has identified no such impairment
losses. Substantially all of the Company's long-lived assets are located in the
United States.
Advertising Costs
Advertising costs are expensed as incurred. The Company incurred $1.0
million in advertising costs for the year ended December 31, 1998. Advertising
costs prior to December 31, 1997 were not significant.
F-8
<PAGE> 54
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Options
SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use
of the fair value based method of accounting for stock-based compensation
arrangements, under which compensation cost is determined using the fair value
of stock-based compensation determined as of the grant date, and is recognized
over the periods in which the related services are rendered. SFAS No. 123 also
permits companies to elect to continue using the intrinsic value accounting
method specified in Accounting Principles Board (APB) Opinion No. 25 to account
for stock-based compensation. The Company has decided to retain the intrinsic
value based method, and has disclosed the pro forma effect of using the fair
value based method to account for its stock-based compensation (Note 5). Options
or stock awards issued to non-employees are valued using the fair value method
and expensed over the period services are provided.
Loss Per Share
Historical basic and diluted net loss per share has been computed in
accordance with SFAS No. 128. Earnings Per Share, using the weighted-average
number of shares of common stock outstanding during the period. Options,
warrants, common shares issuable on conversion of Series G preferred stock were
not included in the computation of diluted net loss per share because the effect
would be anti-dilutive.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, common shares issued in each of the periods presented for normal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No such shares have been
issued.
Recent interpretations by the Securities and Exchange Commission have
altered the treatment of preferred stock previously included in computing
certain loss per share data. The Company previously considered preferred stock
as outstanding in pre-IPO periods from the date of original issuance on an "as
converted" basis in computing loss per share. To conform with the recent
interpretations, the Company has revised its calculation of loss per share for
all pre-IPO periods to exclude the impact of preferred shares.
Included in the shares used in calculating basic and diluted net loss per
share for the twelve months ended December 31, 1998 and 1997 are the weighted
average effect of actual conversion of preferred stock totaling 0 and 2,947,792,
respectively, and weighted average common shares totaling 9,073,876 and
2,622,817, respectively. Common equivalent shares result from Series G Preferred
Stock, stock options, warrants and unvested restricted stock of which 4,065,391
and 3,365,614 shares were excluded from the computation of diluted earnings per
share for the twelve months ended December 31, 1998 and 1997, respectively, as
their effect would be anti-dilutive.
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
F-9
<PAGE> 55
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Reclassifications
Certain prior period amounts have been classified to conform to current
year presentation.
2. SHORT-TERM INVESTMENTS
As of December 31, 1998, all of the Company's short-term investments were
in government backed debt securities. As of December 31, 1998, the cost of
short-term investments approximated fair value. Substantially all short-term
investments held at December 31, 1998 have contractual maturities in excess of
10 years.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------ -----
(IN THOUSANDS)
<S> <C> <C>
Equipment.............................................. $ 81 $ 18
Computers.............................................. 1,908 607
Furniture and fixtures................................. 125 105
Equipment under capital lease.......................... 27 27
Leasehold improvements................................. 21 24
Internally developed software.......................... 872 --
Purchased software..................................... 152 42
------ -----
3,186 823
Less accumulated depreciation.......................... (717) (238)
------ -----
$2,469 $ 585
====== =====
</TABLE>
4. STOCKHOLDER ADVANCES
At December 31, 1996, the Company received $26,500 in cash advances from
certain stockholders that was subsequently converted into Series E convertible
preferred stock in January 1997 at a per share price of $10.00.
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Upon completion of the Company's initial public offering, the Company had
authorized 5,000,000 shares of preferred stock, of which 1,280,000 shares were
designated as Series G
F-10
<PAGE> 56
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
convertible preferred stock. The Board of Directors is authorized, without
further stockholder approval, to issue the remaining 3,720,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges, and restrictions granted or imposed upon any unissued shares of
preferred stock and to fix the number of shares constituting any series and the
designation of such series.
In connection with the formation of a strategic alliance in October 1997,
the Company issued 1,280,000 shares of Series G convertible preferred stock. The
Series G convertible preferred stock ($0.001 par value) has an aggregate
liquidation preference of $10,240,000, a dividend rate of $0.64 per share and a
conversion rate of 0.6298 common shares to one preferred share, subject to
adjustment for dilution. Noncumulative dividends are payable quarterly, when, as
and if declared by the Board of Directors. The shares of Series G convertible
preferred stock are convertible into common stock at the option of the holder
commencing July 10, 1998. The holder of each share of Series G convertible
preferred stock has the right to one vote for each share of common stock into
which it would convert.
Common Stock
In August 1995, 2,398,278 shares of common stock were issued to the
founders of the Company at a price of $0.0004 per share under founder stock
purchase agreements. In March 1996, an additional 886,758 shares of common stock
were issued to three of the founders at a price of $0.002 per share under the
founder stock purchase agreements. In January 1996, the Company issued 147,373
shares of common stock to employees at $0.004 per share under restricted stock
agreements. Also, in April and December 1996, the Company issued 444,639 and
129,739 shares of common stock, respectively, to employees at $0.024 and $0.04
per share, respectively, under restricted stock agreements. In connection with
the founder stock purchase agreements and the restricted stock agreements, the
Company has the option to repurchase, at the original issue price, unvested
common shares in the event of termination of employment. Shares issued under the
agreements generally vest 20% on the first anniversary of the employee's hire
date and daily thereafter for four years. Shares subject to repurchase by the
Company totaled 1,107,247 and 1,615,470 at December 31, 1998 and 1997,
respectively. In 1998 and 1997, the Company repurchased a total of 28,334 shares
for $1,000 and 108,685 shares for $1,000, respectively, pursuant to the
agreements.
In April 1996, the Board of Directors declared a two-for-one stock dividend
of the Company's common stock, effectuated as a stock split. Also, in July 1997,
the Company declared a two-for-one stock split of the Company's common stock.
All applicable share and stock option information have been restated to reflect
the split.
In August 1997, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. Concurrent with the closing of the
offering, all of the preferred stock outstanding, excluding 1,280,000 shares of
Series G convertible preferred stock, automatically converted into 3,328,717
shares of common stock.
In November 1997, the Company effected a reverse stock split in which
0.6298 shares of common stock were exchanged for one share of common stock. All
applicable share and stock option information have been restated to reflect the
reverse stock split. Upon completion of the public offering, the Company had
authorized 20,000,000 shares of common stock.
F-11
<PAGE> 57
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Options
The Company has established stock option plans to grant options to purchase
common stock to consultants, employees, officers and directors of the Company.
The Company has authorized for grant under the plans stock options to purchase
up to 3,037,975 shares of its common stock.
Under the terms of the plans, non-qualified and incentive options may be
granted to consultants, employees, officers and directors at prices not less
than 100% of the fair value on the date of grant. Options generally vest 20%
after the first year of employment and daily thereafter for four years. The
options expire ten years from the date of grant.
The following table summarizes the stock option activity under the plans:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted................................................ 157,000 $ 0.04
---------
Balance at December 31, 1996............................. 157,000 0.04
Granted................................................ 711,000 3.15
Exercised.............................................. (32,000) 0.03
Canceled............................................... (92,000) 0.03
---------
Balance at December 31, 1997............................. 744,000 3.00
Granted................................................ 1,491,000 12.66
Exercised.............................................. (50,000) 1.77
Canceled............................................... (363,000) 9.70
---------
Balance at December 31, 1998............................. 1,822,000 $ 9.60
=========
</TABLE>
Options exercisable as of December 31, 1998 and 1997 were 234,000 and
77,000, respectively and approximately 1.2 million shares are available for
future grant under the Company's stock option plans. Additional information
regarding stock options outstanding at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE -------------------
WEIGHTED- REMAINING WEIGHTED-
AVERAGE CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICES SHARES PRICE LIFE (IN YEARS) SHARES PRICE
------------------------ --------- --------- --------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.04 to $0.28................ 288,000 $ 0.25 3.54 111,000 $0.25
$1.98 to $5.25................ 183,000 3.40 7.92 57,000 2.58
$6.50 to $9.13................ 550,000 7.98 9.16 52,000 9.10
$9.81 to $14.13............... 315,000 13.10 9.61 14,000 14.13
$14.88 to $19.25.............. 486,000 17.03 9.49 -- --
--------- -------
$0.04 to $19.25............... 1,822,000 9.60 8.32 234,000 3.60
========= =======
</TABLE>
Pro forma information regarding net income or loss is required to be
disclosed in accordance with SFAS No. 123, and has been determined as if the
Company has accounted for its employee stock options under the fair value method
prescribed in that Statement. For options granted in the year ended December 31,
1996 and through November 18, 1997, the fair value for the options was estimated
at the date of grant using the "minimum value" method for option pricing with
the
F-12
<PAGE> 58
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
following weighted-average assumptions: risk-free interest rate of 6%, dividend
yield of 0%, and weighted-average expected life of the option of seven years.
For options granted from November 18, 1997, to December 31, 1997, the fair value
of the options was estimated at the date of grant using the "Black-Scholes"
method for option pricing with the following weighted-average assumptions: risk-
free interest rate of 6%, dividend yield of 0%, expected volatility of 75% and
weighted-average expected life of the option of seven years. For options granted
in 1998, the fair value of the options was estimated at the date of the grant
using the following assumptions: risk-free interest rate of 6%, dividend yield
of 0%, expected volatility of 108% and weighted-average expected life of seven
years.
The minimum value pricing model is similar to the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor for volatility. In addition, option valuation
models require the input of highly speculative assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of related options. The
Company's net loss would have been affected by the pro forma amounts as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNT)
-------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net loss
As reported...................................... $(15,710) $(5,265) $(2,278)
Pro forma........................................ $(17,141) $(5,100) $(2,278)
Basic and diluted loss per share
As reported...................................... $ (1.73) $ (0.95) $ (0.66)
Pro forma........................................ $ (1.89) $ (0.92) $ (0.66)
Weighted-average fair value of options granted..... $ 10.63 $ 1.11 $ 1.08
</TABLE>
Qualified Stock Purchase Plan
The Qualified Stock Purchase Plan was adopted by the Board of Directors and
stockholders on June 22, 1998 and became effective September 1, 1998. A total of
500,000 shares of Common Stock have been authorized for issuance under the
Qualified Stock Purchase Plan. The Qualified Stock Purchase Plan permits
eligible employees of the Company to purchase shares of Common Stock through
periodic payroll deductions. Payroll deductions may not exceed 15% of the
participant's base salary, and the purchase price will not be less than 85% of
the lower of the fair market value of the stock at either the beginning or the
end of the offering period.
Deferred Compensation
Through December 31, 1998, the Company recorded deferred compensation for
the difference between the price per share of restricted stock issued or the
exercise price of stock options granted and the deemed fair value for financial
statement presentation purposes of the Company's common
F-13
<PAGE> 59
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stock at the date of issuance or grant. The deferred compensation is amortized
over the vesting period of the related restricted stock or options, which is
generally five years. Through December 31, 1998, the Company recorded gross
deferred compensation totaling $1,201,000 and related amortization expense
totaled $181,000, $256,000, and $18,000 for the years ended 1998, 1997 and 1996,
respectively.
Warrants
In connection with the Company's initial public offering in November 1997,
the Company issued 200,000 warrants to purchase common stock to its
underwriters. Such warrants are exercisable at $11.40 per share of common stock
through November 2002. In connection with the Company's public offering in June
1998, the Company issued 130,000 warrants to purchase common stock to its
underwriters. These warrants are exercisable at $15.90 commencing June 1999 and
expire in June 2003.
Shares Reserved for Future Issuance
At December 31, 1998, the Company had reserved approximately 4.2 million
common shares for the conversion of preferred stock, the exercise of outstanding
stock options, the exercise of outstanding warrants and for stock options
available for future grant.
6. COMMITMENTS
The Company leases its principal facilities under a sublease that commenced
on May 1, 1998 and expires in 2003. Additionally, the Company maintains a
regional office in New York City under a sublease which expires in 1999. In
October 1998, the Company opened a regional office in San Francisco under a
lease which expires in 2003. Total rent expense was $267,000, $129,000 and
$48,000 for years ended December 31, 1998, 1997 and 1996, respectively.
Future annual minimum payments under noncancelable capital and operating
leases (with initial lease terms in excess of one year) consisted of the
following at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1999........................................................ $ 404 $ 7
2000........................................................ 418 1
2001........................................................ 434 --
2002........................................................ 449 --
2003........................................................ 229 --
------ ---
Total minimum lease payments................................ $1,934 8
------ ---
Less amounts representing interest.......................... (1)
---
Present value of future minimum lease payments.............. 7
Less current portion........................................ (7)
---
Capital lease obligation, net of current portion............ $--
---
</TABLE>
In March 1999, the Company financed $1.1 million of equipment under a three
year non-cancelable lease with an interest rate of 7.75%.
F-14
<PAGE> 60
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1997 are shown below. A valuation allowance of $9,305,000 has been
recorded at December 31, 1998 to offset the net deferred tax assets because
realization is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 8,397 $ 2,883
Research tax credit carryforwards......................... 517 233
Other..................................................... 391 94
------- -------
Total deferred tax assets......................... 9,305 3,210
Valuation allowance......................................... (9,305) (3,210)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
The Company had federal and California tax net operating loss carryforwards
at December 31, 1998 of approximately $21.6 million and $14.5 million,
respectively. The difference between the federal and California tax loss
carryforwards is attributable to the 50% limitation on California loss
carryforwards for 1998. The federal and California tax loss carryforwards will
begin to expire in 2010 and 2003, respectively, unless previously utilized. The
Company also has federal and California research tax credit carryforwards of
approximately $380,000 and $211,000, respectively, which will begin to expire in
2011 and 2010, respectively, unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the
Company's net operating loss and credit carryforwards may be limited because of
a cumulative change in ownership of more than 50% which occurred during 1996.
However, the Company does not believe such limitation will have a material
impact on the Company's ability to use these carryforwards.
8. EMPLOYEE BENEFITS
In 1996, the Company established a cafeteria benefits plan whereby it
contributes for each employee an amount equal to $3,000 plus a percentage of
each employee's base salary, as approved by the Board of Directors, up to a
maximum contribution of $9,000. The employer contribution goes towards the
purchase of various benefit packages selected by the employee. The employee may
contribute additional amounts as desired. Benefit packages include health care
reimbursement, dependent care assistance, various insurance premium payments and
a 401(k) plan. Company contributions to the cafeteria benefits plan were
$418,000, $182,000 and $102,000 for the years ended December 31, 1998, 1997, and
1996, respectively.
9. STRATEGIC ALLIANCES
On October 10, 1997, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC Multimedia"), a wholly-owned subsidiary of the National
Broadcasting Corporation, Inc. ("NBC") whereby the Company became the exclusive
provider of technology and services for the distribution of most NBC
entertainment audio/visual content by means of the Internet. As consideration
for the formation of the strategic alliance, the Company issued to NBC 1,280,000
shares of Series G convertible preferred stock. The Company is entitled to
receive 30% of certain
F-15
<PAGE> 61
INTERVU INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
advertising revenues generated under this alliance from NBC Web sites or, at a
minimum, payments from NBC Multimedia for the video delivery services at rates
at least as favorable as the most favorable rates offered by the Company to
third parties. The Company was obligated to make $2,000,000 in non-refundable
payments to NBC Multimedia for certain production, operating and advertising
costs associated with certain NBC Web sites including payments of (i) $750,000
paid on the completion of the initial public offering completed in November
1997, (ii) $500,000 due in February 1998, (iii) $500,000 due in May 1998, and
(iv) $250,000 due in August 1998. Through December 31, 1998, the Company has
made a total of $1,250,000 in payments to NBC Multimedia under the agreement.
NBC Multimedia may terminate the agreement without cause by giving 90 days
written notice. NBC Multimedia was required to return all shares of Series G
convertible preferred stock if termination occurred prior to January 10, 1998
and NBC Multimedia had not promoted, at a minimum, the Company's logo on the NBC
Web site and is required to return 600,000 shares of Series G convertible
preferred stock if the termination occurs at any other time during the first two
years of the exclusive term. The Company determines the fair value of the Series
G convertible preferred stock issued to NBC on the dates the requirements that
NBC return some or all of the shares of Series G convertible preferred stock
lapse. Based on these provisions, the Company has charged $3,373,000 as the fair
value of 680,000 shares of Series G convertible preferred stock to expense in
1998 and expects to charge the then fair value of the remaining 600,000 shares
of Series G convertible preferred stock to expense in the quarter ending
December 31, 1999. Should the Company breach, renegotiate or waive these
provisions, removing NBC's obligation to return shares of Series G convertible
preferred stock, the Company would expense the fair value of each share at that
time. The Company believes that the fair value of the remaining 600,000 shares
of Series G convertible preferred stock will roughly approximate the price at
which the Company's common stock is then trading, multiplied by the number of
shares into which such outstanding shares of Series G convertible preferred
stock would convert at the 0.6298 conversion rate. The noncash charge 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.
10. CONTINGENCIES
The Company is 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.
F-16
<PAGE> 62
INSIDE BACK COVER:
THE INTERVU NETWORK
Quality and Scale through Intelligent Distribution
1. VIDEO SIGNAL [Depiction of video camera and microphone] AUDIO SIGNAL
2. [Depictions of satellite, broadcast antenna, telephone line, computer, cable
line and, telephone handset]
SATELLITE OFF AIR T1 ISDN CABLE ANALOG
3. [Map of the continental United States, containing 17 depictions of Media
Delivery Centers, multiple head and shoulder silhouettes depicting
end-users and criss-crossing lines representing the Internet]
AND
EUROPE
[Depiction of arrow
pointing to the right]
Legend
<TABLE>
<CAPTION>
[Depiction of Media Delivery [Human silhouette] [Criss-crossing lines]
Center]
<S> <C> <C>
MEDIA END- THE
DELIVERY USERS INTERNET
CENTERS
</TABLE>
INTERVU provides scalable, reliable solutions for delivering audio and video on
the Internet. Because of the INTERVU Network's patent-pending, dispersed
architecture, there is no single point of failure in the delivery system.
<TABLE>
<S> <C> <C>
1. INTERVU acquires video or 2. The acquired signal is sent to the 3. Upon request from an end-user, the
audio signal (digital or closest of INTERVU's multiple encoders and electronically closest INTERVU Media
analog) via satellite or recasters. Then multiple copies of the video Delivery Center chooses the best server
other means. stream are distributed across the INTERVU to handle the request, balancing the load
Network, which has Media Delivery Centers and delivering the video or audio stream
nationwide and in Europe. efficiently and reliably to the end-user.
</TABLE>
[INTERVU LOGO]
INTERVU
Where the Web is moving
BACK COVER:
[The back cover has a dark background with integrated designs.]
[INTERVU LOGO]
[The following text is printed in white.]
WHERE THE WEB
IS MOVING
[The following text is printed in black within a square design.]
<PAGE> 63
PRUDENTIAL SECURITIES
ING BARING FURMAN SELZ LLC
SG COWEN
CRUTTENDEN ROTH INCORPORATED
JOSEPHTHAL & CO. INC.
RYAN, BECK & CO.
