U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[x] Annual report under Section 13 or 15 (d) of the Securities Exchange Act of
1934 for the fiscal year ended January 31, 2001
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the transition period from _____________to _____________
Commission File Number 000-22661
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INVU, INC.
(Name of Small Business Issuer in Its Charter)
Colorado 84-1135638
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
The Beren
Blisworth Hill Farm
Stoke Road
Blisworth Northamptonshire NN7 3DB
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(Address of Principal Executive Offices) (Zip code)
011 44 1604 859 893
--------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code.)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
NONE ---------------------
N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
---------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes x No
--------------------- -----------------------
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $502,218
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of April 10, 2001, was approximately
$4,208,889. For purposes of this computation, all executive officers, directors
and 10% stockholders were deemed affiliates. Such a determination should not be
construed as an admission that such executive officers, directors or 10%
stockholders are affiliates.
As of April 30, 2001, there were 30,386,539 shares of the common stock, no par
value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format: Yes No x
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INVU, Inc.
Page
PART I .......................................................................................................1
Item 1. Description of Business.............................................................................1
Item 2. Description of Properties...........................................................................8
Item 3. Legal Proceedings...................................................................................8
Item 4. Submission of Matters to a Vote of Security Holders.................................................9
PART II .......................................................................................................9
Item 5. Market for Common Equity and Related Stockholder Matters............................................9
Item 6. Management's Discussion and Analysis or Plan of Operations.........................................10
Item 7. Financial Statements...............................................................................13
PART III .....................................................................................................13
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act.......................................................................................13
Item 10. Executive Compensation.............................................................................15
Item 11. Security Ownership of Certain Beneficial Owners and Management.....................................17
Item 12. Certain Relationships and Related Transactions.....................................................18
Item 13. Exhibits and Reports on Form 8-K...................................................................19
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.....................................................F-3
Consolidated Balance Sheets as of January 31, 2001 and 2000............................................F-4
Consolidated Statements of Operations for the year ended January 31, 2001 and January 31,
2000, and the period from February 18, 1997 to January 31, 2001........................................F-5
Consolidated Statements of Deficit in Stockholders' Equity for the year ended January 31,
2001 and January 31, 2000, and the period from February 18, 1997 to January 31, 2001...................F-6
Consolidated Statements of Cash Flows for the year ended January 31, 2001 and
January 31, 2000, and the period from February 18, 1997 to January 31, 2001 ...........................F-8
Notes to Consolidated Financial Statements.............................................................F-9
SIGNATURES S-1
INDEX TO EXHIBITS...............................................................................................E-1
PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into, this report.
Item 1. Description of Business
Background of Company
INVU, Inc. (the "Company" or "INVU") was incorporated under the name
Sunburst Acquisitions I, Inc. pursuant to the laws of the State of Colorado on
February 25, 1997, as a "shell" company. The Company's business plan at the time
was to seek, investigate, and, if warranted, acquire one or more properties or
businesses, and to pursue other related activities intended to enhance
shareholder value.
After the consummation of the Share Exchange on August 31, 1998, which
is discussed below, the Company entered the business of marketing and selling
software for the electronic management of information and documents.
The structure of the business at this point consists of INVU, Inc. as
the ultimate holding company of three directly or indirectly wholly-owned
subsidiaries: INVU Plc, a UK holding company, and its subsidiaries, INVU
International (Holdings) Ltd., which holds certain intellectual property rights,
and Invu Services Ltd. ("INVU Services"), an operating company.
The Share Exchange
On August 31, 1998, the Company consummated the acquisition of all of
the issued and outstanding capital stock of INVU Plc, a company incorporated
under English law ("INVU Plc"), in exchange for 26,506,552 shares (the "Share
Exchange") of common stock, no par value, of the Company (the "Common Stock"),
pursuant to a Share Exchange Agreement, dated as of May 19, 1998, between the
Company and INVU Plc's majority shareholder Montague Limited ("Montague"), an
Isle of Man company (as amended by a First Amendment to Share Exchange
Agreement, dated as of July 23, 1998 (the "Share Exchange Agreement")). As a
result of the Share Exchange, INVU Plc became a wholly-owned subsidiary of the
Company. As conditions precedent to the consummation of the Share Exchange, (i)
Montague received a power of attorney from Halcyon Enterprises Plc, a minority
shareholder and a company incorporated under English law ("Halcyon"), to
transfer its shares of INVU Plc to the Company, and (ii) all of the outstanding
shares of Series A Convertible Preferred Stock of the Company (the "Preferred
Stock") were converted into Common Stock of the Company at a conversion rate of
two (2) shares of Common Stock for each share of Preferred Stock.
Immediately prior to the Share Exchange, the Company had a total of
2,190,000 shares of Common Stock issued and outstanding after the conversion of
the Preferred Stock. Upon consummation of the Share Exchange, Montague and
Halcyon received in the aggregate 26,506,552 shares of Common Stock of the
Company in exchange for all of the issued and outstanding share capital of INVU
Plc.
The Market and Market Strategy
There has, in the recent past, been a significant increase in the
volume of information available to the public with the advent of inexpensive
computing and the arrival of wide area networks (that provide a conduit to this
information). A significant amount of information (e.g. on-line databases,
documents, graphics, audio, recordings and video) is now available via the
internet to organizations and individuals from sources around the world.
Management believes that the proliferation and consequent accumulation of such
1
information and accompanying documents over the years have created a problem for
individuals and organizations because they now need to manage large and
disparate sets of data created internally and arriving externally. For example,
personal computers are now shipped with up to 25 Gigabyte hard disks, and these
machines are rapidly becoming repositories for lost files and information.
Management believes that this is a global problem that has resulted in an
international market for document management technologies, which Management
expects to grow significantly in the next five years. Information is now
regarded as the key resource for organizations and individuals. Management
believes that accessing and sharing information are two of the biggest
challenges currently facing businesses. Management expects that those
organizations that are able to harness and exploit information will derive a
competitive advantage in their markets.
By contrast, Management estimates that the availability of services
that enable organizations to manage and control this mass of information has
lagged behind the requirement for such services. Therefore, Management believes
that the market for document management services has the potential for rapid
growth in markets throughout the world. Further, the document management market
is applicable to all information users, both organizations and individuals, and,
therefore, while difficult to define, is broad in terms of potential in the
estimate of Management.
The Company aims to exploit this market potential by marketing and
selling its proprietary software for the electronic management of many types of
information and documents, such as forms, correspondence, literature, faxes,
technical drawings and electronic files. Management believes there is an
increasing demand for ease of use in relation to document and information
management software, and INVU software has been designed specifically to address
this need. Management considers the INVU software simple, intuitive and cost
effective, yet powerful. Geographically, the Company's first target markets are
the United States and the United Kingdom.
INVU serves both the personal computer ("PC") and client server market
segments and is, therefore, firmly placed in what Management believes are the
two principal growth areas. Management believes that the client server segment
(i.e. mid-range network user running open "multi-task software") has in
particular been largely neglected by the Company's competitors, which generally
fall into two categories:
i. Large corporate suppliers that offer proprietary turnkey
systems; or
ii. Small niche suppliers addressing the needs of small highly
specialized groups (e.g. lawyers or real estate agents).
Management believes that INVU enjoys an advantage over most competing
programs because INVU software exploits these trends and can be sold to single
users, departmental users and company wide. For example, once successfully
installed with a departmental user, INVU intends to encourage resellers to "roll
out" the product to other departments within the same organization using the
first installation as an internal reference site. Management believes that with
this technique there is considerable potential for additional sales to existing
customers. Further, INVU software has been designed for general office
applications, which can be utilized across a wide range of customers, from small
office home office markets ("SOHO") to small to medium sized enterprises ("SME")
to large organizations. Management believes that this allows INVU to address a
wide and varied market.
On-going research is important to INVU and the use of qualitative focus
groups is a technique used by the Company to assess customer needs and
receptivity. In addition, industrial psychology techniques have been employed by
INVU to establish customer perception of value.
The Company's objective is to establish itself as a leading supplier of
information and document management software in the world. For its professional
range of products, which include INVU Series 100, Series 200 and ViewSafe, the
Company expects to target its marketing efforts initially on departmental users
in organizations, distributors and resellers in the United Kingdom and the
United States. For its personal user products, which include INVU WebServant and
FileServent, the Company has decided to concentrate its retail marketing efforts
on the SOHO market and has embarked on an internet retail strategy with a UK
e-retailer.
Management believes that, as the market matures, the purchase of
document management systems will become increasingly routine as buyers become
acquainted with both the technology and applications. In order to deal with the
increased demand, the Company intends to increase its number of distributors and
third party value added resellers. In addition, Management intends to make
2
INVU's retail products available from the Company's web-site. Management
considers both branding and product positioning fundamental to attaining the
market share required to profitably meet its objective of being a leading
supplier of information and document management software.
Management originally planned to recruit an exclusive distributor
within the UK. However, its intended distributor went into receivership shortly
after the first release of the professional range of software. In response,
Management decided to directly recruit Value Added Resellers (VARs) while at the
same time pursuing non-exclusive distributors for the products. This decision
proved to be a pivotal point in the Company's development.
The recruitment of four senior sales executives together with Jon
Halestrap as VP of Sales and Marketing has given INVU an experienced and
dedicated team with which to recruit a reseller base and explore other sales
opportunities. In particular, the appointment of Jon Halestrap as VP Sales and
Marketing on July 12, 2000 was made at a crucial time in the Company's
evolution. Management believes that Mr. Halestrap's broad experience in the
document management sector and his proven ability to develop and grow sales
revenues has been a key factor in the significant growth rate of the Company,
which Management believes will continue during fiscal 2002 and beyond.
Management also believes that the contributions made over the last year by its
non-executive directors, Tom Maxfield, Daniel Goldman and David Andrews, have
contributed greatly to the success of the Company.
As a consequence of initial marketing activities associated with the
launch of the Company's professional range of products, many end user and
reseller inquiries were received. These inquiries were actively pursued by the
expanding team of sales personnel and have resulted in sales of over 5000 user
licenses within the six months ended January 31, 2001. Many of these sales have
been to departmental users in utilities, local government, the healthcare
sector, police forces and large corporations. Moreover, the Company has rapidly
expanded its reseller channels in the UK, recruiting over 80 resellers since
January 31, 2000, with each paying approximately $2000 for the opportunity to
promote and sell the INVU professional range of products.
In order to maintain a close relationship with its customers, the
Company's sales team has developed direct links to end users via its reseller
base in both pre- and post sales time periods. Management believes this, in
turn, has led to greater reseller and end user confidence in the Company, its
products and the back-up support provided by INVU. Management's decision to take
this pro-active approach appears to be paying significant dividends, since sales
have increased from approximately $54,000 in the six months ended July 31, 2000
to approximately $502,000 for the year ended January 31, 2001. Management
expects sales to continue to grow quarter to quarter during 2001 and for a
monthly break-even to be achieved during the third fiscal quarter of the fiscal
year ended January 31, 2002.
The Company believes its products are well matched to its target
market, and that its brand values of ease of use, functionality and price
performance have already and will continue to differentiate its products from
its competitors. The international market for document technologies is forecast
to grow from $17.5 billion in 1999 to $41.6 billion in 2003 according to the
AIIM Report: State of the Document Technologies Market 1997-2003 prepared by the
Gartner Group and Management and believes that it has the ability to be a major
provider of information management to businesses world-wide.
The Product
INVU's business is the development and sale of document and information
management software programs that operate on stand-alone PCs, networked PCs and
client server systems and allow documents of any size and format, from
correspondence and faxes to technical drawings and electronic files, to be
stored on to computer memory and retrieved instantly. In order to store such
information, INVU software also scans paper and creates files and imports
documents. Lastly, the software provides a mechanism to manage and retrieve the
imported information. Although INVU software has many layers of sophistication,
Management believes it is comparatively simple to use and inexpensive.
In March 2000, Invu launched two new SOHO market products. The first,
"WebServant," enables web users to quickly and easily build a personal library
from the internet with a competitive price of less than $50. This product's key
features are simple downloading, storing and organization of web pages thus
enabling on or off line browsing. The second product, "FileServant," allows
documents of any size and format, from correspondence and faxes to technical
3
drawings and electronic files, to be stored on to computer memory and retrieved
instantly, together with the additional features of the WebServant product.
Management believes that this market, although useful for brand awareness,
represents less than 5% of company revenues and management has therefore decided
to devote the maturity of the Company's resources to the development and sale of
its professional range of products.
The Company's professional range of products, INVU Series 100, Series
200 and ViewSafe, were first introduced in beta format in October 1999. Version
5.1 was released to distributors in May 2000, and the latest version 5.1.1 was
released to distributors in March 2001. Each subsequent version has built upon
the original premise of ease of use, functionality and price performance.
Improvements have been made in the light of suggestions made by end users and
due to technical advances achieved by the Company's development department.
The Company has successfully developed a highly sophisticated code free
integration tool for use with the INVU professional range of products. This
allows INVU products to be linked to any other Windows(TM) or Windows(TM)
emulation-based applications. For instance, an INVU scanned image of a supplier
invoice can be retrieved directly from an accounts software application. This is
achieved without the need for further software development, and gives INVU
resellers the ability to add considerable value to the INVU offering without the
difficulty and cost of hiring and managing development programmers. Management
believes the use of this product for the Universal Music Group and other
projects has significantly reduced cost and installation timescales. The Company
believes that this unique product provides a significant competitive advantage
when compared to other information and document management technologies.
INVU Series 2000 (formerly INVU WEBFAST) continues to be developed.
Management believes that this product will form the basis of later developments
for Universal Music Group and other potential users. In view of customer driven
demands for various other unique features for the existing professional range,
Management now estimates that this product will be released to distributors
later in 2001. Management expects that one of this products features will be a
highly sophisticated content addressable indexing and retrieval system, which
should further enhance filing and retrieval speeds for the very highest volume
users. Management believes this product will place INVU in direct competition
with the world's most established document management solutions providers, but
at a significantly discounted price level.
Company software engineers have also successfully developed a
prototype information management internet service. Management believes that this
service will allow advanced internet information management within fully
encrypted secure databases. Management believes that individuals and
corporations will be able to store their documents on an INVU web site and
access and update them in real time, via password and pin number controls, from
anywhere in the world. Development work continues on this project, and
Management anticipates a beta release date later in 2001. Management will not
release this product until a satisfactory security system can be embedded.
Research and development costs for the fiscal year ended January 31,
2001 were $313,587 compared with research and development costs of $210,219 for
the fiscal year ended January 31, 2000. Research and development costs for both
of the Company's last two fiscal years have been written off as incurred and
none of these sums have been borne directly by customers.
In summary, the Company currently has five products. Each product
addresses different market segments, which include (1) the small office/home
office market, or "SOHO" and (2) the small/medium enterprise market, or "SME,"
(3) the internet and (4) large enterprises.
---------------------------------------- -------------------------------------- --------------------------------------
Product Description Market
---------------------------------------- -------------------------------------- --------------------------------------
INVU WebServant Single user e-mail and internet SOHO/Retail
information management
---------------------------------------- -------------------------------------- --------------------------------------
INVU FileServant Single-user information and document SOHO/Retail
management
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 100 Single-user information and document SOHO/SME
management
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 200 multi-user information and document SME/Large Enterprise
management system
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 2000* Manage and find documents through a Large Enterprise/Internet
web browser
---------------------------------------- -------------------------------------- --------------------------------------
*to be released to distributors late 2001
4
Competition
The market for the Company's products is competitive, subject to rapid
change and significantly affected by new product introduction and other market
activities of industry participants. The Company currently encounters direct
competition from a number of public and private companies such as Altris
Software, Inc., Key File Inc., FileNet Corporation, PC Docs and Caere
Corporation. Virtually all of these direct competitors have significantly
greater financial, technical, marketing and other resources than the Company.
The Company also expects that direct competition will increase as a result of
recent consolidation in the software industry.
The Company will need to rely on a number of systems consulting and
systems integration firms for implementation and other customer support
services, as well as for recommendation of its products to potential purchasers.
Although the Company seeks to maintain close relationships with these service
providers, some of these third parties have similar, and often more established,
relationships with the Company's principal competitors. If the Company is unable
to develop and retain effective, long-term relationships with these third
parties, the Company's competitive position would be materially and adversely
affected. Further, there can be no assurance that these third parties will not
market software products in competition with the Company in the future or will
not otherwise reduce or discontinue their relationship with, or support of, the
Company and its products.
Management believes that its products are targeted at markets where, to
date, few of the Company's larger and more established competitors have secured
significant market penetration. Although the Company believes that it will
compete favorably in these markets, there can be no assurance that the Company
can maintain its competitive position against current and any potential
competitors, especially those with greater financial, marketing, service,
support, technical and other resources than the Company.
Major Contracts
In March 1998, INVU Services entered into (i) a Reseller Agreement (the
"Reseller Agreement") with Computer Associates Plc ("CA Plc"), and (ii) a
Limited Manufacturing Agreement with Centura Software Ltd. These contracts
involve joint marketing, combined press releases, common distribution and the
use of combined technologies. Both Computer Associates Plc and Centura endorse
INVU through their logotypes on INVU materials and shrink-wrap packaging
containing the software. Both agreements include worldwide press announcements
and introductions to direct sales forces and third party distribution.
INVU Services and CA Plc have subsequently executed a memorandum
confirming certain agreements between INVU Services and CA Plc with respect to
the bundling and marketing of INVU Services' products under the Reseller
Agreement. In addition, in 1999, INVU Services and Computer Associates
International, Inc. ("CA Inc.") entered into a Gold Standard Reseller Agreement
pursuant to which INVU Services appointed CA Inc. as an authorized reseller of
INVU Series 100 and INVU Series 200 on a non-exclusive basis for a term of 12
months, renewable upon agreement of both parties and terminable upon 30 days
written notice by either party. As yet, this agreement has had no material
effect on revenues.
INVU Services has also entered into approximately 80 "Accredited
Reseller Agreements" whereby resellers are authorised to provide the
professional range of products to end users.
In January 2000, INVU Services entered into a Distribution Agreement
with Gem Distribution Limited ("GEM Distribution"). GEM Distribution is a large
retail distributor and is not in any way affiliated with Global Emerging Markets
Inc., an investment banking firm. The agreement means that INVU FileServant,
WebServant, and Series 100 have access to all the major retail channels in the
United Kingdom and has resulted in the sale of over 500 units.
5
On September 18, 2000, INVU Services entered into an Consulting
Services Agreement with Centura Software Limited in connection with the phased
delivery of a bespoke information management software solution provided by INVU
Services for Universal Music Group. This agreement has now been completed.
Management anticipates further phased agreements with Universal Music Group over
the next 12 months.
Employees
As of April 30, 2001, the Company had 16 employees, all of whom were
full-time, and a further six people who are part-time or serve as consultants.
Patents, Trademarks and Copyright
The Company's success is dependent in part upon proprietary technology.
At this time, the Company has not patented any aspect of its document management
systems technology in the United Kingdom, the United States or internationally.
The Company currently has no plans to file for and obtain patents domestically
or internationally. Even if the Company were to attain patent protection over
certain of its intellectual property, the rapidly changing technology in the
industry makes the Company's success largely dependent on the technical
competence and creative skills of its personnel.
The Company relies on a combination of trade secret, copyright and
non-disclosure agreements with third parties to protect its proprietary rights
in its software and technology. There can be no assurance that such measures are
or will be adequate to protect the Company's proprietary technology.
Furthermore, there can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
The Company's software will be licensed to customers under license
agreements containing provisions prohibiting the unauthorized use, copying and
transfer of the licensed program. Policing unauthorized use of the Company's
products will be difficult, and any significant piracy of its products could
materially and adversely affect the Company's financial condition and results of
operations.
In addition, the Company also relies on certain software that it
licenses from third parties, including software that is integrated with
internally developed software and used in the Company's products to perform key
functions. There can be no assurances that the developers of such software will
remain in business, or that they will otherwise continue to be available to the
Company on commercially reasonable terms. The loss of or inability to maintain
any of these software licenses could result in delays or reductions in product
shipments until equivalent software can be developed, identified, licensed and
integrated, which could adversely affect the Company's business, operating
results and financial condition.
The Company is not aware that any of its software products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to its
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company claims a trademark on all of its products under common law
by using the "TM" symbol. The duration of such trademarks under United Kingdom
common law is the length of time the Company continues to use them. The Company
has filed an application for trademark registration of its "INVU" mark in the
United Kingdom. This application was originally opposed by two companies. One of
the opposition proceedings has been favorably resolved and Management believes
that the second will be as well. See "Item 3 - Legal Proceedings."
6
The First Financing Transaction
As of February 2, 1999, pursuant to a financing transaction (the "First
Financing Transaction") among Montague and Zalcany Limited ("Zalcany"),
Mustardseed Estates Limited ("Mustardseed"), and Tomuro Limited, all companies
incorporated under English law, and Richard Harris and Roy Grainger Williams
(collectively, the "Lenders"), Montague transferred 2,400,000 shares of the
Common Stock to such purchasers in exchange for $1,000 and a loan facility for
the Company in the principal amount of $656,000. Of this amount, $190,325 was
advanced to the Company prior to January 31, 1999, with the balance being
received on February 2, 1999.
The Second Financing Transaction
On August 23, 1999, the Company entered into an Investment Agreement
(the "Initial Investment Agreement"), with David Morgan, John Agostini, and Paul
O'Sullivan, on the one hand, and Alan David Goldman and Vertical Investments
Limited ("Vertical"), a company registered in Jersey and beneficially owned by
Daniel Goldman, on the other hand. The Initial Investment Agreement was
immediately followed by a Supplemental Agreement (the "Supplemental Agreement"
and, together with the Initial Investment Agreement, the "Final Investment
Agreement"), between the Company, David Morgan, John Agostini, Paul O'Sullivan
and INVU Services, on the one hand, and Alan David Goldman, Vertical, and Tom
Maxfield ("Maxfield", together with Alan David Goldman and Vertical,
collectively, the "Investors") on the other hand. Pursuant to the terms of the
Final Investment Agreement, the Investors advanced certain funds to the Company
in the aggregate principal amount of $1,000,000 in the principal amounts of
$333,334, $333,333 and approximately $333,333 among Alan David Goldman, Vertical
and Maxfield, respectively. In turn, the Company agreed to (1) pay in full any
and all amounts then outstanding pursuant to the First Financing Transaction and
to terminate such Agreement, (2) cause the Lenders to transfer to Montague
425,000 shares of the Common Stock then held by Lenders pursuant to the terms of
the First Financing Transaction (the "Transferred Shares"), and (3) cause
Montague to transfer 225,000 of such Transferred Shares to the Investors in
equal shares of 75,000 to each Investor.
The loans being made to the Company pursuant to the terms of the Final
Investment Agreement were evidenced by (1) a Loan Stock Instrument, dated as of
August 23, 1999, executed by the Company in favor of the Investors, in the
aggregate principal amount of $600,000 ("Loan Stock Instrument A"), and (2) a
second Loan Stock Instrument, dated as of August 23, 1999, executed by the
Company in favor of the Investors, in the aggregate principal amount of $400,000
("Loan Stock Instrument B" and together with Loan Stock Instrument A,
collectively, the "Loan Stock Instruments"). Until the Loan Stock Instruments
are redeemed pursuant to their terms upon the occurrence of certain events
described therein, the outstanding principal and accrued but unpaid interest (1)
under Loan Stock Instrument A shall, at the option of the Investors, be
converted into one share of the Common Stock for each $.65 of outstanding
principal and accrued but unpaid interest converted, and (2) under the Loan
Stock Instrument B shall, at the option of Investors, be converted into one
share of the Common Stock for each $.50 of outstanding principal and accrued but
unpaid interest converted.
Any amounts outstanding under Loan Stock Instrument A shall bear
interest at a rate of 6% per annum, payable in semi-annual installments in
arrears on January 1 and July 1 of each year accruing from day to day and
calculated monthly. In addition, Loan Stock Instrument A will be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange or if the Company raises
additional capital of at least $4,000,000. Any amounts outstanding under Loan
Stock Instrument B shall bear interest at a rate of 8% per annum for the first
six months following the date thereof, 9% per annum for the following six month
period, and 10% per annum thereafter. All accrued but unpaid interest on the
Loan Stock shall be payable in semi-annual installments in arrears on January 1
and July 1 of each year. Loan Stock Instrument B will also be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange, however, the Investors have
the option of converting if the Company raises additional capital of at least
$4,000,000. If the Loan Stock Instruments are not so converted, they may be
redeemed upon 30 days notice by the Company or the Investors on or after August
2002.
Pursuant to the terms of the Final Investment Agreement, the Investors
shall have the right to nominate one director of the Company, until the amounts
outstanding under the Loan Stock Instruments are redeemed or converted. Daniel
Goldman, the son of Alan David Goldman, is the nominee of the Investors.
7
The obligations of the Company under the Final Investment Agreement and
the Loan Stock Instruments have been guaranteed by INVU Services. Pursuant to
the Final Investment Agreement, the Company covenanted with the Investors to
restrict certain actions while any amounts remain outstanding under the Loan
Stock Instruments without the Investors' consent, which consent may not be
unreasonably withheld, including the following actions: the issuance of
additional Company Common Stock, except pursuant to the exercise of outstanding
warrants and options of the Company; the issuance of any new options to purchase
Company Common Stock; additional borrowings by the Company; capital expenditures
of the Company; paying off liabilities; granting security interests; and
acquiring other entities.
Item 2. Description of Properties
The Company moved into new executive offices on March 19, 2000. These
new premises are located in Blisworth, Northamptonshire, England. The Company
leases 3,600 square feet of space in a facility as a tenant. The term of the
lease is through January 1, 2003 although the Company has the right to terminate
the lease at any time after December 31, 2001 provided that six months notice is
given. The monthly rent is currently approximately $5,700.
Item 3. Legal Proceedings
In 1998, the Company filed an application for trademark registration of
its "INVU" mark in the United Kingdom. This application was opposed by two
companies, France Cables et Radio ("France Cables") and Sension Limited
("Sension"). Both France Cables and Sension challenged the Company's right to
protect the "INVU" mark and asked for a denial of registration.
The opposition case with France Cables began on September 3, 1998 and
was assigned case number 48955. France Cables asserted that there was a
likelihood of confusion with its own trade name. At a hearing on February 20,
2001, the hearing officer determined that the marks of France Cables and the
Company are sufficiently different such that there is no likelihood of confusion
between the two. France Cables has until mid-May 2001 to appeal the decision.
The opposition case with Sension began on September 1, 1998 and was
assigned case number 48943. Sension alleged that they had an earlier trademark
right but subsequently withdrew the allegation. The Company is currently
attempting to recover its costs for the proceeding.
A complaint was filed against the Company on February 23, 2001, in the
United States District Court for the Southern District of New York on behalf of
GEM Advisors, Inc. ("GEM") seeking money damages in the amount of $100,000
together with interest from September 21, 2000, costs, disbursements and
attorneys' fees. The complaint relates to a $100,000 demand promissory note (the
"Note") dated May 1, 2000 and payable to the order of GEM. The Note bears
interest at a rate of 3% per annum and if payment is not made upon demand, the
rate increases to 15% per annum from the date of demand through and including
the date of payment. GEM was entitled to convert the unpaid balance and interest
into shares of the Company's Common Stock if payment was not made on demand.
Demand on the Note was made by GEM on September 21, 2000 and GEM sent the
Company a conversion notice on December 18, 2000 electing to convert the Note
into 179,643 shares of the Company's Common Stock. The Note was subsequently
converted and a share certificate was delivered to GEM, which GEM returned to
the Company contending that the timeliness of the delivery of the share
certificate violated the terms of related Note agreements. Although the Company
is unable to predict any outcome of the litigation, it is the Company's position
that GEM made a binding election to convert unpaid amounts due under the Note
into shares of the Company's Common Stock, and that the Company's tender of the
share certificate to GEM, and GEM's acceptance and retention of the share
certificate, fully satisfied the Company's obligations under the Note and
discharged the Company from any further liability under the Note.
8
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters for submission to a vote of security holders
during the last fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock is listed on the OTC Electronic Bulletin Board. The
following table indicates the quarterly high and low bid price for the Common
Stock on the OTC Electronic Bulletin Board for the fiscal years ending January
31, 2000 and January 31, 2001 and for the quarter ending April 30, 2001. Such
inter-dealer quotations do not necessarily represent actual transactions, and do
not reflect retail mark-ups, mark-downs or commissions.
OTC ELECTRONIC
BULLETIN BOARD
BID PRICE
HIGH LOW
Fiscal 2000
1st Quarter $3.00 $0.45
2nd Quarter $1.88 $1.38
3rd Quarter $2.50 $1.00
4th Quarter $3.00 $0.875
Fiscal 2001
1st Quarter $6.9375 $2.75
2nd Quarter $3.875 $1.125
3rd Quarter $1.625 $1.125
4th Quarter $1.5312 $0.4688
Fiscal 2002 (Feb 1 to Apr 30)
1st Quarter $0.875 $0.25
As of April 30, 2001, there were approximately 136 holders of record of
the Common Stock.
The Company has not declared or paid any cash or other dividends on the
Common Stock to date for the last two (2) fiscal years and in any subsequent
period for which financial information is required and has no intention of doing
so in the foreseeable future. The Initial Investment Agreement prohibits the
Company from declaring or distributing any dividend so long as the Investors
hold stock. See "Item 1. Description of Business - The Second Financing
Transaction."
Recent Sales of Unregistered Securities
In May 2000, GEM advanced $100,000 to the Company pursuant to a demand
Note. Demand on the Note was made on September 21, 2000 and the GEM sent the
Company a conversion notice on December 18, 2000 electing to convert the Note
into 179,643 shares of the Company's Common Stock. See "Item 3. Legal
Proceedings." The sale of the Note described above was privately negotiated
transaction without solicitation or advertising. GEM was a "sophisticated
investor" within the meaning of the Securities Act and had access to all
information concerning the Company needed to make an informed decision with
respect to the transaction.
9
Item 6. Management's Discussion and Analysis or Plan of Operations
The following description of "Management's Plan of Operation"
constitutes forward-looking statements for purposes of the Securities Act and
the Exchange Act, and as such involves known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. The words
"expect", "estimate", "anticipate", "predict", "believes", "plan", "seek",
"objective", "will" and similar expressions are intended to identify
forward-looking statements. Important factors that could cause the actual
results, performance or achievement of the Company to differ materially from the
Company's expectations include the following: 1) one or more of the assumptions
or other cautionary factors discussed in connection with particular
forward-looking statements or elsewhere in this Form 10-KSB prove not to be
accurate; 2) the Company is unsuccessful in increasing sales through its
anticipated marketing efforts; 3) mistakes in cost estimates and cost overruns;
4) the Company's inability to obtain financing for general operations including
the marketing of the Company's products; 5) non-acceptance of one or more
products of the Company in the marketplace for whatever reason; 6) the Company's
inability to supply any product to meet market demand; 7) generally unfavorable
economic conditions that would adversely effect purchasing decisions by
distributors, resellers or consumers; 8) development of a similar competing
product at a similar price point; 9) the inability to successfully integrate one
or more acquisitions, joint ventures or new subsidiaries with the Company's
operations (including the inability to successfully integrate businesses that
may be diverse as to type, geographic area, or customer base and the diversion
of Management's attention among several acquired businesses) without substantial
costs, delays, or other problems; 10) if the Company experiences labor and/or
employment problems such as the loss of key personnel, inability to hire and/or
retain competent personnel, etc.; and 11) if the Company experiences
unanticipated problems and/or force majeure events (including but not limited to
accidents, fires, acts of God etc.), or is adversely affected by problems of its
suppliers, shippers, customers or others. All written or oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by such factors. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Notwithstanding the foregoing, the Company
is not entitled to rely on the safe harbor for forward looking statements under
27A of the Securities Act or 21E of the Exchange Act as long as the Company's
stock is classified as a penny stock within the meaning of Rule 3a51-1 of the
Exchange Act. A penny stock is generally defined to be any equity security that
has a market price (as defined in Rule 3a51-1) of less than $5.00 per share,
subject to certain exceptions.
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto.
The Company develops, markets and sells software (under the brand name
of INVU) for the electronic management of many types of information and
documents, such as forms, correspondence, literature, faxes, technical drawings,
electronic files and web pages. Management believes that the INVU software is
simple, intuitive and cost effective, yet powerful.
The Company's objective is to establish itself as a leading supplier of
information and document management software and services in the world. For its
professional range of products, INVU Series 100, Series 200, ViewSafe, and
Series 2000 (formerly WEBFAST), the Company expects to target its marketing
efforts initially in the United Kingdom and the United States on departmental
users in organizations, distributors and resellers. For its personal user (SOHO
- small office / home office) market, the Company envisages its marketing will
mainly target retailers for INVU WebServant and FileServant. In addition, the
Company intends to market its products on its own web site.
Results of Operations
The following is a discussion of the results of operations for the year
ended January 31, 2001, compared with the year ended January 31, 2000, and
changes in financial condition during the year ended January 31, 2001.
10
The Company has restated its financial statements for the year ended
January 31, 2000 to reflect the beneficial conversion feature for the
convertible debentures issued on August 23, 1999. At that date, the aggregate
market value of the Common Stock into which the debt could be converted exceeded
the value of the debt by $723,077.
The Company has also restated its financial statements for the year
ended January 31, 2000 to reflect the credit enhancements of $630,000 provided
to lenders by a major shareholder during February 1999 and August 1999. The
shareholder transferred 2,400,000 shares of Common Stock to certain lenders to
help obtain for the Company $656,000 of debt in February 1999 and transferred
225,000 shares of Common Stock to the convertible debenture holders in August
1999 to help obtain for the Company the $1 million convertible debentures. A
value of $630,000 was ascribed to the shares based upon the allocation of the
relative fair values of Common Stock. This amount was recorded as a discount to
the debt and was amortized as interest expense over the estimated life of the
debt.
Accordingly, common stock and accumulated deficit during the
development stage have been increased by $1,353,077 on the January 31, 2000
balance sheet and interest, net and net loss have been increased by $1,353,077
and net loss per common share has increased by 4 cents per share on the
Company's Statements of Operations for the year ended January 31, 2000 and for
the period February 18, 1997 (date of inception) to January 31, 2000. These
adjustments have no effect on loss from operations, cash flows or the deficit in
stockholders' equity.
Net sales for fiscal year 2001 were $502,218, which compares to $15,754
sales for fiscal 2000. The dramatic increase in the level of sales reflects the
introduction of the professional range of products to the market and its
subsequent purchase by end users. The net loss in fiscal 2001 was ($2,112,409),
which is $673,672 less than the net loss of fiscal 2000 as restated of
($2,786,081). The fiscal 2001 net loss was due to: increased production,
distribution, research and development, and administrative expenses (including
expenses incurred in complying with U.S. securities laws and other expenses
relating to public company requirements) of $2,449,528, which reflected the
Company's investment in product development, marketing support, and
administrative infrastructure, together with costs associated with the various
financing transactions pursued during the year. As the Company nears the
completion of its development stage, its attention and resources have been
particularly diverted towards sales and marketing and administrative collateral.
An entire sales team was hired, including field sales, sales support and
technical support personnel. Management plans to greatly increase marketing
expenditure to create greater brand awareness. New premises were leased on March
19, 2000 with additional IT and administrative infrastructure. As anticipated by
Management, these additional resources have increased operating expenses in the
year ended January 31, 2001, but Management expects a far greater stability in
operating expenses in the fiscal year ended January 31, 2002.
In fiscal 2001, the Company incurred net interest expense of $165,099
compared with net interest expense of $1,432,064 for fiscal 2000 as restated.
This decrease in interest expense was due to the restatement of the financial
statements for the year ended January 31, 2000 to reflect the beneficial
conversion feature for the convertible debentures issued on August 23, 1999
amounting to $723,077 and the credit enhancements of $630,000 provided to
lenders by a major shareholder during February 1999 and August 1999 and
increased bank and loan interest in fiscal 2001 due to increased bank loan
borrowings, and interest associated with the Second Financing Transaction. See
"Item 1. Description of Business - First Financing Transaction and Second
Financing Transaction."
The tax rates for the years 2001 and 2000 are zero due to a net loss in
each period.
The total current assets of the Company were $456,337 at January 31,
2001, an increase of $394,921, compared to $61,416 at January 31, 2000. Working
capital was negative $2,256,025 as of January 31, 2001, compared with negative
$1,750,749 as of January 31, 2000. These changes are due to the addition of
short-term credit facilities in 2001 and the re-classification of $1,000,000 of
convertible debenture as a long-term obligation. The commencement of business
activities has resulted in significant increases in accounts receivable and
payable and accrued liabilities.
Total assets of the Company were $768,282 at January 31, 2001, an
increase of $480,107, compared to $288,175 at January 31, 2000. The difference
is mainly attributable to the purchase of fixed assets and increases in accounts
receivable and prepaid expenses.
11
The total current liabilities of the Company increased by $900,197 from
$1,812,165 at January 31, 2000 to $2,712,362 at January 31, 2001. Long term
liabilities were $1,962,635 at January 31, 2001 compared to $525,777 at January
31, 2000. The current and long term liabilities increases are attributable to an
increase in the short-term credit facility and debt incurred in order to finance
the development of the products and the infrastructure of the business. The
Company's transition into a trading enterprise has also resulted in increases in
accounts payable and accrued liabilities.
Total stockholders' equity decreased by $1,856,948 during the year
ended January 31, 2001 from deficit $2,049,767 at January 31, 2000 to a deficit
of $3,906,715 at January 31, 2001 as a result of the net loss for the year and
the issue of 179,643 shares of Common Stock for $104,791. The Company is
evaluating various financing options, including issuing debt and equity to
finance future development, marketing of products, and strategic acquisitions
now that its development stage is ending and its operational stage has
commenced.
Financing Management's Plan of Operation
The Company remains committed to raising the necessary funds and is
engaged in or presently pursuing the following financing transactions.
As of January 31, 1999, the Company had agreed to borrow $656,000 at an
annual interest rate of 8% by way of a secured short-term loan. In August 1999,
the Company raised $1,000,000 by way of a private placement, the proceeds of
which were used, among other things, to pay off the short-term loan described
above. See "Item 1. Description of Business - The First Financing Transaction
and The Second Financing Transaction." In March 2000, the Company received a
non-interest unsecured loan of $571,500 from an individual with no stated
maturity date. In addition, the Company has a $1,169,000 short-term credit
facility with an annual interest rate of 7.5% with an English bank. This
facility matures on July 31, 2001. The Company believes that at such maturity
date the facility will be extended. The Company's bank has agreed to temporary
borrowings of $292,220 in excess of the formal facility during the period to May
25, 2001. It is expected that this excess amount will be repaid on May 25 from
money raised in financing activities conducted over the next few weeks. The
credit facility is collateralized by all assets of the Company and a corporate
guarantee given by Vertical Investments Limited, a company in which Daniel
Goldman, a non-executive director of this Company, has an interest. The amount
drawn against the facility at January 31, 2001 was $1,682,975.
In February 2001, Goldman Investments Limited, an entity in which
Daniel Goldman, a non-executive director of the Company, has an interest, lent
the Company $1,000,000. Although the specific terms of the loan, including the
interest rate and maturity date, have not been finalized, to the extent that the
loan contains a conversion feature, the Company may be required to recognize an
accounting charge equal to the amount by which the aggregate market value of the
Common Stock into which the loan could be converted exceeds the value of the
loan. Approximately $500,000 of the loan was used to reduce the amount owed by
the Company under the short-term credit facility described above with the
remaining $500,000 used for working capital.
The Company is in the process of conducting an offering of shares of
Company Common Stock pursuant to an exemption under the Securities Act. Any
securities offered in such placement will not be or will not have been
registered under the Securities Act, and thus may not be offered or sold in the
United States absent registration or an applicable exemption from registration
requirements.
Goldman Investments Limited may elect to have the $1,000,000 loan
considered as part of the placement and thus counted towards the $2 million
(prior to commissions and other expenses) that the Company is seeking to raise
in the placement.
Management estimates that the placement, if consummated, would fulfill
the Company's capital requirements, including the payment of any loan
obligations described above, for a period up the point at which net sales
revenues could sustain the Company's day to day operations. Management believes
that, subject to this additional investment, monthly break-even will be achieved
in the third fiscal quarter of the fiscal year ending January 31, 2002. There
can, however, be no assurance that the above transaction will be consummated or
that additional debt or equity financing will be available, if and when needed,
or that, if available, such financing could be completed on commercially
favorable terms. Failure to obtain additional financing if and when needed,
12
could have a material adverse affect on the Company's business, results of
operations and financial condition. Please refer to Note D of the Consolidated
Financial Statements in conjunction with this paragraph regarding the Company's
ability to continue as a going concern.
Item 7. Financial Statements
Filed herewith beginning on page F-1 are the audited financial
statements of the Company.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors, Executive Officers, Promoters and Control Persons
The Board of Directors currently consists of six (6) persons, David
Morgan, Jon Halestrap, John Agostini, Daniel Goldman, Tom Maxfield and David
Andrews. The following table sets forth information about all directors and
executive officers of the Company and all persons nominated or chosen to become
such.
YEAR
NAME AGE OFFICE ELECTED
----- --- ------ -------
David Morgan 40 President, Chief Executive Officer, and 1998
Chairman of the Board of Directors
Jon Halestrap 41 Director, VP Sales and Marketing 2000
John Agostini 42 Director, Chief Finance Officer and Secretary 1999
Daniel Goldman 31 Non-Executive Director 1999
Thomas Maxfield 52 Non-Executive Director 1999
David Andrews 65 Non-Executive Director 2000
David Morgan (Chief Executive Officer) - Mr. Morgan is 40 years old and
graduated in 1982 from the University of Warwick with a Bachelor of Laws
degree, with honors. From 1982 to 1986, he was assistant to the Director of the
Industrial & Marine Division of Rolls Royce plc. From 1986 to 1991, he was
Group Commercial Manager of Blackwood Hodge plc, a worldwide distributor of
construction and earthmoving equipment. From 1991 to 1992, he was managing
director of Hunsbury Computer Services Ltd, a systems integrator and subsidiary
of Blackwood Hodge. From 1992 to 1995, he was Managing Director of the UK
subsidiary of Network Imaging Inc., an international software and systems
house. From 1995 to 1996, he was Managing Director of Orchid Ltd, a UK computer
software reseller. From 1997 to the present, he has been a director of and the
Chief Executive Officer of INVU Plc. Since the Share Exchange on August 31,
1998, he has been Chairman and Chief Executive Officer of the Company.
Jon Halestrap (VP Sales and Marketing) - Mr. Halestrap is 41 years old
and graduated from Coventry Polytechnic in 1984 with a degree in Production
Engineering. From 1995 to 1996, he was Group Sales Director of Orchid Ltd, a UK
computer software reseller. Between November 1996 and May 1999, he was Channel
Director for Bentley Systems Limited, a leading supplier of Micro CAD systems
in the world. From June 1999 to July 2000, Mr. Halestrap was Northern European
Business Development Manager for Motiva Limited, a global information
management solutions company. Mr. Halestrap joined INVU on July 10, 2000 as
Vice President of Sales and Marketing and serves as a director of the Company.
13
John Agostini (Chief Finance Officer) - Mr. Agostini is 42 years old
and qualified as a chartered accountant with Grant Thornton in 1984. Since 1986
he has worked for various companies within the printing, construction, and
electronics industries, typically as a Finance/Commercial Director. From
December 1993 to October 1996, he held the position of Director of Finance and
Operations of Bizeq Limited, a security alarms distributor. From November 1996
to April 1997, Mr. Agostini served as European Financial Controller for Sunbeam
Europe Limited, a domestic appliance distributor. From April 1997 to February
1999, he served as Finance and Operations Director of the performance textiles
division of Porvair Plc. Mr. Agostini joined INVU in February 1999 as Chief
Finance Officer, director and Secretary.
Daniel Goldman (Non-Executive Director) - Mr. Goldman is 31 years old,
and works with emerging technology companies raising private equity finance and
also provides corporate finance advice. He has worked with a number of companies
in the fields of software and the internet, smart card technology, medical
devices and other areas of patented technology as a consultant. From January
1997 until June 1997, Mr. Goldman worked with Elderstreet Corporate Finance
Ltd., a venture capital fund specializing in the high-tech sector. From July
1997 through April 1998, Mr. Goldman worked with Alberdale & Co., a venture
capital fund specializing in the high-tech and healthcare sectors. From April
1998 until June 1999, he served as a Corporate Finance Executive with Shore
Capital Group Plc, an investment bank specializing in corporate finance. Mr.
Goldman is currently a non-executive director for a number of technology
companies. These include Boomerang Software Inc., an internet software
publishing company based in Boston. Mr. Goldman joined the Board of INVU Inc. on
May 13, 1999.
Thomas Maxfield (Non-Executive Director) - Mr. Maxfield is 52 years
old. He has a B.A. honors degree in modern languages. Between 1984 and 1997 he
was a main board director of The Sage Group plc, a supplier of PC accounting
software. His responsibilities included the development of a national reseller
network, creating and maintaining telesales and field sales operations, and the
creation of the company's retail sales channel. From 1997 to the present, Mr.
Maxfield has served as a director of Seaham Hall Limited, a property
development company. Mr Maxfield joined the Board of INVU Inc. on May 13, 1999.
David Andrews (Non-Executive Director) - Mr. Andrews is 65 years old
and has served as a politician in the Irish Parliament for over thirty-five
years. He was appointed as a Minister in 1977 and has held several ministerial
positions, including Justice, Marine, Defense and Foreign Affairs. In
particular, Mr. Andrews was appointed the Minister of Foreign Affairs of
Ireland in 1992 and reappointed in 1997. In addition, he has served since 1999
as the Chairman in Office of the Council of Europe.
The Company is not aware of any "family relationships" (as defined in
Item 401(c) of Regulation S-B promulgated by the Commission) among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.
Except as set forth above, the Company is not aware of any event (as
listed in Item 401(d) of Regulation S-B promulgated by the Commission) that
occurred during the past five years that are material to an evaluation of the
ability or integrity of any director, person nominated to become a director,
executive officer, promoter or control person of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders") to file reports of
ownership and changes of ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and 10% Stockholders of the Company are required
by SEC regulations to furnish the Company with copies of all Section 16(a)
forms so filed.
The Company believes that, during the last fiscal year, the following
forms required to be filed under Section 16(a) were not filed or were not
timely filed: (i) Jon Halestrap, a director, failed to file a Form 3 upon his
appointment as a director; (ii) David Andrews, a director, was late in filing
his Form 3 upon his appointment as a director; (iii) John Agostini, Chief
Financial Officer and a director, failed to file a Form 4 upon his receipt of
14
an option to purchase 100,000 shares of Company Common Stock; (iv) David
Morgan, Chief Executive Officer and a director, failed to file a Form 4 upon
his grant of the above described option to John Agostini; (v) Montague, a 10%
stockholder of the Company, failed to file a Form 4 for eight transfers of
Company Common Stock totaling 1,812,390 shares of Company Common Stock; (vi)
the Montague beneficiaries, including Peter Fraser, Martyn Doherty, David
Morgan (who is also an officer and director of the Company) and Jon Halestrap
(who is an officer and a director of the Company) may have been required to
jointly file Form 4s along with Montague as described in (v) above; and (vii)
all of the above parties failed to file a Form 5 regarding the above described
failures to file a Form 4.
Item 10. Executive Compensation
The following tables set forth the compensation paid by the Company to
its Executive Officers during the fiscal year ended January 31, 2001. No other
executive officer earned in excess of $100,000.
Annual Compensation
Year Securities
Name/Principal Ending Underlying Other Annual
Position January 31 Salary Bonus Options Compensation
--------- ---------- ------ ----- ------- ------------
David Morgan/Chief Executive 2001 $100,937 $ 0 0 $29,046(3)
Officer 2000 $ 97,964 $ 0 0 $22,279(1)
1999 $101,082 $ 0 0 $13,169(1)
John Agostini/Chief Financial 2001 $ 93,750 $3,750 100,000(2) $19,536(1)
Officer 2000 $ 86,312 $ 0 0 $18,339(1)
Jon Halestrap/VP Sales and 2000 $ 73,482 $ 0 0 $ 8,004(1)
Marketing
(1)Other Annual Compensation consists of the use of a company car.
(2)In June 2000, Mr. Agostini was granted an option by David Morgan to purchase
100,000 shares of Company common stock at $2.00 per share. The option became
exercisable in March 2001. Mr. Morgan is a beneficiary of a discretionary
trust, the rest of which includes beneficial ownership of a majority of the
Company's Common Stock. The percentage of Mr. Morgan's beneficial interest in
the assets of the trust has not been determined. If he receives a distribution
from the trust, he has committed to give Mr. Agostini an option to purchase
100,000 shares.
(3)Other Annual Compensation consists of $27,390 for the use of a company car
and contributions to Mr. Morgan's private health insurance plan in the amount
of $1,656.
Option Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options Granted
Underlying to Employees in
Name Options Fiscal Year Exercise Price Expiration Date
John Agostini 100,000 (1) $ 2.00 6/26/10
(1) Mr. Agostini's option was granted by David Morgan. The transaction is
described in footnote 2 to the previous table.
No stock options were granted on behalf of the Company to any employee during
the Company's last fiscal year.
15
Director Compensation
Directors currently do not receive any cash compensation from the
Company for their services as members of the Board of Directors except as
described below. Directors are reimbursed for actual and reasonable out of
pocket expenses in connection with attendance at Board of Directors and
committee meetings.
Effective February 2, 1999, Mr. Goldman was entitled to receive
(pound)5,000 payable in six equal installments and 5,000 shares of the Company's
Common Stock from Montague as compensation for his services. Mr. Maxfield was
granted 10,000 shares of the Company's Common Stock from Montague for his
services as a director in April 1999. The Company also agreed in February 2000
to pay Mr. Andrews (pound)25,000 as consideration for his services as a director
and intend to grant him an option to purchase 30,000 shares of Common Stock.
Designations
As part of an investment agreement executed in August 1999, Mr. Goldman
was nominated and appointed to serve on the Company's board of directors. See
"Item 12. Certain Relationships and Related Transactions."
Employment Agreements
David Morgan. The Company entered into an employment agreement with Mr.
Morgan in June 1997. The Company agreed to pay Mr. Morgan (pound)92,000 as
salary plus quarterly bonuses based upon profit achievements. The profit
achievements necessary for any bonus award will be determined by the Company's
Board of Directors. The Company reviews Mr. Morgan's salary each year. The
Company also agreed to provide Mr. Morgan with a company car, to provide and
maintain his membership in a private health care plan and to contribute a sum
equal to 5% of his total salary to his private pension. No contributions have
been made by the Company to Mr. Morgan's private pension. The agreement may be
terminated by either Mr. Morgan or the Company with twelve months notice. In
addition, the Company may terminate the agreement at any time without prior
notice if Mr. Morgan were to (1) commit an act of gross misconduct or
incompetence; (2) become of unsound mind; (3) file for bankruptcy or make any
arrangement with his creditors; (4) willfully refuse to carry out duties vested
in him by the Board of Directors; (5) be convicted of a criminal offense unless,
in the opinion of the Board of Directors, the conviction does not affect his
position or suitability for the position; or (6) commit any conduct which, in
the opinion of the Board of Directors, brings him or the Company or any of the
Company's subsidiaries into disrepute.
John Agostini. The Company entered into an employment agreement with
Mr. Agostini in January 1999. The Company agreed to pay Mr.
Agostini(pound)62,500 as salary. Mr. Agostini is entitled to receive an annual
bonus. Any bonus is subject to review by the Board of Directors. The Company
also agreed to provide Mr. Agostini with a company car. The agreement may be
terminated by either the Company or Mr. Agostini with one months notice.
However, the Company may terminate Mr. Agostini's employment immediately in the
event of gross misconduct. Upon termination, Mr. Agostini is prohibited from
competing with the Company for six months and is subject to certain
confidentiality provisions. In addition, any intellectual property developed by
Mr. Agostini is the property of Invu International Holdings Limited, the
Company's wholly owned subsidiary.
Jon Halestrap. The Company entered into an employment agreement with
Mr. Halestrap in June 2000. The Company agreed to pay Mr. Halestrap
(pound)62,500 as salary and a guaranteed bonus of (pound)22,500 for the first
nine months that he is employed by the Company. Thereafter, his salary will
remain the same and any bonus will be based on sales. Mr. Halestrap's
commission's are subject to the Board of Director's regular review. The Company
also agreed to maintain Mr. Halestrap's mobile phone contract, to provide him
with a company car and to grant him an option for not less than 100,000 shares
of the Company's Common Stock. The agreement may be terminated by either the
Company or Mr. Halestrap with three months notice by either party during his
first year of employment with the Company. Thereafter, the notice period will
increase one month for each years service to a maximum of six months. However,
the Company may terminate Mr. Halestrap's employment immediately in the event of
gross misconduct. Upon termination, Mr. Halestrap is prohibited from competing
with the Company for six months and is subject to certain confidentiality
16
provisions. In addition, that any intellectual property developed by Mr.
Halestrap is the property of Invu International Holdings Limited, the Company's
wholly owned subsidiary.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the close of business on April
30, 2001 information as to the beneficial ownership of shares of the Company
Common Stock for all directors, each of the named executive officers (as defined
in Item 402(a)(2) of Regulation S-B promulgated by the Commission), for all
directors and executive officers as a group, and any person or "group" (as that
term is defined in Item 403 of Regulation S-B promulgated by the Commission) who
or which is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Company Common Stock. In addition, except as set forth
below, the Company does not know of any person or group who or which owns
beneficially more than 5% of its outstanding shares of Company Common Stock as
of the close of business on April 30, 2001.
Beneficial Ownership (1)
Name and Address Amount and Nature Percentage(1)(2)
of Beneficial Owner of Beneficial
Owner
Montague Limited (3)(4)(5) 20,855,890 68.64%
David Morgan (4)(5)(6) * *
Jon Halestrap (4)(7) 100,000 0.33%
Peter Fraser (5) * *
John Agostini(11) 100,000 0.33%
Daniel Goldman(8) 654,359 2.10%
Thomas Maxfield(9) 659,359 2.12%
Roy G. Williams (10) 1,725,920 5.68%
David Andrews(12) * *
Paul O'Sullivan(5)(13) * *
Officers and Directors as a Group (7 persons) 1,513,718 4.77%
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking,
relationship or otherwise has or shares voting power and/or investment
power and as to which such person has the right to acquire such voting
and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the
sum of the number of shares outstanding as of such date and the number
of shares as to which such person has the right to acquire voting
and/or investment power with in 60 days.
(2) Based on 30,386,539 shares of Common Stock outstanding as of April 30,
2001.
(3) Montague Limited ("Montague") is a company organized under Isle of Man
law with a business address of 34 Athol Street, Douglas, Isle of Man
IM1 1RD United Kingdom. The directors of Montague are Eammon Harkin and
Barry John Williams. The sole issued and outstanding share capital of
Montague is owned of record by an Isle of Man corporation related to
the corporate trustee of a discretionary trust (the "Discretionary
Trust"), the rest of which includes beneficial ownership of the capital
stock of Montague and, therefore, indirect beneficial ownership of
19,754,252 shares of Company Common Stock that are held of record by
Montague.
(4) Montague is the record owner of 1,101,638 shares that have been
allocated to certain individuals and entities and are held for such
individuals and entities under a declaration of trust (the "Allocated
Trust").
(5) Such person or persons are within a class of beneficiaries of the
Discretionary Trust. The percentage of each such person's beneficial
interest, if any, in the assets of the Discretionary Trust has not been
determined at this time, and, therefore, such persons disclaim
beneficial ownership of such shares. Mr. Fraser's business address is
Caraway Cottage, 1 High Street, Ecton, Northampton.
17
(6) David Morgan is President and Chief Executive Officer of the Company
and is a member of the Company's Board of Directors. His business
address is The Beren, Blisworth Hill Farm, Stoke Road, Blisworth
Northamptonshire NN7 3DB.
(7) Jon Halestrap is Vice President - Sales and Marketing of the Company
and is a member of the Company's Board of Directors. Mr. Halestrap has
been allocated 100,000 shares as a beneficiary of the Allocated Trust.
His business address is The Beren, Blisworth Hill Farm, Stoke Road,
Blisworth Northamptonshire NN7 3DB.
(8) Includes shares of Common Stock that Vertical, which is owned by Mr.
Goldman, has the right to acquire upon conversion of Loan Stock
Instrument A and Loan Stock Instrument B (assuming that all accrued
interest has been paid). Mr. Goldman's business address is Building 8/9
Malcha Technology Park, Jerusalem 91487 Israel.
(9) Includes shares of Common Stock that Mr. Maxfield, has the right to
acquire upon conversion of Loan Stock Instrument A and Loan Stock
Instrument B (assuming that all accrued interest has been paid). See
"Item 1. Description of Business - The Second Financing Transaction."
Mr. Maxfield's business address is Marsden Hall, Lizard Lane,
MarsdenTyne & Wear NE34 7AD.
(10) Pursuant to a Schedule 13G filed by Mr. Williams, Mr. Williams has the
following beneficial ownership with respect to shares of Common Stock.
Mr. Williams has sole voting and dispositive power over 659,780 shares
of Common Stock including 261,875 shares of Common Stock owned by
Mustardseed and has sole voting and power over such shares. Zalcany
owns 1,066,140 shares of Common Stock. Zalcany is owned 50% by Mr.
Williams and 50% by Richard Harris. Mr. Williams and Mr. Harris share
voting and dispositive power with respect to such shares. Mr. Williams
business address is Birkett House, 27 Albemarle Street, London W1X 4LQ.
(11) Mr. Agostini is the Chief Financial Officer and a director of the
Company. His business address is The Beren, Blisworth Hill Farm, Stoke
Road, Blisworth Northamptonshire NN7 3DB. Includes 100,000 shares of
common stock that Mr. Agostini may acquire upon the exercise of an
option.
(12) Mr. Andrews is a non-executive director of the Company. His business
address is Dail Eireann, Leinster House, Dublin 2, Ireland.
(13) Mr. O'Sullivan was the Chief Technical Officer and a director of the
Company until July 2000. His business address is 23 Denton Rd., Horton,
Northhampton NN72BE.
Item 12. Certain Relationships and Related Transactions
The First Financing Transaction
In February 1999, Roy G. Williams, who beneficially owns 5.7% of the
Company's issued and outstanding common stock, and Zalcany Limited, a company
affiliated with Mr. Williams, were two of several parties that loaned the
Company approximately $656,000 to fund current operations. See "Item 1.
Description of Business-The First Financing Transaction." for a description of
the transaction.
The Second Financing Transaction
On August 23, 1999, the Company entered into an Investment Agreement
with (i) David Morgan, the Company's President, Chief Executive Officer and a
director; (ii) John Agostini, the Company's Chief Finance Officer and a
director; (iii) Paul O'Sullivan, the Company's Chief Technical Officer and a
director until July 2000; (iv) Vertical Investments Limited, a company
beneficially owned by Daniel Goldman, who is a non-executive director; (v)
Thomas Maxfield, also a non-executive director; and (vi) Alan David Goldman, the
father of Daniel Goldman. See "Item 1. Description of Business-The Second
Financing Transaction" for a description of the transaction.
18
Director Arrangements
As part of the Investment Agreement executed in connection with the
Second Financing Transaction in August 1999, Mr. Daniel Goldman has been
nominated and appointed to serve on the Company's board of directors. He shall
continue to serve on the Company's board of directors until his loans have been
either repaid in full or fully converted into common stock.
Guarantees of Indebtedness and Guarantee Fees
In December 1999, Invu Services Limited renewed its overdraft facility
with HSBC Bank plc. Peter Fraser, a beneficiary of Montague, an entity that
holds approximately 69% of the Company's Common Stock, made a guarantee of
(pound)40,000 to secure all liabilities of Invu Services Limited. David Morgan,
the Company's President, Chief Executive Officer and a director, provided two
guarantees to secure all liabilities of Invu Services Limited. These guarantees
were (pound)12,500 and (pound)2,500. Also in connection with this facility,
Peter Fraser and Vertical Investments Limited, a company beneficially owned by
Daniel Goldman, a non-executive director, provided a guarantee of
(pound)300,000. This guarantee has now been canceled following the Company's
change of bank.
In July 2000, the Company negotiated an overdraft facility for
$1,169,000 with the Bank of Scotland for Invu Services Limited, Invu plc and
Invu International Holdings Limited. Vertical Investments Limited provided a
guarantee for Invu Services Limited for this loan as well and cross guarantees
were made by Invu Services Limited, Invu plc and Invu International Holdings
Limited. Invu International Holdings Limited also executed a Debenture in favor
of the Bank of Scotland.
Loans
In March 2000 the Company received a non-interest unsecured loan in the
sum of (pound)571,500 from Peter Fraser.
In September 1999, the Company made a non-interest bearing loan to
David Morgan in the amount of $5,635. To date, no payments have been made on
this loan.
In February 2001, Goldman Investments Limited, an entity in which
Daniel Goldman, a non-executive director, has an interest, made a loan to the
Company in the sum of $1,000,000. See "Item 6. Management's Discussion and
Analysis or Plan of Operations - Financing Management's Plan of Operation."
Employment and Indemnification Agreements
The Company does not maintain any Indemnification Agreements with its
directors. David Morgan, John Agostini and Jon Halestrap have entered into
employee employment agreements with the Company. See "Item 10. Executive
Compensation-Employment Agreements."
Transactions
The Company paid Impakt Software Limited $85,800 as of the fiscal year
ended January 31, 2001. Paul O'Sullivan, who served as the Company's Chief
Technical Officer and a director until July 12, 2000, is a director of Impakt
Software Limited.
19
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First
Amendment to Share Exchange Agreement, dated as of July 23, 1998
(incorporated by reference from Exhibit 2.1 of the Company's Current
Report on Form 8-K filed June 8, 1998 and Exhibit 99 of the Company's
Amendment to Current Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997
with the Secretary of State of the State of Colorado (incorporated by
reference from Exhibit 3.2 of the Company's Registration Statement on
Form 10-SB/A filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on
February 22, 1999, with the Secretary of State of the State of Colorado
(incorporated by reference from Exhibit 3.2 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
3.3 Bylaws of the Company (incorporated by reference from Exhibit 2.2 of
the Company's Registration Statement on Form 10-SB/A filed August 29,
1997).
10.1 Limited Manufacturing Agreement, dated March 25, 1998, by and between
INVU Services Limited and Centura Software Corporation (incorporated by
reference from Exhibit 10.3 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.2** Reseller Agreement, dated March 26, 1998, by and between INVU
Services Limited and Computer Associates Plc and Memorandum Amendment
dated July 17, 1998 (incorporated by reference from Exhibit 10.4 of the
Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.3** Gold Standard Reseller Agreement, dated June 16, 1999, by and between
INVU Services Limited and Computer Associates International, Inc.
(incorporated by reference from Exhibit 10.9 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.4 Investment Agreement, dated August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan, Alan David Goldman, and
Vertical Investments Limited (incorporated by reference from Exhibit
10.12 of the Company's Annual Report on Form 10-KSB filed October 15,
1999).
10.5 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited
(incorporated by reference from Exhibit 10.13 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.6 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited
(incorporated by reference from Exhibit 10.14 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.7 Supplemental Agreement, dated as of August 23, 1999, among the Company,
Vertical Investments Limited, Alan David Goldman, David Morgan, John
Agostini, Paul O'Sullivan, INVU Services Limited and Tom Maxfield
(incorporated by reference from Exhibit 10.15 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.8 Distribution Agreement, dated January 29, 2000, by and between INVU
Services and Gem Distribution Limited. (incorporated by reference from
Exhibit 10.13 of the Company's Annual Report on Form 10-KSB/A filed May
18, 2000).
10.9 Overdraft Facility Agreement, dated December 13, 1999, by and between
Invu Services Limited and HSBC Bank plc. (incorporated by reference
from Exhibit 10.16 of the Company's Annual Report on Form 10-KSB/A
filed May 18, 2000).
20
10.10 Lease Agreement, effective January 1, 2000, by and between Invu
Services Limited, Roy Taylor and Diana Ruth Taylor. (incorporated by
reference from Exhibit 10.24 of the Company's Annual Report on Form
10-KSB/A filed May 18, 2000).
10.11 Demand Promissory Note, dated May 1, 2000, by and between the Company
and GEM Advisors, Inc. (incorporated by reference from Exhibit 10.25 of
the Company's Annual Report on Form 10-KSB/A filed May 18, 2000).
10.12 Overdraft Facility, dated July 19, 2000, by and between the Company and
the Bank of Scotland (incorporated by reference from Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.13 Corporate Guarantee, dated July 18, 2000, by and among the Company,
Invu Plc, Invu Services Limited, Invu International Holdings Limited
and the Bank of Scotland (incorporated by reference from Exhibit 10.2
of the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.14 Debenture, dated July 13, 2000, by and between Invu International
Holdings Limited and the Bank of Scotland (incorporated by reference
from Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB
filed September 19, 2000).
10.15 Employment Agreement, dated June 30, 1997, by and between the Company
and David Morgan (incorporated by reference from Exhibit 10.4 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.16 Employment Agreement, dated June 9, 2000, by and between the Company
and John Halestrap (incorporated by reference from Exhibit 10.5 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.17 Employment Agreement, dated June 10, 1999, by and between the Company
and John Agostini (incorporated by reference from Exhibit 10.6 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.18 Letter Agreement, dated February 22, 2000, by and between David Morgan
and David Andrews (incorporated by reference from Exhibit 10.7 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.19 Letter Agreement, dated February 2, 1999, by and between David Morgan
and Daniel Goldman (incorporated by reference from Exhibit 10.8 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.20 Letter Agreement, dated April 27, 1999, by and between David Morgan and
Tom Maxfield (incorporated by reference from Exhibit 10.9 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
*Filed herewith
** Incorporated by reference, confidential treatment requested.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
21
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
January 31, 2001 and 2000
F-1
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
--------------------------------------------------------------------------------
CONTENTS PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors INVU, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of INVU, Inc. (a
development stage enterprise) and Subsidiaries as of January 31, 2001 and 2000
and the related consolidated statements of operations, deficit in stockholders'
equity and cash flows for the years ended January 31, 2001 and 2000 and for the
period February 18, 1997 (date of inception) to January 31, 2001. 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
in the United States of America. 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 statements 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 consolidated financial position of INVU, Inc. and
Subsidiaries as of January 31, 2001 and 2000 and the consolidated results of
their operations and their consolidated cash flows for the years ended January
31, 2001 and 2000 and for the period February 18, 1997 (date of inception) to
January 31, 2001 in conformity with generally accepted accounting principles in
the United States of America.
As discussed in Note B, the financial statements for the year ended January 31,
2000 have been restated to record a beneficial conversion feature associated
with convertible debt and credit enhancements provided by the major shareholder.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has experienced losses, is not generating cash from operations and
has a deficit in stockholders' equity. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
plans with respect to these matters, including plans to continue funding its
development expenses, are described in Note D. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Grant Thornton
Northampton, England
May 15, 2001
F-3
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
January 31, January 31,
2001 2000
As restated
$ $
ASSETS
CURRENT ASSETS
Accounts receivable:
Trade, net 310,098 1,916
VAT recoverable and other 5,847 22,000
Inventories 35,150 25,110
Prepaid expenses 105,242 12,390
-------------- -------------
TOTAL CURRENT ASSETS 456,337 61,416
-------------- -------------
EQUIPMENT, FURNITURE AND FIXTURES
Computer equipment 82,989 42,450
Vehicles 289,970 226,348
Office furniture and fixtures 102,350 31,096
-------------- -------------
475,309 299,894
Less accumulated depreciation 163,364 73,135
-------------- -------------
311,945 226,759
-------------- -------------
768,282 288,175
============== =============
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term credit facility 1,682,975 413,247
Current maturities of long-term obligations 69,624 1,074,185
Accounts payable 544,524 126,204
Accrued liabilities 415,239 198,529
-------------- -------------
TOTAL CURRENT LIABILITIES 2,712,362 1,812,165
-------------- -------------
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 1,962,635 525,777
DEFICIT IN STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorised - 20,000,000 shares; nil shares issued and outstanding - -
Common stock, no par value
Authorised - 100,000,000 shares; issued and outstanding
- 30,386,539 (2000: 30,206,896) shares 1,746,223 1,641,432
Accumulated deficit during the development stage (5,810,452) (3,698,043)
Accumulated other comprehensive income 157,514 6,844
-------------- -------------
(3,906,715) (2,049,767)
-------------- -------------
768,282 288,175
============== =============
The accompanying notes are an integral part of these financial statements.
F-4
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Feb 18, 1997
(Date Of
Jan 31, Jan 31, inception) to
2001 2000 Jan. 31, 2001
As restated As restated
$ $ $
Revenues 502,218 15,754 528,211
Expenses:
Production cost 136,697 106,979 351,855
Selling and distribution cost 950,682 250,995 1,323,276
Research and development cost 313,587 210,219 700,712
Administrative costs 1,048,562 801,578 2,357,493
--------------- -------------- -------------
Total operating expenses 2,449,528 1,369,771 4,733,336
--------------- -------------- -------------
Operating loss (1,947,310) (1,354,017) (4,205,125)
Other income (expense)
Interest, net (165,099) (1,432,064) (1,607,690)
Other - - 2,363
--------------- -------------- -------------
Total other expense (165,099) (1,432,064) (1,605,327)
--------------- -------------- -------------
Loss before income taxes (2,112,409) (2,786,081) (5,810,452)
Income taxes - - -
--------------- -------------- -------------
Net loss - (2,112,409) (2,786,081) (5,810,452)
=============== ============== =============
Weighted average shares outstanding:
Basic and Diluted 30,210,341 30,206,896 30,207,604
=============== ============== ==============
Net loss per common share
Basic and Diluted (0.07) (0.09) (0.19)
=============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-5
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON STOCK ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT DEFICIT INCOME TOTAL LOSS
$ $ $ $ $
Issuance of common stock ($1.64 per share) 176,000 288,640 - - 288,640
Reclassification of $1.64 common stock (176,000) (288,640) - - (288,640)
Issuance of no par common stock in connection 28,696,552 288,355 - - 288,355
with reverse acquisition
Issuance of common stock ($0.50 per share) 1,510,344 750,000 - - 750,000
Reverse acquisition transaction costs - (750,000) - - (750,000)
Comprehensive income:
Foreign currency translation adjustment - - - 440 440 440
Net loss during the period - - (217,153) - (217,153) (217,153)
------------
Total comprehensive income (216,713)
---------- ---------- ---------- ---------- ---------- ============
Balance at January 31, 1998 30,206,896 288,355 (217,153) 440 71,642
Comprehensive income:
Foreign currency translation adjustment - - - 8,655 8,655 8,655
Net loss during the period - - (694,809) - (694,809) (694,809)
-----------
Total comprehensive income (686,154)
---------- ---------- --------- ---------- ----------- ===========
Balance at January 31, 1999 30,206,896 288,355 (911,962) 9,095 (614,512)
Beneficial conversion feature of
convertible debentures - 723,077 - - 723,077
Credit enhancements provided by the
major shareholder - 630,000 - - 630,000
Comprehensive income:
Foreign currency translation adjustment - - - (2,251) (2,251) (2,251)
Net loss during the period as restated - - (2,786,081) - (2,786,081) (2,786,081)
-----------
Total comprehensive income as restated (2,788,332)
---------- ---------- --------- ---------- ----------- ===========
Balance at January 31, 2000 as restated 30,206,896 1,641,432 (3,698,043) 6,844 (2,049,767)
The accompanying notes are an integral part of these financial statements.
F-6
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON STOCK ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT DEFICIT INCOME TOTAL LOSS
$ $ $ $ $
Issuance of no par common stock
($0.58 per share) 179,643 104,791 - - 104,791
Comprehensive income:
Foreign currency translation adjustment - - - 150,670 150,670 150,670
Net loss during the year - - (2,112,409) - (2,112,409) (2,112,409)
--------------
Total comprehensive income (1,961,739)
----------- ------------ --------------- ------------ ------------- ==============
Balance at January 31, 2001 30,386,539 1,746,223 (5,810,452) 157,514 (3,906,715)
----------- ------------ --------------- ------------ -------------
The accompanying notes are an integral part of these financial statements.
F-7
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Feb. 18, 1997
(Date of
January 31, January 31, inception) to
2001 2000 January 31, 2001
As restated As restated
$ $ $
Net cash flows used in operating activities
Net loss during the period (2,112,409) (2,786,081) (5,810,452)
Interest expense relating to beneficial conversion feature - 723,077 723,077
Interest expense relating to debt discount - 630,000 630,000
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation 99,996 42,286 184,101
Accounts receivable (302,213) (11,966) (325,955)
Inventories (12,836) 98,702 (42,268)
Prepaid expenses (96,572) 6,243 (109,394)
Accounts payable 442,166 51,138 569,028
Accrued liabilities 242,516 118,886 441,387
----------- ----------- -----------
Net cash used in operating activities (1,739,352) (1,127,715) (3,740,476)
----------- ----------- -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (130,875) (46,143) (264,128)
Proceeds from sale of vehicles - 19,356 19,356
----------- ----------- -----------
Net cash used in investing activities (130,875) (26,787) (244,772)
----------- ----------- -----------
Cash flows provided by financing activities:
Short-term credit facility 1,345,146 343,613 1,755,712
Borrowings received from notes payable 813,436 1,661,472 3,619,430
Repayment of borrowings (306,489) (833,091) (1,662,845)
Principal payments on capital lease (43,241) (15,857) (76,475)
Proceeds from issuance of stock 104,791 - 393,431
----------- ----------- -----------
Net cash provided by financing activities 1,913,643 1,156,137 4,029,253
----------- ----------- -----------
Effect of exchange rate changes on cash (43,416) (1,635) (44,005)
----------- ----------- -----------
Net decrease in cash - - -
Cash at beginning of period - - -
----------- ----------- -----------
Cash at end of period - - -
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 98,000 47,000 156,000
Income taxes - - -
MAJOR NON-CASH TRANSACTIONS
The beneficial conversion feature of the Convertible Notes amounting to $723,077
and debt discounts of $630,000 have been included in the Statement of Operations
for the year ended January 31, 2000 as restated. These items are non-cash
transactions.
The accompanying notes are an integral part of these financial statements.
F-8
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE A - COMPANY DESCRIPTION
INVU, Inc. (the Company) is a holding company which operates one subsidiary INVU
Plc, which is a holding company for two subsidiaries of its own, INVU Services
(Services) and INVU International Holdings Limited (Holdings). The Company was
incorporated under the laws of the State of Colorado, United States of America,
in February 1997. INVU Plc, Services and Holdings are companies incorporated
under English Law. The Company operates in one industry segment which includes
developing and selling software for electronic management of many types of
information and documents such as forms, correspondence, literature, faxes,
technical drawings and electronic files. Services is the sales, marketing and
trading company and Holdings holds the intellectual property rights to the INVU
software.
On August 31, 1998, Sunburst Acquisitions I Inc. (Sunburst) (a public
development stage enterprise) acquired all of the outstanding shares of INVU Plc
in exchange for restricted shares of common stock of Sunburst (the Exchange)
pursuant to a Share Exchange Agreement between Sunburst and the principal
shareholders of INVU Plc. Sunburst exchanged 26,506,552 shares of common stock
for all of INVU Plc's issued and outstanding shares of common stock. For
accounting purposes, the Exchange was treated as a recapitalization of INVU Plc
where INVU Plc is the accounting acquirer. All periods have been restated to
give effect to the recapitalization. The historic statements from inception up
to the Exchange are those of INVU Plc. Proforma information is not presented
since this combination is not considered to be a business combination. In
connection with the Exchange, the directors and officers of INVU Plc became the
directors and officers of Sunburst. Also, Sunburst changed its name to INVU,
Inc. At the time of the Exchange, the Company issued 1,510,344 shares of Common
Stock of the Company to a consultant pursuant to a consulting agreement for
introducing INVU Plc and Sunburst. The shares were estimated to have a value of
$750,000 and have been treated as a transaction cost in connection with the
Exchange. Immediately after the Exchange, INVU Plc's former shareholders owned
approximately 88% of the outstanding common stock of Sunburst.
NOTE B - RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the year ended January 31,
2000 to reflect the beneficial conversion feature for the convertible debentures
issued on August 23,1999. At that date, the aggregate market value of the common
stock into which the debt could be converted exceeded the value of the debt by
$723,077.
The Company has also restated its financial statements for the year ended
January 31, 2000 to reflect the credit enhancements of $630,000 provided to
lenders by a major shareholder during February 1999 and August 1999. The
shareholder transferred 2,400,000 shares to certain lenders to help secure
$656,000 of debt in February 1999 and transferred 225,000 shares to the
convertible debenture holders in August 1999 to secure the $1 million
convertible debentures. A value of $630,000 was ascribed to the shares based
upon the allocation of the relative fair values. This was recorded as a discount
to the debt and was amortized as interest expense over the estimated life of the
debt.
Accordingly, common stock and accumulated deficit during the development stage
have been increased by $1,353,077 on the January 31, 2000 balance sheet and
interest, net and net loss have been increased by $1,353,077 and net loss per
common share has increased by 4 cents per share on the Company's Statements of
F-9
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
Operations for the year ended January 31, 2000 and for the period February 18,
1997 (date of inception) to January 31, 2000. These adjustments have no effect
on loss from operations, cash flows or the deficit in stockholders' equity.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1 DEVELOPMENT STAGE ENTERPRISE
The Company (a development stage enterprise) is in the development
stage as defined by Statement of Financial Accounting Standard No. 7,
"Accounting and Reporting by Development Stage Enterprises" (SFAS No.
7).
2 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries INVU Plc, Services and Holdings. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
3 REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2 "Software Revenue Recognition" (SOP 97-2)
as amended by Statement of Position 98-9 "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions"
(SOP 98-9) issued by the American Institution of Certified Public
Accountants ("AICPA"). Fees for services and maintenance are
generally charged to customers separately from the license of
software. Revenues from license fees are recognized upon product
shipment when fees are fixed, collectability is probable and the
Company has no significant obligations remaining under the licensing
agreement. In instances where a significant vendor obligation exists,
revenue recognition is delayed until such obligation has been
satisfied.
For those license agreements which provide the customers the right to
multiple copies in exchange for guaranteed amounts (including non
refundable advance royalties), license revenues are recognized at
delivery of the product master or the first copy. Per copy royalties
on sales which exceed the guarantee are recognized as earned.
Services revenue consists of training and consulting for which
revenue is recognized when the services are performed. Maintenance
revenue consists of ongoing support and maintenance and product
updates for which revenue is deferred and recognized ratably over the
term of the contract, normally twelve months.
F-10
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
4 SOFTWARE DEVELOPMENT COSTS
Software development costs are included in research and development and
are expensed as incurred. Statement of Financial Accounting Standard
No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed" (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established, which the Company defines as establishment
of a working model. The working model criteria is used because the
Company's process of creating software (including enhancements) does
not include a detailed program design. To date, the period between
achieving technological feasibility and the general availability of
such software has been short and software development costs qualifying
for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs.
5 EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated at cost. Depreciation is
provided in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives. The straight line
method of depreciation is followed for financial reporting purposes.
The useful lives are as follows:
YEARS
Computer equipment 4
Vehicles 4
Office furniture and fixtures 4
Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the
lives of assets are capitalized. Upon sale or retirement of depreciable
property, the cost and accumulated depreciation are removed from the
related accounts and any gain or loss is reflected in the results of
operations.
6 CASH
For the purpose of the consolidated statements of cash flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
7 INVENTORIES
Inventories consist of licensed goods and goods for resale and are
stated at the lower of FIFO (first-in, first-out) cost or market.
8 ADVERTISING COSTS
Advertising costs of $344,466, $142,707 and $550,602 for the years
ended January 31, 2001 and 2000, and for the period February 18, 1997
(date of inception) to January 31, 2001, respectively, have been
charged to expense as incurred.
F-11
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
9 INCOME TAXES
The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected
to reverse. An allowance against deferred tax assets is recorded when
it is more likely than not that such tax benefits will not be realized.
10 USE OF ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
11 NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS No. 128).
The Company's basic net loss per share amount has been computed by
dividing net loss by the weighted average number of outstanding common
shares. For the years ended January 31, 2001 and 2000 no common stock
equivalents were included in the computation of diluted net earnings
per share. Convertible debentures excluded from the calculation of loss
per share because their effect is anti-dilutive amounted to 1,723,077
common shares for the year ended January 31, 2001.
12 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consists of cash, trade
receivables, borrowings, trade payables and accrued liabilities. The
carrying amount of these instruments approximate the fair values
because of their short maturity. The fair value of non-current
financial assets and liabilities are estimated to approximate carrying
value based on considerations of risk, current interest rates and
remaining maturities.
13 FOREIGN CURRENCY TRANSLATION
The functional currency of the Company and its Subsidiaries is the
British pound sterling. The consolidated financial statements are
presented in US dollars using the principles set out in Statement of
Financial Accounting Standard No. 52 "Foreign Currency Translation"
(SFAS No. 52). Assets and liabilities are translated at the rate of
exchange in effect at the close of the period. Revenues and expenses
are translated at the weighted average of exchange rates in effect
during the period. The effects of exchange rate fluctuations on
F-12
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
translating foreign currency assets and liabilities into US dollars are
included as part of the accumulated other comprehensive income
component of stockholders' equity.
14 RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
15 RECLASSIFICATIONS
Certain items in the 2000 financial statements have been reclassified
to conform to the current presentation.
16 RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standard No. 133 (SFAS 133), as
modified by SFAS 137 "Accounting for Derivative Investments and Hedging
Activities - Deferral of the Effective Date of FASB Statement 133",
requires entities to recognize all derivatives in their financial
statements as either assets or liabilities measured at fair value. SFAS
133 also specifies new methods for accounting for hedging transactions,
prescribes the items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting. SFAS 133,
as modified by SFAS 137, is effective for fiscal years beginning after
June 15, 2000. The Company does not believe that the adoption of SFAS
133 will have a material impact on its financial statements.
In December 1999, the US Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB 101, as amended, which summarizes and clarifies
certain existing accounting principles for the recognition and
classification of revenues in the financial statements. SAB 101 did not
have a significant effect on the Company's consolidated financial
statements.
NOTE D - GOING CONCERN
The Company's liabilities exceed its assets and the Company has incurred losses
from operations primarily as a result of treating virtually all development
expenses since inception as current operating expenses. The Company is starting
to generate revenues from operations and has obtained additional finance since
the year end as disclosed in Note L. Operations to date have been funded
principally by equity capital and borrowings. The Company is in the process of
raising additional capital to fund its trading operations. The Company's ability
to continue to develop its trading operations depends on its ability to raise
other additional capital. The financial statements do not include any adjustment
that might result from the outcome of this uncertainty.
F-13
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE E - INVENTORIES
Inventories consist of the following:
January, 31 January, 31
2001 2000
$ $
Licensed goods - 25,110
Goods for resale 35,150 -
------------- -----------
35,150 25,110
============= ===========
Licensed goods represent software licenses purchased by the Company which allow
the Company to manufacture and distribute a separate company's proprietary
software products in conjunction with and as an embedded component of the
Company's proprietary software. Goods for resale represent the finished
consolidated product to be sold to the end user. Licenses amounting to $82,160
were charged to profits in the year ended January 31, 2000 as the Company
believed that it was unlikely to utilize this proportion of licenses before
their expiry in June 2000.
NOTE F - SHORT-TERM CREDIT FACILITY
The Company has a $1,169,000 ((pound)800,000) (January 31, 2000: $486,000
((pound)300,000)), 7.5% (January 31, 2000 10%) short-term credit facility with
an English bank. The Company's bank has agreed to temporary borrowings in excess
of the formal facility during the period to January 31, 2001. The credit
facility is collateralized by all assets of the Company and a corporate
guarantee given by Vertical Investments Limited, a company in which a
non-executive director of this Company has an interest. The amount drawn against
the facility at January 31, 2001 was $1,682,975 ((pound)1,151,855), (January 31,
2000 $413,247 ((pound)255,091)). The amount drawn is payable on demand at the
bank's discretion. The credit facility is due for review on July 31, 2001.
F-14
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations at January 31, 2001 and January 31, 2000, consist of the
following:
January 31, January 31,
2001 2000
$ $
Non-interest bearing, unsecured loan from an individual,
no stated maturity date 759,245 298,009
4% above Libor rate (Libor rate was 5.72% and 5.75% at January 31, 2001 and 2000
respectively) notes payable to an English bank, monthly payment aggregating to
(pound)500, maturing in March 2002, collateralised by all assets
of the Company and a limited personal guarantee by a director 6,818 22,107
4% above Libor rate (Libor rate was 5.72% and 5.75% at January 31, 2001 and 2000
respectively) notes payable to an English bank, monthly payments aggregating to
(pound)1,333, maturing in June 2004, collateralised by all assets of the Company
and unlimited multilateral guarantees between subsidiary undertakings; a
quarterly loan guarantee premium of 1.5% per annum is
payable on 85% of the outstanding balance 81,821 114,480
Convertible A Note 1999-2002, with interest at 6%; interest due in
arrears biannually on January 1 and July 1 600,000 600,000
Convertible B Note 1999-2002, bearing interest of 8% per annum for the first six
months, 9% per annum for the next six months and 10% per annum
thereafter; interest due in arrears biannually on January 1 and July 1 400,000 400,000
Capital leases for vehicles, interest ranging from 10.2% - 16.9% with
maturities through 2003 184,375 165,366
------------- -----------
2,032,259 1,599,962
Less current maturities (69,624) (1,074,185)
------------- -----------
1,962,635 525,777
============= ===========
Scheduled maturities of long-term obligation are as follows:
YEAR ENDING JANUARY 31, $
2002 69,624
2003 1,096,467
2004 95,235
2005 11,688
Thereafter 759,245
--------------
2,032,259
==============
F-15
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1) CONVERTIBLE DEBENTURES
All corporate and individual investors are minority shareholders in the Company.
The A and B Convertible Notes 1999-2002 are held by individuals who are minority
shareholders in the Company. They are convertible into common shares at the rate
of one common share for every US$0.65 of outstanding principal Note converted
for the A Notes and one common share for every US$0.50 of outstanding principal
Note converted for the B Notes. Conversion will take place:
i) immediately prior to a Public Offering
ii) at the option of the investor for the B Notes and automatically for the
A Notes, upon new equity capital resulting in proceeds to the Company
of at least $4,000,000
iii) at the option of the investor giving 30 days notice to the Company.
Interest amounting to $99,241 has been accrued to January 31, 2001 (January 31,
2000 $31,575) in respect of the A and B Convertible Notes.
Any outstanding principal not converted or redeemed by the anniversary date,
which was August 16, 2000, will be redeemed at par plus interest in the year
2002 upon receipt of 30 days written notice from the Company or the Investors.
In consideration of the Investors advancing an aggregate of $1,000,000, the
Company caused Montague Limited the principal shareholder to transfer, and
register in the name of the Investors, 225,000 shares of Common Stock of no par
value.
BENEFICIAL CONVERSION FEATURE
The beneficial conversion feature for the Convertible Notes amounting to
$723,077 has been included in the interest expense for the year ended January
31, 2000 as restated. The feature has been calculated using the intrinsic value
model as at the commitment date detailed in EITF Issue 98-5.
2) CAPITAL LEASES
The Company leases vehicles under noncancellable capitalized leases.
January 31, January 31,
2001 2000
$ $
Vehicles 289,970 226,348
Less accumulated depreciation (88,902) (30,958)
------------- --------------
201,068 195,390
============= ==============
F-16
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
Scheduled maturities of minimum lease payments are as follows:
YEAR ENDING JANUARY 31, $
2002 60,290
2003 89,713
2004 78,487
------------
228,490
Less amount representing interest (44,115)
------------
Present value of net minimum lease payments 184,375
============
The scheduled net minimum lease payments to maturity are included in the
long-term obligation table above.
NOTE H - LEASE COMMITMENTS
The Company leases office space on an annual basis. Rent expense totaled
approximately $50,500 and $27,500 at January 31, 2001 and for the year ended
January 31, 2000. The rent expense for the period February 18, 1997 (date of
inception) to January 31, 2001 totaled $108,200. New premises have been leased
effective from February, 2000 until December, 2001 at an annual commitment of
$63,000.
The future minimum rental commitments as of January 31, 2001 are as follows:
YEAR ENDING JANUARY 31, $
2002 56,587
============
NOTE I - INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No 109 "Accounting for Income Taxes". Accordingly, a deferred tax
liability or deferred tax asset (benefit) is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences between
pre-tax financial and taxable income.
Deferred tax benefits are recorded only to the extent that the amount of net
deductible temporary differences or carry forward attributes may be utilized
against current period earnings, offset against taxable temporary differences
reversing in future periods, or utilized to the extent of management's estimate
of future taxable income. Deferred tax liabilities are provided for on
differences between amounts reported for financial and tax basis accounting.
At January 31, 2001, due to the Company's cumulative losses since inception, a
loss carry forward of approximately $3,500,000 may be utilized in the future for
an indefinite period.
F-17
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
Net deferred tax assets resulting from the loss carry forward have been offset
by a valuation allowance of equal amounts at January 31, 2001 and January 31,
2000 due to the uncertainty of realizing the net deferred tax asset through
future operations. The valuation allowances were approximately $700,000 and
$417,000 at January 31, 2001 and January 31, 2000, respectively. The valuation
allowance increased approximately $283,000 and $258,000 at January 31, 2001 and
2000 respectively. The effective tax rate differs from the statutory rate as a
result of the valuation allowance. Gross deferred tax liabilities were
immaterial for all periods.
NOTE J - RELATED PARTY TRANSACTIONS
At January 31, 2001 David Morgan owed $5,635 (January 31, 2000 $961) to the
Company. The maximum liability during the year amounted to $5,635 and the
interest charge amounted to $Nil (January 31, 2000 $Nil).
The Company made purchases during the year under normal commercial terms from
Impakt Software Limited, a company owned by Paul O'Sullivan who was a director
of the Company during the year and who is a potential beneficiary of a
discretionary trust, the rest of which includes beneficial ownership of the
Company's common stock. The percentage of Mr O'Sullivan's interest in the assets
of the trust has not been determined. Total purchases amounted to $85,800
(January 31, 2000 $Nil) and the balance owed by the Company at January 31, 2001
was $2,233 (January 31, 2000 $Nil).
NOTE K - CONTINGENT LIABILITY
A complaint was filed against the Company on February 23, 2001 relating to a
$100,000 demand promissory note dated May 1, 2000 and payable to the order of
GEM Advisors Inc (GEM). The note bears interest at a rate of 3% per annum and if
payment is not made upon demand, the rate increases to 15% per annum. GEM was
entitled to convert the unpaid balance and interest into shares of the Company's
Common Stock if payment was not made on demand. Demand on the note was made by
GEM on September 21, 2000, subsequently GEM sent the Company a conversion notice
on December 18, 2000 electing to convert the note into 179,643 shares of the
Company's Common Stock. The note was subsequently converted and a share
certificate was delivered to GEM, which GEM returned to the Company contending
that the timeliness of the delivery of the share certificate violated the terms
of the note agreements. Although the Company is unable to predict any outcome of
the litigation, it is the Company's position that GEM made a binding election to
convert unpaid amounts due under the note into shares of the Company's Common
Stock, and that the Company fully satisfied the obligations under the note.
NOTE L - SUBSEQUENT EVENT
On February 27, 2001 the Company received $1,000,000 in the form of a
Convertible Loan from Goldman Investments Limited, a company in which Daniel
Goldman, a non-executive director of this Company, has an interest.
The Company's bank has agreed to a temporary $292,220 ((pound)200,000) increase
in the Company's short term credit facility until May 25, 2001 on the basis that
further additional investment to that noted above will be obtained by the
Company by May 25, 2001.
F-18
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this annual report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.
INVU, Inc.
(Registrant)
Date: May 15, 2001 By: /s/ David Morgan
-----------------------------------
David Morgan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-KSB has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE OFFICE DATE
--------- ------ ----
/s/ David Morgan President, Chief Executive Officer May 15, 2001
-------------------------------------------- and Chairman of the Board of
David Morgan Directors (Principal Executive
Officer)
/s/ Jon Halestrap Director and VP Marketing and Sales May 15, 2001
--------------------------------------------
Jon Halestrap
/s/ Daniel Goldman Director May 15, 2001
--------------------------------------------
Daniel Goldman
/s/ John Agostini Director and Chief Finance Officer May 15, 2001
-------------------------------------------- (Principal Financial Officer and
John Agostini Chief Accounting Officer)
/s/ Tom Maxfield Director May 15, 2001
--------------------------------------------
Tom Maxfield
/s/ David Andrews Director May 15, 2001
------------------------------------
David Andrews
S-1
INDEX TO EXHIBITS
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First
Amendment to Share Exchange Agreement, dated as of July 23, 1998
(incorporated by reference from Exhibit 2.1 of the Company's Current
Report on Form 8-K filed June 8, 1998 and Exhibit 99 of the Company's
Amendment to Current Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997
with the Secretary of State of the State of Colorado (incorporated by
reference from Exhibit 3.2 of the Company's Registration Statement on
Form 10-SB/A filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on
February 22, 1999, with the Secretary of State of the State of Colorado
(incorporated by reference from Exhibit 3.2 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
3.3 Bylaws of the Company (incorporated by reference from Exhibit 2.2 of
the Company's Registration Statement on Form 10-SB/A filed August 29,
1997).
10.1 Limited Manufacturing Agreement, dated March 25, 1998, by and between
INVU Services Limited and Centura Software Corporation (incorporated by
reference from Exhibit 10.3 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.2** Reseller Agreement, dated March 26, 1998, by and between INVU Services
Limited and Computer Associates Plc and Memorandum Amendment dated July
17, 1998 (incorporated by reference from Exhibit 10.4 of the Company's
Annual Report on Form 10-KSB filed October 15, 1999).
10.3** Gold Standard Reseller Agreement, dated June 16, 1999, by and between
INVU Services Limited and Computer Associates International, Inc.
(incorporated by reference from Exhibit 10.9 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.4 Investment Agreement, dated August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan, Alan David Goldman, and
Vertical Investments Limited (incorporated by reference from Exhibit
10.12 of the Company's Annual Report on Form 10-KSB filed October 15,
1999).
10.5 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited
(incorporated by reference from Exhibit 10.13 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.6 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited
(incorporated by reference from Exhibit 10.14 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.7 Supplemental Agreement, dated as of August 23, 1999, among the Company,
Vertical Investments Limited, Alan David Goldman, David Morgan, John
Agostini, Paul O'Sullivan, INVU Services Limited and Tom Maxfield
(incorporated by reference from Exhibit 10.15 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
E-1
10.8 Distribution Agreement, dated January 29, 2000, by and between INVU
Services and Gem Distribution Limited. (incorporated by reference from
Exhibit 10.13 of the Company's Annual Report on Form 10-KSB/A filed May
18, 2000).
10.9 Overdraft Facility Agreement, dated December 13, 1999, by and between
Invu Services Limited and HSBC Bank plc. (incorporated by reference
from Exhibit 10.16 of the Company's Annual Report on Form 10-KSB/A
filed May 18, 2000).
10.10 Lease Agreement, effective January 1, 2000, by and between Invu
Services Limited, Roy Taylor and Diana Ruth Taylor. (incorporated by
reference from Exhibit 10.24 of the Company's Annual Report on Form
10-KSB/A filed May 18, 2000).
10.11 Demand Promissory Note, dated May 1, 2000, by and between the Company
and GEM Advisors, Inc. (incorporated by reference from Exhibit 10.25 of
the Company's Annual Report on Form 10-KSB/A filed May 18, 2000).
10.12 Overdraft Facility, dated July 19, 2000, by and between the Company and
the Bank of Scotland (incorporated by reference from Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.13 Corporate Guarantee, dated July 18, 2000, by and among the Company,
Invu Plc, Invu Services Limited, Invu International Holdings Limited
and the Bank of Scotland (incorporated by reference from Exhibit 10.2
of the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.14 Debenture, dated July 13, 2000, by and between Invu International
Holdings Limited and the Bank of Scotland (incorporated by reference
from Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB
filed September 19, 2000).
10.15 Employment Agreement, dated June 30, 1997, by and between the Company
and David Morgan (incorporated by reference from Exhibit 10.4 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.16 Employment Agreement, dated June 9, 2000, by and between the Company
and John Halestrap (incorporated by reference from Exhibit 10.5 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.17 Employment Agreement, dated June 10, 1999, by and between the Company
and John Agostini (incorporated by reference from Exhibit 10.6 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.18 Letter Agreement, dated February 22, 2000, by and between David Morgan
and David Andrews (incorporated by reference from Exhibit 10.7 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.19 Letter Agreement, dated February 2, 1999, by and between David Morgan
and Daniel Goldman (incorporated by reference from Exhibit 10.8 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.20 Letter Agreement, dated April 27, 1999, by and between David Morgan and
Tom Maxfield (incorporated by reference from Exhibit 10.9 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
E-2
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
** Incorporated by reference, confidential treatment requested.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.