SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 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 No. 00-22661
INVU, INC.
(Exact name of small business issuer as specified in charter)
Colorado 84-1135638
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
The Beren, Blisworth Hill Farm
Stoke Road
Blisworth, Northamptonshire NN7 3DB
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(Address of principal (Postal Code)
executive offices)
Issuer's telephone number, including area code: (01604) 859893
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
As of September 5, 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 (check one)
YES NO X
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INVU, INC.
July 31, 2001
INDEX
Page No.
PART I. FINANCIAL INFORMATION.........................................................................................F-1
Item 1. Financial Statements.................................................................................F-1
Consolidated Balance Sheets as of July 31, 2001......................................................F-2
Consolidated Statements of Operations................................................................F-3
Consolidated Statements of Deficit in Stockholders' Equity...........................................F-4
Consolidated Statements of Cash Flows................................................................F-5
Notes to Financial Statements........................................................................F-6
Item 2. Management's Discussion and Analysis or Plan of Operation..............................................1
PART II. OTHER INFORMATION...............................................................................................6
Item 1. Legal Proceedings......................................................................................6
Item 2. Changes in Securities..................................................................................6
Item 3. Default Upon Senior Securities.........................................................................6
Item 4. Submission of Matters to a Vote of Security Holders....................................................7
Item 5. Other Information......................................................................................7
Item 6. Exhibits and Reports on Form 8-K.......................................................................7
SIGNATURES.............................................................................................................S-1
EXHIBIT INDEX..........................................................................................................E-1
CONSOLIDATED FINANCIAL STATEMENTS
INVU, INC. AND SUBSIDIARIES
JULY 31, 2001
F-1
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------
July 31, January 31,
2001 2001
(unaudited)
$ $
ASSETS
Current assets
Accounts receivable:
Trade, net 641,492 310,098
VAT recoverable and other 19,749 5,847
Inventories 45,240 35,150
Prepaid expenses 66,912 105,242
--------- ---------
Total current assets 773,393 456,337
--------- ---------
Equipment, furniture and fixtures
Computer equipment 90,592 82,989
Vehicles 290,145 289,970
Office furniture and fixtures 100,700 102,350
--------- ---------
481,437 475,309
Less accumulated depreciation 190,759 163,364
--------- ---------
290,678 311,945
--------- ---------
Intangible assets 142,520 -
--------- ---------
1,206,591 768,282
========= =========
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
Current liabilities
Short-term credit facility 1,344,287 1,682,975
Current maturities of long-term obligations 1,552,017 69,624
Accounts payable 356,974 544,524
Accrued liabilities 463,837 415,239
--------- ---------
Total current liabilities 3,717,115 2,712,362
--------- ---------
Long-term obligations, less current maturities 1,894,156 1,962,635
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 1,746,223 1,746,223
Accumulated deficit (6,370,511) (5,810,452)
Accumulated other comprehensive income 219,608 157,514
--------- ---------
(4,404,680) (3,906,715)
--------- ---------
1,206,591 768,282
========= =========
=============================================================================================================
The accompanying notes are an integral part of these financial statements.
F-2
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------------------------------
For the three For the six
months ended months ended
July 31, July 31, July 31, July 31,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
$ $ $ $
Revenues 393,139 41,376 695,155 54,319
Expenses:
Production cost 75,073 14,265 100,775 23,135
Selling and distribution cost 154,993 205,750 348,039 398,339
Research and development cost 116,430 59,470 229,889 122,602
Administrative costs 277,079 246,136 479,042 486,688
---------- ---------- ---------- ----------
Total operating expenses 623,575 525,621 1,157,745 1,030,764
---------- ---------- ---------- ----------
Operating loss (230,436) (484,245) (462,590) (976,445)
Other income (expense)
Interest, net (46,760) (26,794) (97,469) (58,111)
Other - - - -
---------- ---------- ---------- ----------
Total other expense (46,760) (26,794) (97,469) (58,111)
---------- ---------- ---------- ----------
Loss before income taxes (277,196) (511,039) (560,059) (1,034,556)
---------- ---------- ---------- ----------
Income taxes - - - -
---------- ---------- ---------- ----------
Net loss (277,196) (511,039) (560,059) (1,034,556)
========== ========== ========== ==========
Weighted average shares outstanding:
Basic and Diluted 30,386,539 30,206,896 30,386,539 30,206,896
========== ========== ========== ==========
Net loss per common share
Basic and Diluted (0.01) (0.02) (0.02) (0.03)
========== ========== ========== ==========
==============================================================================================================
The accompanying notes are an integral part of these financial statements.
F-3
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY
Accumulated
other
Common stock Accumulated comprehensive Comprehensive
Shares Amount deficit income Total loss
$ $ $ $
Balance at January 31, 2001 30,386,539 1,746,223 (5,810,452) 157,514 (3,906,715)
Comprehensive income (unaudited):
Foreign currency translation
adjustment (unaudited) - - - 62,094 62,094 62,094
Net loss for the period (unaudited) - - (560,059) - (560,059) (560,059)
------------
Total comprehensive income (unaudited) (497,965)
------------ ------------ ----------- ------------ ------------ ============
Balance at July 31, 2001 (unaudited) 30,386,539 1,746,223 (6,370,511) 219,608 (4,404,680)
============ ============ =========== ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------
For the six
months ended
July 31, 2001 July 31, 2000
(unaudited) (unaudited)
$ $
Net cash flows used in operating activities
Net loss during the period (560,059) (1,034,556)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 55,504 42,862
Loss on disposal of assets 1,049 -
Accounts receivable (356,478) (76,082)
Inventories (11,060) (36,072)
Prepaid expenses 36,090 (10,788)
Accounts payable (175,857) 181,913
Accrued liabilities 59,370 12,288
------------ -----------
Net cash used in operating activities (951,441) (920,435)
------------ -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (10,607) (96,281)
Acquisition of intangible assets (143,900) -
------------ -----------
Net cash used in investing activities (154,507) (96,281)
------------ -----------
Cash flows provided by financing activities:
Short-term credit facility (300,216) 373,460
Borrowings received from notes payable 1,459,000 762,570
Repayment of borrowings (26,383) (83,623)
Principal payments on capital lease (25,742) (21,041)
------------ -----------
Net cash provided by financing activities 1,106,659 1,031,366
------------ -----------
Effect of exchange rate changes on cash (711) (14,650)
------------ -----------
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 60,753 58,100
Income taxes - -
The accompanying notes are an integral part of these financial statements.
F-5
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The accompanying financial statements have been prepared without audit pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. These statements include all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair presentation of
financial position and results of operations. The financial statements included
herein should be read in conjunction with the financial statements and notes
thereto included in the latest annual report on Form 10-KSB. The results of
operations for the six month period ended July 31, 2001 are not necessarily
indicative of the results to be expected for the full year.
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.
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.
F-6
NOTE B - GOING CONCERN
The financial statements have been prepared on a going concern basis which
assumes that the Company can meet its financial obligations as they fall due in
the ordinary course of business. The Company's liabilities exceeded its assets
by $4,404,680 at July 31, 2001 and the Company had negative cash flows from
operations of $951,441 for the six months to July 31, 2001. The Company is
starting to generate revenues from operations and has obtained additional
financing since January 31, 2001 amounting to $1,459,000. Operations to date
have been funded principally by equity capital and borrowings. The Company is in
the process of negotiating additional financing to fund its operations. The
Company's ability to continue to develop its operations depends on its ability
to raise further financing. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE C - INVENTORIES
Inventories consist of the following:
July 31, January 31,
2001 2001
(unaudited)
$ $
Goods for resale 45,240 35,150
=========== ===========
Goods for resale represent the finished consolidated product to be sold to the
end user.
NOTE D - INTANGIBLE ASSET
The Company purchased certain assets comprising software, intellectual property
rights and the customer list from an unaffiliated entity on July 31, 2001 for
$142,520 ((pound)100,000). This intangible is to be amortised, by equal
instalments over a three year period as this is the estimated useful economic
life over which the Company expects to generate revenues from the assets
acquired.
NOTE E - SHORT-TERM CREDIT FACILITY
The Company has a $1,140,160 ((pound)800,000) (January 31, 2001 $1,169,000
((pound)800,000)), 7.5% short-term credit facility with an English bank. The
Company's bank has agreed to a temporary increase in the facility of $285,040
((pound)200,000) on the basis that further investment additional to the $1.459
million received in the six months to July 31, 2001 will be obtained in the very
near future. 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 July 31, 2001 was $1,344,287 ((pound)943,227), (January
31, 2001 $1,682,975 ((pound)1,151,855)). The amount drawn is payable on demand
at the bank's discretion. The credit facility is due for review at the end of
September 2001.
F-7
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations at July 31, 2001 and January 31, 2001
July 31, January 31,
2001 2001
(unaudited)
$ $
Non-interest bearing, unsecured loan from an individual,
no stated maturity date 726,337 759,245
4% above Libor rate (Libor rate was 5.25% and 5.72% at July 31, 2001 and January
31, 2001 respectively) notes payable to an English bank, monthly payment
aggregating to (pound)500, maturing in March 2002, collateralized by all
assets of the Company and a limited personal guarantee by a director 4,276 6,818
4% above Libor rate (Libor rate was 5.25% and 5.72% at July 31, 2001 and January
31, 2001 respectively) notes payable to an English bank, monthly payment
aggregating to (pound)1,333, maturing in June 2004, collateralized 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 70,309 81,821
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
Convertible loans 2001-2003, with interest rate per annum of 1.5% above
UK bank base rates 459,000 -
Loan advances from a minority shareholder and their related parties 1,000,000 -
Capital leases for vehicles, interest ranging from 10.2% - 16.9% with
maturities through 2004 186,251 184,375
------------ ----------
3,446,173 2,032,259
Less current maturities (1,552,017) (69,624)
------------ ----------
1,894,156 1,962,635
============ ==========
F-8
Scheduled maturities of long-term obligation are as follows:
Year ending July 31, $
2002 1,552,017
2003 1,104,715
2004 61,203
2005 1,900
2006 726,338
--------------
3,446,173
==============
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 investors 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 $133,166 has been accrued to July 31, 2001 (January 31,
2001 $99,241) 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.
2) Convertible loan notes
The investors are a related party of the minority shareholder of the Company.
The convertible loan notes are repayable at any time within 2 years from the
date of issue. They are convertible into common shares at the rate of one share
for every US $0.25 of outstanding principal at any time within the 2 years from
the date of issue provided that 45 days notice has been given.
F-9
3) Capital leases
The Company leases vehicles under noncancellable capitalized leases.
July 31, January 31,
2001 2001
(unaudited)
$ $
Vehicles 290,145 289,970
Less accumulated depreciation (100,055) (88,902)
------------- ------------
190,090 201,068
============= ============
Scheduled maturities of minimum lease payments are as follows:
Period ending July 31, $
2002 87,351
2003 95,926
2004 40,600
------------
223,877
Less amount representing interest 37,626
------------
Present value of net minimum lease payments 186,251
============
The scheduled net minimum lease payments to maturity are included in the
long-term obligation table above.
F-10
NOTE G - RELATED PARTY TRANSACTIONS
At July 31, 2001 David Morgan owed $19,749 ((pound)13,857) (January 31, 2001
$5,635 ((pound)3,857)) to the Company. The maximum liability during the period
amounted to $19,749 and the interest charge amounted to $Nil (January 31, 2001
$Nil).
The Company made purchases during the period under normal commercial terms from
Impakt Software Limited, a company owned by Paul O'Sullivan, who was a director
of the Company until July 12, 2000, 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 $32,323 in the
three months to July 31, 2001 (Year to January 31, 2001 $85,800) and the balance
owed by the Company at July 31, 2001 was $7,477 (January 31, 2001 $2,233).
NOTE H - 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.
F-11
Item 2. Management's Discussion and Analysis or Plan of Operation
The following description of "Management's Plan of Operation"
constitutes forward-looking statements for purposes of the Securities Act of
1933, as amended (the "Securities Act"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and as such involves known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of INVU, Inc., a Colorado corporation (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", "believe", "plan", "seek",
"objective", 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 the Company's Form 10-KSB for the fiscal year ending
January 31, 2001 or in this Form 10-QSB 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 which 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 which 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 which 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 fully scalable software (under
the brand name of INVU) for the electronic management of all types of
information and documents, such as forms, correspondence, literature, faxes,
e-mail, 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 global
supplier of information and document management software and services. 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. The majority of the
Company's development and marketing resources are now directed at its fast
growing and higher margin small/medium size enterprise (SME) market and
corporate professional series of products.
In November 1999, Management decided to adopt a value added reseller
(VAR) model for sales of its professional range in the U.K. The Company is also
pursuing non-exclusive distributors for its products in other territories.
Management is extremely encouraged by the number and quality of the resellers
that have been recruited to date to sell the product. Each VAR is currently
engaged, as an accredited reseller, at an initial fee of approximately $3000,
with a recurring annual fee thereafter. Having now recruited 85 resellers, the
Company continues to monitor existing resellers to ensure that they meet the
1
stringent INVU accreditation requirements. The Company has recently embarked on
an aggressive VAR recruitment campaign, and Management expects to recruit a
further 30 VARs by January 31, 2002.
As is typical in a VAR based route to market, some resellers have
significantly higher early sales success than others. INVU's experience is
similar, with a small number of resellers gaining notable success soon after
product adoption.
The INVU sales management team has implemented an intensive marketing
and sales support program with its resellers, including joint seminars, direct
mail and joint telephone blitz weeks.
The success of this ongoing program has provided many of the recruited
resellers with a pipeline of end-user opportunities, which they are actively
pursuing with the involvement of Company sales personnel. Many newly recruited
resellers are taking sales orders within two weeks of accreditation. The level
of end user inquiries continues to grow and these inquiries are now being
converted into sales at a rapidly increasing rate. Even more satisfying is the
increase in average number of users per sale and the significant reduction in
time between first contact and order placement by end users. Management believes
that this reflects the Company's brand values of ease of use, high quality and
price performance. Together with the steady increase in adoption of the INVU
range by SME companies, Management is encouraged by the continuing level of
interest from large organizations with orders being received from Zurich
Insurance, The Wood Group (part of Tyco Group), States of Jersey Police, Mansell
Construction (a large UK construction company), Samsung Electronics, Millfield
Partnership Limited (a large firm of financial advisors) and Nottingham Law
School.
The Company has also progressed with regard to two Original Equipment
Manufacture (OEM) opportunities with Xerox and Epson UK. As an Independent
Software Vendor, INVU has been designated as a Xerox Business Partner. Utilizing
Xerox SDK (standard development kits), the Company has been given the
opportunity to develop software for the Xerox Document Centre Range, of which
70,000 machines are currently in use in the UK. Epson UK and INVU have agreed to
a joint marketing strategy, whereby Epson UK, with the assistance of INVU
personnel, has agreed to introduce the INVU product line to its resellers at
formal events to be followed by roadshows.
During the quarter ended July 31, 2001, the Company received further
orders from Universal Music Group, a member of the global music, film and
leisure group. The total value of orders received to date from Universal Music
Group now exceeds $258,000, and further orders are anticipated by the Company
throughout the remainder of the fiscal year ended January 31, 2002 (the "Current
Fiscal Year"). INVU's unique code free integration technology allows it to
integrate with Universal Music Group's JD Edwards system. Development of a
web-based solution for Universal Music Group is currently in progress.
In addition to Universal Music Group, the Company has received repeat
orders from other existing end users. In addition, Management is encouraged by
the growing number of SME companies that are adopting INVU products. This is
seen as continued vindication of the Company's overall strategy. The Company's
sales team continues to target these enterprises, and Management believes that
its expanding reseller and customer base will generate steadily increasing sales
levels during the remainder of the Current Fiscal Year.
Throughout the six months ended July 31, 2001, the Company has
continued to develop its software 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. Version 5.2 is scheduled to be released
in the fourth fiscal quarter of the Current Fiscal Year. Each subsequent version
has built upon the original premise of ease of use, functionality and price
performance. Enhancements have been added in the light of customer feedback and
technical advances achieved by the Company's development department. Version 5.2
will contain the newly developed OCR functionality, which works with all
Microsoft OfficeTM file types and scanned images. This functionality will
automatically give keyword search capability of all existing documents in the
system. This release will also contain a Microsoft Office Add-In allowing
integration with Microsoft Office 2000. This gives INVU the ability to send
items from outlook to a user-selectable in-tray. It also allow users to save
documents from Microsoft WORD, EXCEL and PowerPoint straight to INVU filing,
even if these files are created outside of INVU. A separate "Sequential Workflow
Module" is also planned for release alongside Version 5.2. The "Sequential
Workflow Module" allows documents, forms and files to be routed electronically
to specific departments and individuals in a pre-determined sequence.
Individuals who receive the file may review and revise it, and the file will
then be sent to the next individual in the pre-determined order. The new module
2
will be a generic adoption of the bespoke program, which is already in use with
customers such as Universal Music Group. The workflow module to be released is
designed to be customer friendly and easy to use. This will be a separate 5.2
Module, which when integrated with Version 5.2 will be sold as INVU Series 250,
and charged accordingly.
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 product offering
without the difficulty and cost of hiring and managing development programmers.
Management believes the use of this product for 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. During
the quarter ended July 31, 2001, sales of the "codefree" module have again
increased, and Management expects this trend to continue throughout the Current
Fiscal Year and beyond.
INVU Series 2000 (formerly INVU WEBFAST) continues to be developed.
This product allows global access to retrieve, view, create or edit, and file
information via the web. Management believes that this product will form the
basis of future developments for many of its existing and future end 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 in late 2001 or early 2002. However, a web browser
"view only" product, "i200," is expected to be released in the third fiscal
quarter of the Current Fiscal Year. Management believes this technology will
place INVU in direct competition with the world's most established document
management solutions providers, but at a significantly lower price level.
As anticipated, development of a highly sophisticated content
addressable indexing and retrieval system has reached the prototype stage during
the second fiscal quarter of the Current Fiscal Year. This development allows
access to data and documents through intelligent frequency of word and phrase
recognition and semantic networking. Scanned images can be converted into text
using standard Optical Character Recognition technology, and even poor quality
scanned images can yield words and phrases that INVU's technology will retrieve.
The Company expects this product to further enhance filing and retrieval speeds
for organizations with large multiple data storage requirements across networks,
intranets, extranets and the internet. After "beta" trials are concluded,
Management expects to launch this product during the fourth fiscal quarter of
the Current Fiscal Year.
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. Management believes that, although important for the long
term strategy of the business, this service has a lower priority than both i200
and Series 2000 in the short term.
INVU's development team has produced a prototype module, which allows
speech files to be stored within the INVU central database. As with all records
stored within INVU, these can be attached to other corresponding files. Using
advanced compression techniques, this application is capable of storing 2,800
hours of recorded sound on a standard 40 gigabyte hard disk. With the addition
of a "raid card" attached to a 10 disk storage system, end users can obtain
28,000 hours of storage space for approximately $2,000. Management believes this
application has widespread appeal within many different environments, such as
call centers, patient records in hospitals, oral statements for lawyers, police
interviews, etc. This product now joins our growing portfolio of modules and
enhancements ready for release in the fourth fiscal quarter of the Current
Fiscal Year.
During the quarter ended July 31, 2001, sales were $393,139, which
represents an increase of 30% over the previous quarter. It should be noted that
total operating expenses for the six months ended July 31, 2001 are 18% lower
than for the six month period ended January 31, 2001 due to Management's focus
on achieving break-even and then profitability as quickly as possible.
Management estimates that the anticipated additional $500,000 of financing from
an entity affiliated with Daniel Goldman, a non-executive director, will fulfill
the Company's capital requirements for a period up to 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
3
in the third fiscal quarter of the Current Fiscal Year. Management's belief is
based on the assumption that the outstanding loans other than the bank facility
will be converted into equity of the Company.
In view of the Company's improving financial position and its objective
of reaching a monthly break-even during the third fiscal quarter of the Current
Fiscal Year, Management has again reviewed its resource requirements for the
remainder of the Current Fiscal Year. Management recognizes that additional
technical staff will be required in order to fulfill the Company's ambitious
product development plans. There is also a requirement for further sales support
personnel to deal with the ever-increasing rate of sales inquiries. Both these
personnel issues have been addressed, and new staff are currently being
recruited.
Results of Operations
The following is a discussion of the results of operations for the six
months ended July 31, 2001, compared with the six months ended July 31, 2000,
and changes in financial condition during the six month period ended July 31,
2001.
Net sales for the six months ended July 31, 2001 were $695,155, which
compares to $54,319 of net sales for the six months ended July 31, 2000. The
Company's strategy of selling its professional range of products via VARs (value
added resellers) continues to be vindicated with sales for the three months
ended July 31, 2001 increasing by over 30% when compared to the three months
ended April 30, 2001. The INVU sales management team has implemented an
intensive marketing and sales support program with its resellers, and the
success of this ongoing program has provided many of the recruited resellers
with a pipeline of end-user opportunities, which they are actively pursuing.
Many newly recruited resellers are taking sales orders within two weeks of
accreditation. The level of end user inquiries continues to grow and these
inquiries are now being converted into sales at a rapidly increasing rate.
The net loss for the six months ended July 31, 2001 was $560,059, which
is significantly less than the net loss for the corresponding period in 2000 of
$1,034,556, mainly due to increased sales of $640,836. As compared with the six
months ended July 31, 2000, the Company benefited from reductions in selling and
distribution costs of $50,300, and administrative costs of $7,646, but incurred
increases in research and development costs of $107,287 and production costs of
$77,640.
Selling and distribution expenditures reflect the current emphasis on
the Company's professional range of products rather than its retail software.
The Company continues to invest heavily in the development of existing and new
products, and, therefore, has increased expenditures in this area over the last
year. The decreases in administrative expenditure during the six months period
ended July 31, 2001 reflect the Company's continued efforts to control costs in
order to reach break even as predicted in the third fiscal quarter of the
Current Fiscal Year. Production costs per unit have also fallen significantly
due to economies of scale, mass production techniques and improved supply terms
In the six month period ended July 31, 2001, the Company incurred net
interest expense of $97,469 compared with net interest expense of $58,111 for
the six month period ended July 31, 2000. This increase is entirely due to
increased bank facilities. Management expects these costs to fall as soon as
additional investment funding is secured. Interest costs will also decrease when
net revenues are adequate to generate net cash inflows, which Management
believes will occur in the third fiscal quarter of the Current Fiscal Year.
The tax rates for the periods in question are zero due to a net loss in
each period.
The total current assets of the Company were $773,393 at July 31,
2001, an increase of $317,056 compared to $456,337 at January 31, 2001. Working
capital was negative $2,943,722 as of July 31, 2001, compared with negative
$2,256,025 as of January 31, 2001. These changes are mainly due to increases in
accounts receivable and current maturities of long term obligations, together
with decreases in short term credit facilities and accounts payable. The Company
has obtained loan advances (with no stated maturity date or interest rate) and
convertible loans from a minority shareholder and his related parties and from
other entities totaling $1,000,000 and $459,000, respectively, during the six
month period ended July 31, 2001. Management believes that this amount will
either be repaid from the proceeds of future financings or converted into
stockholders' equity before the end of the Current Fiscal Year, which will
significantly reduce the working capital deficit.
4
Total assets of the Company were $1,206,591 at July 31, 2001, an
increase of $438,309 compared to $768,282 at January 31, 2001. This is
attributable to decreases in fixed assets of $21,267, an increase in current
assets of $317,056, and an increase in intangible assets of $142,520,
representing the acquisition of the source code, intellectual property rights
and customer database of a business unaffiliated with the Company.
The total current liabilities of the Company increased by $1,004,753
from $2,712,362 at January 31, 2001 to $3,717,115 at July 31, 2001. The change
in current liabilities is due to decreases in accounts payable of $187,550 and
short term credit facilities of $338,688 and increases in current maturities of
long-term obligations of $1,482,393 and accrued liabilities of $48,598. This,
together with the decrease in long-term obligations less current maturities,
reflects the replacement of short-term credit facilities with short term
unsecured loans and convertible loans from a minority shareholder and their
related parties of $1,459,000 and the subsequent repayment of accounts payable.
See "Financing Management Plan of Operation." Long-term obligations less current
maturities were $1,894,156 at July 31, 2001 compared to $1,962,635 at January
31, 2001.
Total stockholders' equity decreased by $497,965 during the six month
period ended July 31, 2001 from a deficit of $3,906,715 at January 31, 2001 to a
deficit of $4,404,680 at July 31, 2001. The Company continues to evaluate
various financing options, including issuing debt and equity to finance future
development and marketing of products as the Company has now moved to an
operational stage.
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. In March 2000, the Company received a non-interest unsecured loan of
$571,500 from an individual with no stated maturity date. 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. No stated
maturity date or interest rate or other terms have been established for this
advance. 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. Although the specific terms of the
February advance from Goldman Investments Limited, including the interest rate
and maturity date, have not been finalized, to the extent that the loan
ultimately 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.
In May, 2001, the Company received loan advances of $250,000 from
Goldman Ventures Limited and $50,000 from Paysage Investments Limited, both
companies in which Daniel Goldman, a non-executive director of the Company, has
an interest. In July, 2001, the Company received a further loan advance of
$50,000 from Goldman Ventures Limited, a company in which Daniel Goldman, a
non-executive director of the Company, has an interest. Also in July, 2001, the
Company received $84,000 from Pershing Nominees and $25,000 from Guernroy
Limited. Each of these advances referenced in this paragraph were made by way of
convertible loans at an interest rate per annum of 1.5% above the UK bank base
rate. Each of the convertible loans has maturity date 24 months from date of
issue, but principal and interest may be repaid at any time without penalty. The
loans are convertible at the rate of $0.25 per share of Common Stock, and the
investor may convert, having given 45 days notice, at any time during the 24
month period.
In addition, the Company has a $1,140,160 short-term credit facility
with an annual interest rate of 7.5% with an English bank. The Company's bank
has agreed to a temporary increase in the facility of $285,040, on the basis
that further investment of approximately $500,000, in addition to the $1.459
million received in the six months to July 31, 2001, will be obtained. The
Company believes that it will receive an advance from a Goldman entity for this
amount. The Company intends to use a portion of the $500,000 to repay the
facility increase of $285,040. 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 July 31, 2001
5
was $1,344,287. The amount drawn is payable on demand at the bank's discretion.
The credit facility is due for review at the end of September, 2001. Management
expects this facility to be renewed at this time.
Management estimates that the additional $500,000 of financing will
fulfill the Company's capital requirements for a period up to 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 Current Fiscal Year. Management's
belief is based on the assumption that the outstanding loans other than the bank
facility will be converted into equity of the Company. There can, however, be no
assurance that the above transaction will be consummated, that the Company will
be able to achieve monthly break-even in the third fiscal quarter of the Current
Fiscal Year, 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, could have a material adverse affect on the Company's business, results
of operations and financial condition. Please refer to Note B of the
Consolidated Financial Statements in conjunction with this paragraph regarding
the Company's ability to continue as a going concern.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As reflected in the Company's 10-KSB for the fiscal year ended January 31,
2001, 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, disbursement and attorney
fees. The complaint relates to a $100,000 demand promissory note (the "Note")
dated May 1, 2000 and payable to the order of GEM. In response, the Company
filed an answer on or about April 16, 2001 denying that any amounts are owing
under the Note. 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.
On August 9, 2001, GEM filed a Motion for Summary Judgment and the Company
filed a Cross-Motion for Summary Judgment on August 27, 2001. The parties are in
the process of submitting additional papers in connection with their respective
motions.
Item 2. Changes in Securities.
In February, May and July 2001, entities affiliated with Daniel Goldman, a
non-executive Director of the Company, made loan advances to the Company in the
aggregate principal amount of $1,350,000. In July 2001, Pershing Nominees
advanced $84,000 to the Company and Guernoy Limited advanced $25,000 to the
Company. Each advance was made pursuant to convertible loans that bear an
interest rate of 1.5% above the UK bank base rate. The principal and interest on
the loans are repayable at any time within 24 months of the date of grant
without penalty. Each entity may convert the loans into shares of the Company's
common stock at a rate of $0.25 per share at anytime during a 24 month period
following the date of grant provided that the Company has been given 45 days
notice. The issuance of the loans were not, and the issuance of shares (the
"Conversion Shares") of Common Stock on conversion of the loans will not be,
registered under the Securities Act in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act. The transactions
were privately negotiated transactions without any general solicitation or
advertising. The investors for whom Pershing Nominees is acting, Guernoy Limited
and the Goldman affiliated entities are "sophisticated investors" within the
meaning of the Securities Act and have access to all information concerning the
Company needed to make an informed decision with respect to the transactions.
The certificates evidencing the Conversion Shares will bear a legend
reflecting that the Conversion Shares are subject to the restrictions on
transfer under the Securities Act, including Rule 144 promulgated thereunder.
Item 3. Default Upon Senior Securities.
None
6
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
None
EXHIBITS
10.1 Overdraft Facility, dated October 19, 2000, by and between the Company
and the Bank of Scotland (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 31, 2000).
10.2 Corporate Guarantee, dated October 18, 2000, by and among the Company,
Invu Plc, Invu Services Limited, Invu International Holdings Limited
and the Bank of Scotland (incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 31, 2000).
10.3 Debenture, dated October 13, 2000, by and between Invu International
Holdings Limited and the Bank of Scotland (incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB for the
quarter ended July 31, 2000).
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Quarterly Report to be signed on
its behalf by the undersigned thereunto duly authorized.
INVU, INC.
(Issuer)
Date: September 14, 2001 By: /s/ David Morgan
---------------------------------------
David Morgan, President &
Chief Executive Officer
(Principal Executive Officer)
Date: September 14, 2001 By: /s/ John Agostini
---------------------------------------
John Agostini, Vice President-Chief
Financial Officer & Secretary
(Principal Financial Officer)
S-1
INDEX TO EXHIBITS
(a) Exhibits
Exhibit
Number Description of Exhibit
10.1 Overdraft Facility, dated October 19, 2000, by and between the Company
and the Bank of Scotland (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 31, 2000).
10.2 Corporate Guarantee, dated October 18, 2000, by and among the Company,
Invu Plc, Invu Services Limited, Invu International Holdings Limited
and the Bank of Scotland (incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-QSB for the quarter ended
July 31, 2000).
10.3 Debenture, dated October 13, 2000, by and between Invu International
Holdings Limited and the Bank of Scotland (incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB for the
quarter ended July 31, 2000).
E-1