SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
FOR QUARTER ENDED OCTOBER 31, 1999 COMMISSION FILE NO. 00-22661
INVU, INC.
(Exact name of registrant as specified in charter)
COLORADO 84-1135638
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
THE BEREN, BLISWORTH HILL FARM
STOKE ROAD
BLISWORTH, NORTHAMPTONSHIRE NN7 3DB
- --------------------------------------------------------------------------------
(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (01604) 859893
--------------
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (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 October 31, 1999, there were 30,206,896 shares of the common stock, no
par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
----- -----
1
INVU, INC.
October 31, 1999
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION................................................................................F-1
Item 1. Financial Statements.................................................................................F-1
Consolidated Balance Sheets as of October 31, 1999...................................................F-1
Consolidated Statements of Operations................................................................F-2
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......................................................................................5
Item 1. Legal Proceedings......................................................................................5
Item 2. Changes in Securities..................................................................................5
Item 3. Default Upon Senior Securities.........................................................................5
Item 4. Submission of Matters to a Vote of Security Holders....................................................5
Item 5. Other Information......................................................................................5
Item 6. Exhibits and Reports on Form 8-K.......................................................................5
SIGNATURES
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, JANUARY 31,
1999 1999
(UNAUDITED) (AUDITED)
$ $
ASSETS
CURRENT ASSETS
Accounts receivable:
Trade, net 9,724 615
VAT recoverable and other 19,343 11,331
Inventories 124,759 126,590
Prepaid expenses 12,217 18,942
-----------------------------------------
TOTAL CURRENT ASSETS 166,043 157,478
EQUIPMENT, FURNITURE AND FIXTURES
Computer equipment 38,488 26,217
Vehicles 183,999 65,046
Office furniture and fixtures 31,497 29,938
-----------------------------------------
253,984 121,201
Less accumulated depreciation 58,182 41,440
-----------------------------------------
195,802 79,761
361,845 237,239
=========================================
LIABILITIES
CURRENT LIABILITIES
Short-term credit facility 32,732 66,146
Current maturities of long-term obligations 67,401 209,517
Accounts payable 197,974 74,773
Accrued liabilities 102,387 79,122
-----------------------------------------
TOTAL CURRENT LIABILITIES 400,494 429,558
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 1,519,895 422,193
DEFICIT IN STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorised - 20,000,000, nil shares issued and outstanding - -
Common stock, no par value
Authorised - 100,000,000, issued - 30,206,896 shares 288,355 288,355
Accumulated other comprehensive income 13,559 9,095
Accumulated deficit during the development stage (1,860,458) (911,962)
-----------------------------------------
(1,558,544) (614,512)
361,845 237,239
=========================================
The accompanying notes are an integral part of these statements.
F-1
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended
FOR THE NINE FOR THE NINE FEB 18, 1997
FOR THE THREE MONTHS ENDED MONTHS ENDED MONTHS ENDED (DATE OF INCEPTION)
OCT 31, 1999 OCT 31, 1998 OCTOBER 31, 1999 OCTOBER 31, 1998 TO OCT 31, 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
$ $ $ $ $
Revenues 1,794 - 21,607 - 31,846
Expenses:
Production costs 1,142 10,973 9,552 54,216 117,731
Distribution costs 58,026 19,357 163,219 46,605 284,818
Research and development costs 20,310 32,729 160,468 95,748 337,374
Administrative costs 277,287 60,448 586,327 216,013 1,093,680
---------------------------------------------------------------------------------------
Total operating expenses 356,765 123,507 919,566 412,582 1,833,603
Operating loss (354,971) (123,507) (897,959) (412,582) (1,801,757)
Other income (expense)
Interest, net (23,220) (1,236) (50,537) (3,914) (61,064)
Other - 420 - 1,100 2,363
---------------------------------------------------------------------------------------
Total other income (expense) (23,220) (816) (50,537) (2,814) (58,701)
---------------------------------------------------------------------------------------
Loss before income taxes (378,191) (124,323) (948,496) (415,396) (1,860,458)
---------------------------------------------------------------------------------------
Income taxes - - - - -
NET LOSS (378,191) (124,323) (948,496) (415,396) (1,860,458)
=======================================================================================
The accompanying notes are an integral part of the statements.
F-2
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE FOR THE NINE FEB 18, 1997
FOR THE THREE MONTHS ENDED MONTHS ENDED MONTHS ENDED (DATE OF INCEPTION)
OCT 31, 1999 OCT 31, 1998 OCTOBER 31, 1999 OCTOBER 31, 1998 TO OCT 31, 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Basic and Diluted 30,206,896 30,206,896 30,206,896 30,206,896 30,206,896
-------------------------------------------------------------------------------------
Net loss per common share:
Basic and Diluted $ (0.01) $ (0.00) $ (0.03) $ (0.01) $ (0.06)
-------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
F-3
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY
For the periods ended
ACCUMULATED
OTHER
ACCUM- COMPRE- COMPRE-
PREFERRED STOCK COMMON STOCK ULATED HENSIVE HENSIVE
SHARES AMOUNT SHARES AMOUNT DEFICIT INCOME TOTAL INCOME
$ $ $ $ $ $
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 year - - (694,809) - (694,809) (694,809)
--------
Total comprehensive income (686,154)
-------------------------------------------------------------------------------------------------
- - 30,206,896 288,355 (911,962) 9,095 (614,512)
Balance at January 31, 1999
Comprehensive income:
Foreign currency translation
adjustment (unaudited) - - - 4,464 4,464 4,464
Net loss during the period
(unaudited) - - (948,496) - (948,496) (948,496)
--------
Total comprehensive income (944,032)
-------------------------------------------------------------------------------------------------
Balance at October 31, 1999
(unaudited) - - 30,206,896 288,355 (1,860,458) 13,559 (1,558,544)
======================================================================================
F-4
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the periods ended
FOR THE NINE FOR THE NINE FEB 18, 1997
MONTHS MONTHS (DATE OF
ENDED ENDED INCEPTION) TO
OCT 31, 1999 OCT 31, 1998 OCT 31, 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED)
$ $ $
Net cash flows used in operating activities
Net loss during the period (948,496) (415,396) (1,860,458)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 27,012 16,753 68,831
Accounts receivable (19,274) 27,205 (31,050)
Inventories 1,617 (116,431) (126,517)
Prepaid expenses 9,069 (1,718) (9,996)
Accounts payable 121,090 (2,486) 196,814
Accrued liabilities 22,275 37,544 102,260
---------------------------------------------------
Net cash used in operating activities (786,707) (454,529) (1,660,116)
Cash flows used in investing activities
Acquisitions of property and equipment - (3,180) (87,110)
Disposals of property and equipment 20,347 - 20,347
---------------------------------------------------
Net cash provided/(used) by investment activities 20,347 (3,180) (66,763)
Cash flows used in investing activities:
Short-term credit facility (42,606) 73,152 24,347
Borrowings received from notes payable 1,662,884 345,916 2,765,768
Repayment of borrowings (811,795) - (1,293,422)
Principal payments on capital lease (42,123) (6,723) (59,500)
Proceeds from issuance of stock - - 288,640
---------------------------------------------------
Net cash provided by financing activities 766,360 412,345 1,725,833
Effect of exchange rate changes on cash - 367 1,046
---------------------------------------------------
Net decrease in cash - (44,997) -
Cash at beginning of period - 44,997 -
---------------------------------------------------
Cash at end of period - - -
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest 50,537 3,900 60,737
Income taxes - - -
The accompanying notes are an integral part of these statements.
F-5
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The interim financial statements presented herein are unaudited and
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB. Accordingly, they do not include all of the information
and footnotes required for complete audited financial statements. These
statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's filing on 10-KSB
for the year ended January 31, 1999. In the opinion of management, the
accompanying unaudited consolidated financial statements of INVU, Inc.
and Subsidiaries (the Company) contain all adjustments (consisting of
only normal recurring adjustments) necessary to fairly present the
Company's financial position as of October 31, 1999 and the results of
operations for the period of February 18, 1997 (date of inception) to
October 31, 1999 and for the three and nine month periods ended October
31, 1999 and 1998, and cash flows for the nine month period ended
October 31, 1999 and 1998 and the period of February 18, 1997 (date of
inception) to October 31, 1999. The interim financial statements should
be read in conjunction with the following explanatory notes. The
results of operations for the three and nine month periods ended
October 31, 1999 may not be indicative of the results that may be
expected for the fiscal year ending January 31, 2000.
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 develops and sells 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. (a public development
stage enterprise) acquired all of the outstanding shares of INVU Plc in
exchange for restricted shares of common stock of Sunburst Acquisitions
I, Inc. (the Exchange) pursuant to a Share Exchange Agreement between
Sunburst Acquisitions I, Inc. and the principal shareholder of INVU
Plc. Sunburst Acquisitions I, Inc. 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. 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 officer of
Sunburst Acquisitions I, Inc. Also, Sunburst Acquisitions I, Inc.
changed its name to INVU, Inc. In connection with 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 Acquisitions I, Inc. The shares were estimated to have a
value of $750,000 and have been treated as a transaction cost in
connection with the Exchange. After the Exchange, INVU Plc's former
shareholders owned approximately 88% of the outstanding common stock of
Sunburst Acquisitions I, Inc. In January 1999, the Company's Board
voted to change the Company's fiscal year end to January 31.
F-6
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STATE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - 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 not generating cash from operations.
Operations to date have been funded principally by equity capital and
borrowings. The Company plans to continue to fund its development
expenses through additional capital raising activities, including one
or more offerings of equity and/or debt through private placements
and/or public offerings. The Company's ability to continue to develop
its infrastructure 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.
The Company is still building its operational infrastructure.
Additional capital raised by the Company, if any, will be used for this
purpose and to fund its planned launch of operations within the United
Kingdom and the United States.
NOTE C - INVENTORIES
Inventories consist of the following:
OCTOBER 31, JANUARY 31,
1999 1999
(UNAUDITED) (AUDITED)
$ $
Licensed goods 109,694 118,080
Goods for resale 15,065 8,510
--------------------------
124,759 126,590
--------------------------
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.
NOTE D - SHORT-TERM CREDIT FACILITY
The Company has a (pound) 40,000, 4% over Libor short-term credit
facility with an English bank. The credit facility is collateralized by
all assets of the Company and a limited personal guarantee by a
director of the Company. The amount drawn against the facility was
$32,732 ((pound) 19,947) at October 31, 1999 ($66,146 ((pound) 40,000)
at January 31, 1999). The amount drawn is payable on demand at the
bank's discretion.
F-7
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations at October 31, 1999 and January 31, 1999,
OCTOBER 31, JANUARY 31,
1999 1999
(UNAUDITED) (AUDITED)
$ $
Non-interest bearing, unsecured loan from an individual, no stated maturity
date 301,854 391,140
8% note payable to corporate investors and individuals, six monthly
installments commencing August 1999, installments determined by balance due at
August 1999; paid in full during the Company's third quarter 1999
- 190,325
4% above Libor rate (Libor rate was 5.25% and 5.75% at October 31, 1999 and
January 31, 1999, 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 25,713 32,235
4% above Libor rate (Libor rate was 5.25% and 5.75% at October 31, 1999 and
January 31, 1999, 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 1/2% per annum
is payable on 85% of the outstanding balance 120,962 -
Convertible A Note 1999-2002, with interest at 6%, interest due in arrears semi-
annually on January 1st and July 1st 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 semi-annually on January 1st and July 1st
400,000 -
Capital leases for vehicles; interest ranging from 10.2% - 16.9% with
maturities through 2003 138,767 18,010
--------------------- --------------------
1,587,296 631,710
Less current maturities (67,401) (209,517)
--------------------- --------------------
1,519,895 422,193
===================== ====================
F-8
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONVERTIBLE DEBENTURES
The A and B Convertible Notes 1999-2002 are convertible into shares of
common stock at the rate of one common share (i) for every US$0.65 of
outstanding principal of the A Note converted and (ii) for every
US$0.50 of outstanding principal of the B Note converted. Conversion
will take place automatically for the A Note:
i. in the event that the Company is listed on the NASDAQ National
Market or the Official List of the London Stock Exchange; or
ii. upon the raising of new equity capital resulting in proceeds to
the Company of at least $4,000,000.
Conversion will take place automatically for the B Note in the event
that the Company is listed on the NASDAQ National Market or the
Official List of the London Stock Exchange. If the B Note is not so
converted, it can be redeemed at any time for a period of 12 months
from August 23, 1999 at the election of the Company. If neither of the
Notes has been converted, they may be redeemed together with accrued
interest upon 30 days notice by the Company or the Investors on or
after August 2002.
In consideration of the Investors advancing an aggregate of $1,000,000,
the Company caused Montague Limited, the principal shareholder of the
Company, to transfer and register in the name of the Investors, 225,000
shares of Common Stock of no par value. As a result of the Company
achieving this financing, certain lenders in a previous loan facility
in the principal amount of $656,000 transferred to Montague 425,000
shares of Common Stock in exchange for the use of the proceeds from the
Convertible Note transaction to repay all indebtedness under this
previous loan facility.
Scheduled maturities of long term obligations are as follows:
PERIOD ENDING OCTOBER 31, $
2000 67,401
2001 67,287
2002 1,115,403
2003 13,940
2004 21,411
Thereafter 301,854
----------
1,587,296
----------
The Company leases vehicles under non-cancellable capitalized leases.
OCTOBER 31, JANUARY 31,
1999 1999
(UNAUDITED) (AUDITED)
$ $
Motor vehicles 183,999 34,706
Less accumulated depreciation 19,848 6,941
----------------------------
164,151 27,765
----------------------------
F-9
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a schedule by periods of future minimum lease payments under
the capital leases together with the present value of the net minimum lease
payments as of October 31, 1999.
PERIOD ENDING OCTOBER 31, $
2000 43,280
2001 35,864
2002 52,919
2003 45,305
Thereafter -
-------
Total minimum lease payments 177,368
Less amount representing interest (38,601)
-------
Present value of net minimum lease payments 138,767
-------
The scheduled net minimum lease payments to maturity are included in
the long-term obligation table above.
F-10
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, 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 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.
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto.
The Company develops and sells software (under the brand name INVU) for
the electronic management of many types of information and documents such as
forms, correspondence, literature, faxes, technical drawings and electronic
files. Management believes that the INVU software is simple, intuitive to use,
and cost effective, yet powerful.
The Company's objective is to establish itself as a leading supplier of
information and document management software to the world. For its professional
range of products, INVU Series 100, Series 200 (formerly INVU PRO), ViewSafe
100 and ViewSafe 200, 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 software retailers for INVU SOLO.
Throughout the quarter ended October 31, 1999, the Company continued to
develop its software products. The Company's first product, INVU SOLO, was
released to distributors in December 1998 and sales to the SOHO market commenced
in January 1999. Management was satisfied with the initial response to this
product, but in view of comments and advice received from retailers they have
decided to re-launch more suitably packaged and targeted products for the retail
market. Two product releases are planned. The first enables web users to quickly
and easily build a personal library from the internet with what management
believes is a competitive price of less than $50. This product's key features
are the simple downloading, storing and organization of web pages, thus enabling
on or off line browsing. The second product is a re-launch of the original INVU
SOLO product with additional features included. Due to the Christmas stock cycle
period, the release date to retailers is planned for February 2000.
The first production release of INVU Series 100, Series 200 (formerly
INVU PRO), ViewSafe 100 and ViewSafe 200 (collectively known as "the
professional range of products") was made on October 5, 1999 to an exclusive
distributor in the
1
United Kingdom, and sales to end users were anticipated in October 1999.
However, the exclusive distributor, CHS UK Holdings Limited, entered
administrative receivership on Monday, October 25, 1999 before any product
orders had been fulfilled. Although no significant financial loss has accrued to
the Company, the closure of this distribution outlet has meant a change in sales
and marketing policy in the United Kingdom. Management has decided on a strategy
to directly recruit resellers while also pursuing non-exclusive distributors for
the products. The number of early resellers' sign-ups has been encouraging.
As a consequence of initial marketing activities associated with the
launch of the Company's professional range of products, many end-user inquiries
have been received. These are now being pursued by our expanding team of sales
personnel. Although the loss of the Company's U.K. distributor has caused a
delay in sales revenues, management believes that its direct sales team and
newly recruited resellers will provide positive results within the next few
months.
INVU Series 2000 (formerly INVU WEBFAST) continues to be developed and
management still estimates that this product will be released in early 2000.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for the nine
months ended October 31, 1999, compared with the nine months ended October 31,
1998, and changes in financial condition during the nine month period ended
October 31, 1999.
The Company (formerly Sunburst Acquisitions I, Inc.) engaged in no sig-
nificant operations prior to the Share Exchange Agreement with INVU PLC on
August 31, 1998.
Net sales for the nine months ended October 31, 1999 were $21,607,
which compares to $0 sales for the nine months ended October 31, 1998. Sales to
end-users have been delayed due to problems with the Company's UK distributor,
CHS UK Holdings Limited. The Company's strategy to sell via VARs (value added
resellers) will require time to sign up the requisite number of dealers. In
order to do this, the Company has recruited a number of sales personnel whose
employment will commence during December 1999 and January 2000. However, the
Company has already registered a number of accredited resellers throughout the
UK and Ireland, and a large number of sales leads have been generated from a
variety of companies. Management is also encouraged by the interest shown in the
product by large multi-national companies with specific requirements for a
functionally rich product at a very competitive price. The decision to re-launch
and expand the retail product range in February 2000 will allow management to
concentrate its sales activity on the corporate market during the three months
to January 31, 2000. The net loss for the nine months ended October 31, 1999 was
$948,496 which exceeds the net loss for the corresponding period in 1998 of
$415,396 due to increased production, distribution, development and
administrative costs of $919,566. This reflected the Company's continued
investment in product development and administrative infrastructure. Additional
manpower and cash resources have been employed in the development of new
products, such as INVU ViewSafe, the two new personal user products, and further
enhancements to INVU Series 200 and ViewSafe 200. In particular, the ViewSafe
products provide the Company with what management believes is the world's first
PC based document management solution to include a fully embedded encrypted
database.
In the nine month period ended October 31, 1999, the Company incurred
net interest expense of $50,537 compared with net interest expense of $3,914 for
the nine month period ended October 31, 1998. A loan facility from corporate
investors and individuals in the principal amount of $656,000 was made available
to the Company on February 2, 1999, at an interest rate of 8% per annum (the
First Financing Transaction). On August 23, 1999, the Company raised $1,000,000
in a private placement of Convertible Notes that bear interest at rates between
6% and 10% (the Second Financing Transaction), certain of the proceeds of which
were used to repay all amounts outstanding under the First Financing Transaction
(see further discussion in Financing Management's Plan of Operation). These
loans and notes together with increased bank facilities and loans have therefore
resulted in greater interest payments.
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 $166,043 at October 31,
1999, an increase of $8,565 compared to $157,478 at January 31, 1999. Working
capital was negative $234,451 as of October 31, 1999, compared with negative
$272,080 as of January 31, 1999. These changes are due to the replacement of
short-term loans with long-term funding.
2
Total assets of the Company were $361,845 at October 31, 1999, an
increase of $124,606 compared to $237,239 at January 31, 1999. The increase is
mainly attributable to investment in fixed assets.
The total current liabilities of the Company decreased by $29,064 from
$429,558 at January 31, 1999 to $400,494 at October 31, 1999. The change in
current liabilities is due to an increase in accounts payable and accrued
liabilities of $146,466 and a fall in short-term credit facilities and current
maturities of long-term obligations of $175,530. This, together with the
increase in long-term obligations less current maturities, reflects the
replacement of short-term facilities with long term funding. Long term
obligations less current maturities were $1,519,895 at October 31, 1999 compared
to $422,193 at January 31, 1999 due to the redemption of the First Financing
Transaction and investment via the Second Financing Transaction.
Total stockholders' equity decreased by $944,032 during the nine month
period ended October 31, 1999 from a deficit of $614,512 at January 31, 1999 to
a deficit of $1,558,544 at October 31, 1999. The Company continues to evaluate
various financing options, including issuing debt and equity to finance future
development and marketing of products during the transitional period between
development and operational stages.
FINANCING MANAGEMENT'S PLAN OF OPERATION
On February 2, 1999, the Company borrowed $656,000 in the First
Financing Transaction. On August 23, 1999, the Company raised $1,000,000 in a
private placement. Certain of the proceeds from the private placement were used
to repay all amounts outstanding under the First Financing Transaction. This
private placement is described in the Company's Annual Report on Form 10-KSB for
the year ended January 31, 1999 under "Item 1. Description of Business - The
Second Financing Transaction".
As at October 31, 1999, management was considering further funding
opportunities for the business to finance ongoing operations and working
capital. The Company has plans to raise further finance as a private placement
prior to an initial public offering (I.P.O.) and is currently at an advanced
stage of negotiations with certain financial institutions regarding a potential
phased investment of $5,000,000 between December 1999 and March 2000. Management
estimates that the proceeds from such a private placement would fulfill the
Company's capital requirements for a period of up to twenty-four (24) months.
The Company is seeking to conduct a public offering of Common Stock of the
Company during 2000. Pursuant to the Securities Act, the I.P.O. will be made
only by means of a prospectus.
Management is also in the process of increasing the Company's bank
overdraft facility from $65,600 to $492,000 and believes this will be completed
by December 31, 1999. There can, however, be no assurance 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies' computer systems and/or
software may need to be upgraded or replaced to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry concerning
the potential effects associated with such compliance.
The Company has reviewed its own software products and believes that
there will be no adverse impact with the Year 2000 date change. All INVU
products are designed to record, store, and process calendar dates occurring
before and after January 1, 2000 with the same full year accuracy (i.e. four
numeric characters instead of two).
An impact analysis has been completed, that has identified no major
risk of failure within the Company's in-house computer systems, which include
the following:
3
- The accounting and management information systems
- The document management systems
This risk to the Company's business relates not only to the Company's
computer systems, but also to some degree to those of the Company's suppliers
and customers. The Company has developed a policy designed to ensure that all
key customers, suppliers and strategic partners operate and provide Year 2000
compliant systems and software. The returns of information from third parties
relating to Year 2000 compliance have now been received and collated. Also,
there is a risk that existing or potential customers may not purchase the
Company's products in the future if the computer systems of such existing or
potential customers are adversely impacted by the Year 2000 date change.
Based on the information to date, the Company believes that it has
completed its Year 2000 compliance review and that no further actions are
required prior to the end of 1999. However, the issue is complex, and no
business can guarantee that there will be no Year 2000 problems. Some
commentators have stated that a significant amount of litigation will arise out
of Year 2000 compliance issues, and the Company is aware of a growing number of
lawsuits against other software vendors. Because of the unprecedented nature of
such litigation, it is uncertain to what extent the Company may be affected by
it. In addition, management believes that future purchasing patterns of
customers and potential customers have been affected by Year 2000 issues with
many companies expending significant resources to correct their software systems
for Year 2000 compliance. These expenditures have reduced funds available to
purchase software products such as those offered by the Company.
To date, the Company has not created a separate budget for investigating
and remedying issues related to Year 2000 compliance, whether involving the
Company's own software products or the software or systems used in its internal
operations. There can be no assurances that Company resources spent on
investigating and remedying Year 2000 compliance issues will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
4
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
(a) None
(b) None
(c) On August 23, 1999, the Company issued two Convertible Notes titled
Loan Stock Instruments pursuant to Section 4(2) of the Securities Act. The
transaction was governed by that certain Investment Agreement (the "Initial
Investment Agreement"), among the Company, David Morgan, John Agostini, and Paul
O'Sullivan, on the one hand, and Alan David Goldman ("Goldman") and Vertical
Investments Limited ("Vertical"), a company registered in Jersey and
beneficially owned by Daniel Goldman, on the other hand, as supplemented by that
certain Supplemental Agreement (the "Supplemental Agreement" and, together with
the Initial Investment Agreement, the "Final Investment Agreement"), dated as of
August 23, 1999, among the Company, David Morgan, John Agostini, Paul O'Sullivan
and INVU Services, on the one hand, and Goldman, Vertical, and Tom Maxfield
("Maxfield", together with Goldman and Vertical, collectively, the "Investors")
on the other hand. Pursuant to the terms of the Final Investment Agreement, the
Investors agreed to advance certain funds to the Company in the aggregate
principal amount of $1,000,000 in shares of $333,334, $333,333 and approximately
$333,333 among Goldman, Vertical and Maxfield, respectively, and the Company
agreed to (1) pay in full any and all amounts then outstanding pursuant to the
First Financing Transaction, as defined in the Management's Discussion and
Analysis or Plan of Operation section of this filing, and to terminate such
Agreement, (2) cause the Lenders to transfer to Montague 425,000 shares of the
Common Stock then held by the lenders in the First Financing Transaction
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) that certain 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) that certain 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 resulting in proceeds to the Company 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 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. If Loan Stock
Instrument B is not so converted, it can be redeemed at any time for a period of
12 months from August 23, 1999 at the election of the Company. 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.
(d) None
5
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None
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.
EXHIBITS
The following exhibits are furnished in accordance with Item 601 of Regulation
S-B.
10.1 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 to Exhibit
10.12 the Company's Annual Report on Form 10-KSB for the fiscal year
ended January 31, 1999).
10.2 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 to Exhibit 10.13 the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1999).
10.3 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 to Exhibit 10.14 the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1999).
10.4 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 to Exhibit 10.15 the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1999).
27* Financial Data Schedule (Exhibit 27).
*Filed herewith
Form 8-K: A Current Report on Form 8-K dated January 15, 1999 was
filed by the Company on September 16, 1999 reporting a change
in the Company's fiscal year end from April 30 to January 31.
6
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.
(Registrant)
Date: December 14, 1999 By: /s/ David Morgan
-------------------------------
David Morgan, President and
Chief Executive Officer
(Principal Executive Officer)
Date: December 14, 1999 By: /s/ John Agostini
------------------------------
John Agostini, Vice President-
Chief Financial Officer and
Secretary (Principal Financial
Officer)