U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[x] Annual report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the fiscal year ended January 31, 2003
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the transition period from _____________to
_____________
Commission File Number 000-22661
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INVU, INC.
(Name of Small Business Issuer in Its Charter)
Colorado 84-1135638
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
The Beren
Blisworth Hill Farm
Stoke Road
Blisworth Northamptonshire
United Kingdom NN7 3DB
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(Address of Principal Executive Offices) (Zip code)
011 44 1604 859 893
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(Issuer's Telephone Number, Including Area Code.)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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NONE N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
--------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes x No
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $2,567,824
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of April 30, 2003, was approximately
$1,360,534. For purposes of this computation, all executive officers, directors
and 10% stockholders were deemed affiliates. Such a determination should not be
construed as an admission that such executive officers, directors or 10%
stockholders are affiliates.
As of April 30, 2003, there were 30,386,539 shares of the common stock, no par
value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format: Yes No x
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INVU, Inc.
Page
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PART I .................................................................................................... 1
Item 1. Description of Business...............................................................................1
Item 2. Description of Properties............................................................................10
Item 3. Legal Proceedings....................................................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................................................10
PART II .....................................................................................................11
Item 5. Market for Common Equity and Related Stockholder Matters.............................................11
Item 6. Management's Discussion and Analysis or Plan of Operations...........................................11
Item 7. Financial Statements.................................................................................17
PART III .....................................................................................................17
Item 9. Directors, Executive Officers, Promoters and Control Persons.........................................17
Item 10. Executive Compensation..............................................................................19
Item 11. Security Ownership of Certain Beneficial Owners and Management......................................21
Item 12. Certain Relationships and Related Transactions......................................................24
Item 13. Exhibits and Reports on Form 8-K....................................................................25
SIGNATURES ....................................................................................................S-1
INDEX TO EXHIBITS...............................................................................................E-1
FINANCIAL STATEMENTS
Report of Independent Accountants......................................................................F-3
Consolidated Balance Sheets as of January 31, 2003 and 2002............................................F-4
Consolidated Statements of Operations for the year ended January 31, 2003 and January 31, 2002........F-5
Consolidated Statements of Deficit in Stockholders' Equity for the year ended January 31, 2003 and
January 31, 2002.......................................................................................F-6
Consolidated Statements of Cash Flows for the year ended January 31, 2003 and January 31, 2002 ........F-7
Notes to Consolidated Financial Statements.............................................................F-8
PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into, this report.
Item 1. Description of Business
Background of Company
INVU, Inc. (the "Company" or "INVU") was incorporated under the name
Sunburst Acquisitions I, Inc. pursuant to the laws of the State of Colorado on
February 25, 1997, as a "shell" company. The Company's business plan at the time
was to seek, investigate, and, if warranted, acquire one or more properties or
businesses, and to pursue other related activities intended to enhance
shareholder value.
After the consummation of the Share Exchange on August 31, 1998, which
is discussed below, the Company entered the business of marketing and selling
software for the electronic management of information and documents.
The structure of the business at this point consists of INVU, Inc. as
the ultimate holding company of three directly or indirectly wholly-owned
subsidiaries: INVU Plc, a UK holding company, and its subsidiaries, INVU
International (Holdings) Ltd., which itself holds certain intellectual property
rights and wholly owns an operating subsidiary INVU Netherlands B.V. (INVU
Netherlands), and Invu Services Ltd. ("INVU Services"), an operating company.
The Share Exchange
On August 31, 1998, the Company consummated the acquisition of all of
the issued and outstanding capital stock of INVU Plc, a company incorporated
under English law ("INVU Plc"), in exchange for 26,506,552 shares (the "Share
Exchange") of common stock, no par value, of the Company (the "Common Stock"),
pursuant to a Share Exchange Agreement, dated as of May 19, 1998, between the
Company and INVU Plc's majority shareholder Montague Limited ("Montague"), an
Isle of Man company (as amended by a First Amendment to Share Exchange
Agreement, dated as of July 23, 1998 (the "Share Exchange Agreement")). As a
result of the Share Exchange, INVU Plc became a wholly-owned subsidiary of the
Company. As conditions precedent to the consummation of the Share Exchange, (i)
Montague received a power of attorney from Halcyon Enterprises Plc, a minority
shareholder and a company incorporated under English law ("Halcyon"), to
transfer its shares of INVU Plc to the Company, and (ii) all of the outstanding
shares of Series A Convertible Preferred Stock of the Company (the "Preferred
Stock") were converted into Common Stock of the Company at a conversion rate of
two (2) shares of Common Stock for each share of Preferred Stock.
Immediately prior to the Share Exchange, the Company had a total of
2,190,000 shares of Common Stock issued and outstanding after the conversion of
the Preferred Stock. Upon consummation of the Share Exchange, Montague and
Halcyon received in the aggregate 26,506,552 shares of Common Stock of the
Company in exchange for all of the issued and outstanding share capital of INVU
Plc.
The Market and Market Strategy
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 strongly adheres to the Company's brand values of ease of
use, functionality and price performance.
1
Each year there continues to be a significant increase in the volume of
information available to organizations with the advent of inexpensive computing
and the arrival of wide area networks (that provide a conduit to this
information). There is also a significant amount of information (e.g. on-line
databases, documents, graphics, audio, recordings and video) now available via
the internet to organizations and individuals from sources around the world.
Management believes that the proliferation and consequent accumulation of such
information and accompanying documents over the years has created a problem for
individuals and organizations because they now need to manage large and
disparate sets of data created internally and arriving externally. For example,
personal computers are now often sold with 120 Gigabyte hard disks, and these
machines continue to be repositories for lost files and information. Management
believes that this is a global problem that has resulted in an international
market for document management technologies, which Management expects to grow
significantly in the next five years. Information is now regarded as the key
resource for organizations and individuals. Management believes that accessing
and sharing information are two of the biggest challenges currently facing
businesses of all sizes. Management expects that those organizations that are
able to harness and exploit information will derive a competitive advantage in
their markets.
By contrast, Management estimates that the availability of cost
effective products that enable organizations to manage and control this mass of
information has lagged behind the requirement for such products. Therefore,
Management believes that the market for document management products has the
potential for rapid growth in markets throughout the world. Further, the
document management market is applicable to all information users, both
organizations and individuals, and, therefore, while difficult to define, is
broad in terms of potential in the estimate of Management.
INVU serves the personal computer ("PC"), client server and mobile
computing (internet) market segments and is, therefore, firmly placed in what
Management believes are the three principal growth areas. Management believes
that these market segments have previously been poorly served by complicated and
expensive systems and that the Company's competitors generally fall into two
categories:
i. Large corporate suppliers that offer proprietary turnkey
systems; or
ii. Small niche suppliers addressing the needs of small highly
specialized groups (e.g. lawyers or real estate agents).
Management considers that INVU enjoys an advantage over most competing
programs because INVU software can access a much larger share of the market;
from single users, departmental users to company wide installations. INVU
software is designed to offer a solution in any given market sector.
Furthermore, the scalability and flexibility of an INVU solution allows the
customer to maintain full control over the time and cost of the project, which
in most cases is completed within a few days rather than months. Management
believes this provides considerable potential for additional sales to existing
customers. Once successfully installed with a departmental user, INVU encourages
resellers to "roll out" the product to other departments within the same
organization using the first installation as an internal reference site. INVU
software can, therefore, solve specific operational problems within a short
timeframe and with short payback periods and then become the "solution of
choice" throughout an organization.
The Company's objective is to establish itself as a leading global
supplier of information and document management software and services.
Management believes that, as the market matures, the purchase of document
management systems will become increasingly routine as buyers become acquainted
with both the technology and applications. In order to deal with the increased
demand, the Company continues to improve the quality of its' third party value
added resellers. Management considers both branding and product positioning
fundamental to attaining the market share required to profitably achieve its
objective of being a leading supplier of information and document management
software.
The Company is fully focussed on its professional range of products,
which include INVU Series 100, Series 200, Series 250, i200 and CodeFree
Integration, where the Company continues to target its sales and marketing
efforts on several easily identifiable mature market channels. These channels
include software distributors and resellers who market to small and medium size
enterprises as well as departmental users in major organizations, strategic
alliances with hardware manufacturers and distributors, and direct sales to
major institutions and organizations.
2
Management has adopted a value added reseller (VAR) model for sales of
its products in the UK and Holland. 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 $3,820 with a recurring annual fee
thereafter. The Company continues to monitor its resellers to ensure that they
meet the stringent INVU accreditation requirements, and consequently has cut
half of its former resellers that no longer meet these requirements. The Company
continues its aggressive VAR recruitment campaign, and having recruited 33
(including four in Holland) new resellers during the year ended January 31,
2003, Management has set an ambitious target to recruit a further 100 VARs by
January 31, 2004. A new sales manager, specifically tasked with this objective,
joined the Company in February 2003.
Typically in a VAR based route to market, sales success can be
inconsistent. However, the INVU sales management team has implemented an
intensive marketing and sales support program with its resellers, including
sales and technical training, joint seminars, direct mail and joint telephone
marketing campaigns. 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
companies in the small/medium enterprise market, Management is encouraged by the
continuing level of interest from large organizations with new and repeat orders
being received from, amongst others, Samsung, Kraft, Centrica, Persimmon Homes,
Maersk Group, Universal Music Group, Millfield Partnership Limited, Rothschild
Bank Switzerland, MAN Financial and Mysis Financial Solutions.
The significant expansion of the sales team in the fiscal year ended
January 31, 2002, under the guidance of Jon Halestrap (VP of Sales and
Marketing), provided INVU with an experienced and dedicated team with which to
recruit a reseller base and explore other sales opportunities during the year
ended January 31, 2003. The subsequent UK recruitment of the "Dealer Sign-Up
Manager", "Existing Accounts Development Manager" and a further "Business
Development Manager" signals the Company's intent to expand sales even further
in fiscal year ended January 31, 2004 (the "Current Fiscal Year").
Following the successful acquisition of Corsham Holding B.V., in August
2002, whose name has now been changed to INVU Netherlands B.V. the Company now
has representation in Amsterdam, Holland. A country manager has been recruited,
who is directed by and responsible to the Company's board of directors. Sales
opportunities have already been identified and realized. The initial success of
this venture has led to the recent expansion of the Dutch sales team.
INVU has also appointed representatives in the Middle East, who have
attended trade shows and have generated a number of potential sales leads. The
Company is supporting these efforts wherever possible without incurring
unnecessary overheads.
Both the Dutch and Middle East ventures reflect INVU's global
aspirations, whilst ensuring that tight fiscal controls are exercised over the
business during this period of growth and change.
Management believes that the increased experience in the document
management sector of its sales team and resellers together with their proven
ability to develop and grow sales revenue continue to be the key factors in the
rapid development of the Company. Most current resellers have now attended the
INVU bespoke sales training course, which has proved extremely successful in
terms of lead generation and conversion. Management expects continued sales
growth during the Current Fiscal Year and beyond.
3
Management believes that the international market for document
technologies is growing at a rapid rate and Management believes that it has the
ability to be a major provider of information management to businesses
world-wide. Management considers that the INVU brand awareness is increasing.
Unsolicited inquiries from prospective end users and resellers are increasing
significantly, as are visitor numbers at exhibitions, trade fair and shows. The
Company believes that its current products, together with planned future
developments, are well matched to its target market, and that its brand values
of ease of use, functionality and price performance have already and will
continue to differentiate its products from its competitors.
The Product
INVU's business is the development and sale of document and information
management software programs that operate on stand-alone PCs, networked PCs and
client server systems and allow documents of any size and format, from
correspondence and faxes to technical drawings and electronic files, to be
stored on to computer memory and retrieved instantly. In order to store such
information, INVU software also scans paper and creates files and imports
documents. The software also provides a mechanism to manage and retrieve the
imported and filed information.
Management believes that the INVU technical development team is highly
skilled and innovative, with the ability to create ground-breaking technical
advances in computer science. INVU developers have re-engineered traditional
database technology to meet flexible user configurations whilst maintaining high
performance targets. They have demonstrated an innate ability to exploit
synergies between many different strands of computer science and, most recently,
have used artificial intelligence technology to resolve complex data extraction
issues. Although INVU software has many layers of sophistication, Management
insists that its products be inexpensive, simple to use, and of high quality.
The Company currently has five products in its range. The products
address different market segments, namely (1) the small office/home office
market, or "SOHO" and (2) the small/medium enterprise market, or "SME," and (3)
large enterprises.
Product Description Market
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 100 Single-user information and document SOHO/SME
management
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INVU Series 200 Multi-user information and document SME/Large Enterprise
management system
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 250 Multi-user information and document SME/Large Enterprise
management system with sequential
workflow module
---------------------------------------- -------------------------------------- --------------------------------------
INVU i200 Multi-user global access to SME/Large Enterprise
retrieve, view, edit, and file
information via the web
---------------------------------------- -------------------------------------- --------------------------------------
INVU Codefree Integration Fast track integration to "INVU SME/Large Enterprise
enable" customers' existing
applications
---------------------------------------- -------------------------------------- --------------------------------------
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 in May 2000, version 5.1.1 was released to distributors in
March 2001 and version, 5.1.2, was released in October 2001. Version 5.2 was
released in May 2002 with additional functionality provided in two service packs
in October 2002 and February 2003. Each subsequent version has built upon the
original premise of ease of use, high quality and price performance.
Enhancements have been incorporated in light of customer feedback and technical
advances achieved by the Company's development team.
4
Version 5.2 of the Company's professional range of products, INVU
Series 100 and Series 200, contains the newly developed OCR (Optical Character
Recognition) functionality, which works with all Microsoft OfficeTM and AdobeTM
file types and scanned images. This functionality automatically allows a user to
keyword search all existing documents in the system. This release also contains
a Microsoft Office Add-In, which allows integration with Microsoft OfficeTM
2000. This gives INVU the ability to send items from Microsoft Outlook to a
user-selectable in-tray. It also allows users to save documents from Microsoft
WORD, EXCEL and PowerPoint as an INVU filing, even if these files are created
outside of INVU.
A separate "Sequential Workflow Module" has also been released
alongside Version 5.2. When the "Sequential Workflow Module" is integrated with
Version 5.2, they are sold as INVU Series 250, and charged accordingly. The
"Sequential Workflow Module" allows documents, forms and files to be
"intelligently" 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 is a generic adaptation of a bespoke
program already in use with customers such as Universal Music Group. The
workflow module is designed to be customer friendly and easy to use. Sales and
inquiry levels of this product both continue to rise. Management believes that
the functionality of Series 250 has given the INVU range a much broader appeal
to all of its potential customer base.
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, or an
image of an x-ray can be retrieved directly from a patient records 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 product provides a significant
competitive advantage when compared to other information and document management
technologies. Sales of the "codefree" module have increased significantly, with
one in three INVU installations employing this technology. Management expects
this trend to continue, particularly now that the new enhanced version of
"codefree" has been released into the market.
INVU i200 (formerly codenamed Series 2000 or INVU WEBFAST) allows
global access to retrieve, view, edit, and file information via the web. This
product was also released in beta format to several end users in the fourth
quarter of the last fiscal year and the first quarter of the Current Fiscal
Year. The full product release, originally scheduled for quarter two of the
Current Fiscal Year, has now been successfully launched. Management believes
that this product forms the basis of future developments for many of its
existing and future end users. In the opinion of Management, with this
technology, INVU now offers a key functionality that is comparable to the
world's most established document and content management solutions, but at a
significantly lower price.
Development of a highly sophisticated content addressable indexing and
retrieval system reached the prototype stage during the second quarter of the
fiscal year ended January 31, 2002 and further significant development has taken
place during the year ended January 31, 2003. Full text retrieval technology is
already available within the latest release of Series 200 and Series 250, but
INVU is developing technology that 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.
Management decided not to integrate this technology within the latest
release of INVU products and has instead considered the further wide-ranging
applications for which this advanced technology can be utilized. An agreement
was signed on August 1, 2002 between The Britech Foundation Limited, Smashing
Concepts Ltd (an Israeli company) and INVU Inc. Britech is an Anglo-Israeli
Government funding initiative concerning bilateral co-operation in private
sector industrial research and development. INVU and Smashing Concepts put
forward a joint proposal to develop a web based application that will enable
financial services organizations to interrogate multiple data sources and, via
an electronic filtration mechanism, provide highly sophisticated categorization
of information within pre-determined parameters. This will allow faster and more
5
accurate retrieval of relevant data from which reliable decisions can be made.
The combination of INVU's proven technology and that provided by Smashing
Concepts has convinced Britech to invest nearly $500,000 into the project. INVU
and Smashing Concepts will invest a similar amount between them in new employees
dedicated to this project and other development expenses, and the project should
provide an end user solution within 18 months. Due to the cutting edge
technology being developed, Management expects further spin-off benefits to
accrue that will complement the Company's current product portfolio. Encouraging
progress has been made on this project, which is currently on budget and within
original timescales.
Research and development costs for the fiscal year ended January 31,
2003 were $714,096 compared with research and development costs of $381,135 for
the fiscal year ended January 31, 2002. This substantial increase reflects
Management's commitment to continuous product improvement and innovation.
Research and development costs for both of the Company's last two fiscal years
have been written off as incurred and none of these sums have been borne
directly by customers.
Competition
The market for the Company's products is competitive, subject to rapid
change and significantly affected by new product introduction and other market
activities of industry participants. The Company currently encounters direct
competition, in the larger corporate market, from a number of public and private
companies such as imanage, FileNet Corporation, Hummingbird and Information
Management Research Inc. Virtually all of these direct competitors have
significantly greater financial, technical, marketing and other resources than
the Company. The Company also expects that direct competition will increase as a
result of consolidation in the software industry.
The Company sells through a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as for recommendation of its products to potential purchasers. Although the
Company seeks to maintain close relationships with these service providers, some
of these third parties have similar, and often more established, relationships
with the Company's potential competitors. If the Company is unable to develop
and retain effective, long-term relationships with these third parties, the
Company's competitive position would be materially and adversely affected.
Further, there can be no assurance that these third parties will not market
software products in competition with the Company in the future or will not
otherwise reduce or discontinue their relationship with, or support of, the
Company and its products.
Management believes that its products and marketing strategy are
targeted at markets where, to date, few of the Company's larger and more
established competitors have secured significant market penetration and often
the Company secures sales without being exposed to any competition. Although the
Company believes that it will compete favorably in these markets, there can be
no assurance that the Company can maintain its competitive position against
current and any potential competitors, especially those with greater financial,
marketing, service, support, technical and other resources than the Company.
Major Contracts
In accordance with management's strategy, the Company's significant
growth is founded on multiple low value sales rather than a few high value
contracts. However, during the year the Company did conclude an enterprise
license upgrade with one of its existing customers that contributed $305,660
(19% of total revenues). This sale was made in accordance with standard trading
terms. In addition, the Company has two other customers that accounted for 14%
and 7% of its revenues for the fiscal year ended January 31, 2003.
The Company currently has approximately 68 "Accredited Reseller
Agreements" whereby resellers are authorized to provide the professional range
of products to end users.
On December 21, 2001, INVU Services Limited entered into an agreement
with Gupta Technologies, LLC ("Gupta") relating to the reproduction and
distribution of 150,000 Gupta SQLBase database licenses for incorporation in the
INVU software. Payments for the licenses, which total (pound)438,000 ($628,399)
in the aggregate, are to be made by Invu Services quarterly until September 15,
2004. However, as provided in the agreement, INVU has instead elected to receive
75,000 licenses at a cost of (pound)219,000 ($334,698). As of January 2003, the
6
Company had made payments amounting to (pound)80,000 ($122,264) with remaining
payments scheduled throughout the Current Fiscal Year. Management's decision to
limit the number of licenses taken was founded on the Company's ability to
utilize other databases for its products.
Employees
As of April 30, 2003, the Company had 26 employees, all of whom were
full-time, and a further three people who are part-time or serve as consultants.
Patents, Trademarks and Copyright
The Company's success is dependent in part upon proprietary technology.
At this time, the Company has not patented any aspect of its document management
systems technology in the United Kingdom, the United States or internationally.
The Company currently has no plans to file for and obtain patents domestically
or internationally. Even if the Company were to attain patent protection over
certain of its intellectual property, the rapidly changing technology in the
industry makes the Company's success largely dependent on the technical
competence and creative skills of its personnel.
The Company relies on a combination of trade secret, copyright and
non-disclosure agreements with third parties to protect its proprietary rights
in its software and technology. There can be no assurance that such measures are
or will be adequate to protect the Company's proprietary technology.
Furthermore, there can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
The Company's software will be licensed to customers under license
agreements containing provisions prohibiting the unauthorized use, copying and
transfer of the licensed program. Policing unauthorized use of the Company's
products will be difficult, and any significant piracy of its products could
materially and adversely affect the Company's financial condition and results of
operations.
In addition, the Company also relies on certain software that it
licenses from third parties, including software that is integrated with
internally developed software and used in the Company's products to perform key
functions. There can be no assurances that the developers of such software will
remain in business, or that they will otherwise continue to be available to the
Company on commercially reasonable terms. The loss of or inability to maintain
any of these software licenses could result in delays or reductions in product
shipments until equivalent software can be developed, identified, licensed and
integrated, which could adversely affect the Company's business, operating
results and financial condition.
The Company is not aware that any of its software products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to its
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company claims a trademark on all of its products under common law
by using the "TM" symbol. The duration of such trademarks under United Kingdom
common law is the length of time the Company continues to use them. Following
unsuccessful opposition by two dissenting companies, the Company's "INVU"
trademark was registered in the United Kingdom as of December 24, 1997 for an
initial period of ten years.
7
The First Financing Transaction
As of February 2, 1999, pursuant to a financing transaction (the "First
Financing Transaction") among Montague and Zalcany Limited ("Zalcany"),
Mustardseed Estates Limited ("Mustardseed"), and Tomuro Limited, all companies
incorporated under English law, and Richard Harris and Roy Grainger Williams
(collectively, the "Lenders"), Montague transferred 2,400,000 shares of the
Common Stock to such purchasers in exchange for $1,000 and a loan facility for
the Company in the principal amount of $656,000. Of this amount, $190,325 was
advanced to the Company prior to January 31, 1999, with the balance being
received on February 2, 1999.
The Second Financing Transaction
On August 23, 1999, the Company entered into an Investment Agreement
(the "Initial Investment Agreement"), with David Morgan, John Agostini, and Paul
O'Sullivan, on the one hand, and Alan David Goldman and Vertical Investments
Limited, a company registered in Jersey, on the other hand. The Initial
Investment Agreement was immediately followed by a Supplemental Agreement (the
"Supplemental Agreement" and, together with the Initial Investment Agreement,
the "Final Investment Agreement"), between the Company, David Morgan, John
Agostini, Paul O'Sullivan and INVU Services, on the one hand, and Alan David
Goldman, Vertical Investments Limited and Tom Maxfield ("Maxfield", together
with Alan David Goldman and Vertical Investments Limited, collectively, the
"Investors") on the other hand. Pursuant to the terms of the Final Investment
Agreement, the Investors advanced certain funds to the Company in the aggregate
principal amount of $1,000,000 in the principal amounts of $333,334, $333,333
and approximately $333,333 among Alan David Goldman, Vertical Investments
Limited and Maxfield, respectively. In turn, the Company agreed to (1) pay in
full any and all amounts then outstanding pursuant to the First Financing
Transaction and to terminate such Agreement, (2) cause the Lenders to transfer
to Montague 425,000 shares of the Common Stock then held by Lenders pursuant to
the terms of the First Financing Transaction (the "Transferred Shares"), and (3)
cause Montague to transfer 225,000 of such Transferred Shares to the Investors
in equal shares of 75,000 to each Investor.
The loans being made to the Company pursuant to the terms of the Final
Investment Agreement were evidenced by (1) a Loan Stock Instrument, dated as of
August 23, 1999, executed by the Company in favor of the Investors, in the
aggregate principal amount of $600,000 ("Loan Stock Instrument A"), and (2) a
second Loan Stock Instrument, dated as of August 23, 1999, executed by the
Company in favor of the Investors, in the aggregate principal amount of $400,000
("Loan Stock Instrument B" and together with Loan Stock Instrument A,
collectively, the "Loan Stock Instruments"). Until the Loan Stock Instruments
are redeemed pursuant to their terms upon the occurrence of certain events
described therein, the outstanding principal and accrued but unpaid interest (1)
under Loan Stock Instrument A shall, at the option of the Investors, be
converted into one share of the Common Stock for each $.65 of outstanding
principal and accrued but unpaid interest converted, and (2) under the Loan
Stock Instrument B shall, at the option of Investors, be converted into one
share of the Common Stock for each $.50 of outstanding principal and accrued but
unpaid interest converted.
Any amounts outstanding under Loan Stock Instrument A shall bear
interest at a rate of 6% per annum, payable in semi-annual installments in
arrears on January 1 and July 1 of each year accruing from day to day and
calculated monthly. In addition, Loan Stock Instrument A will be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange or if the Company raises
additional capital of at least $4,000,000. Any amounts outstanding under Loan
Stock Instrument B shall bear interest at a rate of 8% per annum for the first
six months following the date thereof, 9% per annum for the following six month
period, and 10% per annum thereafter. All accrued but unpaid interest on the
Loan Stock shall be payable in semi-annual installments in arrears on January 1
and July 1 of each year. Loan Stock Instrument B will also be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange, however, the Investors have
the option of converting if the Company raises additional capital of at least
$4,000,000. If the Loan Stock Instruments are not so converted, they may be
redeemed upon 30 days notice by the Investors on or after August 2002.
Pursuant to the terms of the Final Investment Agreement, the Investors
shall have the right to nominate one director of the Company, until the amounts
outstanding under the Loan Stock Instruments are redeemed or converted. Daniel
Goldman, the son of Alan David Goldman, is the nominee of the Investors.
8
The obligations of the Company under the Final Investment Agreement and
the Loan Stock Instruments have been guaranteed by INVU Services. Pursuant to
the Final Investment Agreement, the Company covenanted with the Investors to
restrict certain actions while any amounts remain outstanding under the Loan
Stock Instruments without the Investors' consent, which consent may not be
unreasonably withheld, including the following actions: the issuance of
additional Company Common Stock, except pursuant to the exercise of outstanding
warrants and options of the Company; the issuance of any new options to purchase
Company Common Stock; additional borrowings by the Company; capital expenditures
of the Company; paying off liabilities; granting security interests; and
acquiring other entities.
The Subsequent Financing Transaction
In an agreement, effective December 27, 2001 (the "Financing
Agreement"), the Company restructured several of the short-term loans made to
the Company or its affiliates by Vertical Investments Limited. The restructured
loans include (1) a $1,000,000 loan made in February 2001 at an interest rate of
1.5% above the UK bank base rate and due on December 17, 2001 (the "February
Loan"), (2) loans made in May 2001 for $250,000 and a loan made in July 2001 for
$50,000, all bearing interest at 1.5% above the UK bank base rate, convertible
at any time at the rate of $0.25 per share of Common Stock and due 24 months
from the date of issue (the "Summer Loans"); (3) a $500,000 loan made in
September 2001 bearing an annual interest rate of 12% per annum and due on
December 17, 2001 (the "September Loan") and (4) loans made in December 2001 for
$200,000 and $75,000 (the "December Loans"). The Company and its subsidiaries
also issued a debenture in favor of Vertical Investments Limited in October 2001
(the "Debenture"), under which the Company pledged all of its assets, including
intellectual property rights, to Vertical Investments Limited. The Debenture
secures all of the above listed loans and is subordinate to a prior debenture
granted to the Bank of Scotland.
Under the Financing Agreement, the February Loan was restructured as
follows: (1) the maturity date was extended until August 26, 2005, (2) the
interest rate was increased to 7% per annum effective from February 26, 2001,
(3) at any time from May 1, 2002 until August 26, 2005, the holder of the loan
may demand repayment of the entire loan or any part thereof at any time after
three days notice to the Company, and (4) if the Company does not timely repay
such amounts after having received notice, the holder may convert the unpaid
amount into shares of the Company's Common Stock at a conversion price of
$0.2175 per share or convert the unpaid amount into shares of the Company's
subsidiaries at the equivalent per share conversion price.
The Summer Loans were restructured to allow at any time from May 1,
2002 until July 2, 2003 the holder to convert any loan amounts into shares of
the Company or any of the Company's subsidiaries following three days notice to
the Company at a conversion price of $0.25 per share for shares of the Company's
Common Stock or the equivalent per share conversion price for the Company's
subsidiaries. The remaining terms were unchanged.
The September Loan was restructured as follows: (1) the maturity date
was extended until June 17, 2005, (2) at any time from May 1, 2002 until June
17, 2005, the holder of the loan may demand repayment of $475,000 of the loan or
any part thereof at any time after three days notice to the Company (the
remaining $25,000 is due at maturity), (3) provisions for the accruement of
additional interest on unpaid or late repayments were eliminated, and (4) if the
Company does not timely repay such amounts after having received notice, the
holder may convert the unpaid amount into shares of the Company's Common Stock
at a conversion price of $0.13 per share or convert the unpaid amount into
shares of the Company's subsidiaries at the equivalent per share conversion
price.
The December Loans were restructured as follows: (1) the interest rate
was set at 12% per annum effective from the issuance dates of such loans and (2)
at any time from May 1, 2002 until May 1, 2005, the holder of the loan may
convert the loan amount or any portion thereof after three days notice to the
Company into shares of the Company's Common Stock at a conversion price of $0.13
per share or convert the unpaid amount into shares of the Company's subsidiaries
at the equivalent per share conversion price.
Under the Financing Agreement, the Company was granted until February
28, 2002, the right to request further loans up to a maximum of $275,000,
bearing interest at 12% per annum and due on May 1, 2005. At any time from May
1, 2002 until May 1, 2005, the holder may convert, after three days notice to
the Company, the unpaid amount into shares of the Company's Common Stock at a
conversion price of $0.13 per share or convert the unpaid amount into shares of
9
the Company's subsidiaries at the equivalent per share conversion price. The
Company requested and received a loan in the amount of $275,000 during February
2002.
The Company additionally granted Vertical Investments Limited two
options on shares of its Common Stock. The first option is an option for
2,700,000 shares of the Company's Common Stock that may be exercised at any time
from March 1, 2002 after three days notice and for any number of shares of
Common Stock up to 2,700,000 at an exercise price of $0.25 per share until March
1, 2006. The second option is an option for 450,000 shares of the Company's
Common Stock that may be exercised at any time from March 1, 2002 after three
days notice and for any number of shares of Common Stock up to 450,000 at an
exercise price of $0.875 per share until March 1, 2006.
Item 2. Description of Properties
The Company moved into new executive offices on March 19, 2000. These
new premises are located in Blisworth, Northamptonshire, England. The Company
leases 3,600 square feet of space in a facility as a tenant. The term of the
lease is through January 1, 2009, although the Company has the right to
terminate the lease at any time after December 31, 2001 provided that six months
notice is given. The landlord has the right to terminate the lease at any time
after December 31, 2004 provided that six months notice is given. The monthly
rent is currently approximately $6,410.
Item 3. Legal Proceedings
As reflected in the Company's 10-KSB for the fiscal year ended January 31,
2002, 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
attorneys' fees. The complaint related to a $100,000 demand promissory note (the
"Note") dated May 1, 2000 and payable to the order of GEM. The Note bore
interest at a rate of 3% per annum and if payment was not made upon demand, the
rate increased to 15% per annum from the date of demand through and including
the date of payment. GEM was entitled to convert the unpaid balance and interest
into shares of the Company's Common Stock if payment was not made on demand.
Demand on the Note was made by GEM on September 21, 2000 and GEM sent the
Company a conversion notice on December 18, 2000 electing to convert the Note
into 179,643 shares of the Company's Common Stock. The Note was subsequently
converted and a share certificate was delivered to GEM, which GEM returned to
the Company contending that the timeliness of the delivery of the share
certificate violated the terms of related Note agreements.
In response, the Company filed an answer on or about April 16, 2001,
denying that any amounts were owing under the Note, and denying liability under
GEM's remaining causes of action. It was 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.
The parties entered into a Settlement Agreement in May 2002 that obligated
the Company to pay GEM an aggregate of $50,000 in four equal installments during
2002. GEM in turn has agreed to return the 179,643 shares of the Company's
Common Stock (the "GEM Shares") to the Company or its assigns. The Company has
assigned its right to acquire the GEM Shares to an unaffiliated third party who
acquired the GEM Shares directly from GEM for $25,000. Such $25,000 reduced the
Company's settlement obligation to $25,000 from $50,000. On May 23, 2002, the
Judge signed an Order that discontinued GEM's action with prejudice. The Company
has met all the requirements of the Settlement Agreement, and all obligations
with regard to this matter have been discharged.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters for submission to a vote of security holders
during the last fiscal year.
10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock is listed on the OTC Electronic Bulletin Board. The
following table indicates the quarterly high and low bid price for the Common
Stock on the OTC Electronic Bulletin Board for the fiscal years ending January
31, 2002 and January 31, 2003 and for the quarter ending April 30, 2003. Such
inter-dealer quotations do not necessarily represent actual transactions, and do
not reflect retail mark-ups, mark-downs or commissions.
OTC ELECTRONIC
BULLETIN BOARD
BID PRICE
HIGH LOW
Fiscal 2002
1st Quarter $0.875 $0.25
2nd Quarter $0.30 $0.17
3rd Quarter $0.27 $0.11
4th Quarter $0.27 $0.10
Fiscal 2003
1st Quarter $0.17 $0.08
2nd Quarter $0.24 $0.11
3rd Quarter $0.21 $0.10
4th Quarter $0.23 $0.14
Fiscal 2004 (Feb 1 to Apr 18)
1st Quarter $0.21 $0.12
As of April 18, 2003, there were approximately 143 holders of record of
the Common Stock.
The Company has not declared or paid any cash or other dividends on the
Common Stock to date for the last two (2) fiscal years and in any subsequent
period for which financial information is required and has no intention of doing
so in the foreseeable future. The Initial Investment Agreement prohibits the
Company from declaring or distributing any dividend so long as the Investors
hold stock. See "Item 1. Description of Business - The Second Financing
Transaction."
Recent Sales of Unregistered Securities
The Company did not sell any unregistered securities during the fiscal
year ended January 31, 2003 that have not been previously reported.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following description of "Management's Plan of Operation"
constitutes forward-looking statements for purposes of the Securities Act 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", "forecast," "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
11
Company's expectations include the following: (1) one or more of the assumptions
or other cautionary factors discussed in connection with particular
forward-looking statements or elsewhere in this Form 10-KSB prove not to be
accurate; (2) the Company is unsuccessful in increasing sales through its
anticipated marketing efforts; (3) mistakes in cost estimates and cost overruns;
(4) the Company's inability to obtain financing for general operations including
the marketing of the Company's products; (5) non-acceptance of one or more
products of the Company in the marketplace for whatever reason; (6) the
Company's inability to supply any product to meet market demand; (7) generally
unfavorable economic conditions 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.; (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; and (12) foreign
currency exchange rate fluctuations. 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 strongly adheres to the Company's brand values of ease of
use, quality and price performance.
The Company's objective is to establish itself as a leading global
supplier of information and document management software and services.
Management believes that, as the market matures, the purchase of document
management systems will become increasingly routine as buyers become acquainted
with both the technology and applications. In order to deal with the increased
demand, the Company continues to increase its number of third party value added
resellers. Management considers both branding and product positioning
fundamental to attaining the market share required to profitably achieve its
objective of becoming a leading supplier of information and document management
software.
Critical Accounting Policies
Invu's financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies for Invu
include revenue recognition, accounting for research and development costs,
accounting for the impairment of long-lived assets, accounting for business
combinations and goodwill and accounting for contingencies.
Invu recognizes revenue in accordance with American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software
Revenue Recognition as amended by Statement of Position (SOP) 98-9, Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,
(SOP 98-9). Fees for services and maintenance are generally charged to customers
separately from the license of software. Service revenue is recognized when
services are performed. Maintenance revenue is deferred and recognized ratably
over the term of the contract, normally twelve months. Revenues from license
fees are recognized upon product shipment when fees are fixed, collectability is
probable and the Company has no significant obligations remaining under the
12
licensing agreement. In instances where a significant vendor obligation exists,
revenue recognition is delayed until such obligation has been satisfied.
Invu accounts for research and development costs in accordance with
several accounting pronouncements, including SFAS 2, Accounting for Research and
Development Costs, and SFAS 86, Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed. SFAS 86 specifies that costs incurred
internally in creating a computer software product should be charged to expense
when incurred as research and development until technological feasibility has
been established for the product. Once technological feasibility is established,
all software costs should be capitalized until the product is available for
general release to customers. Judgment is required in determining when the
technological feasibility of a product is established. Invu believes that
technological feasibility for its products is reached shortly before the
products are released to manufacturing. Costs incurred after technological
feasibility is established have been insignificant, and accordingly, the Company
has not capitalized any software development costs.
Invu follows the provisions of Statement of Accounting Standards (SFAS
No. 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and items
related to those assets. The Company reviews long-lived assets to be held and
used for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. If the sum of the
undiscounted expected future cash flows is less than the carrying amount of the
assets, the Company recognizes an impairment loss. Impairment losses are
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. When fair values are not available, the Company
estimates fair value using the expected future cash flows discounted at a rate
commensurate with the risks associated with the recovery of the assets.
Invu follows the provisions of SFAS No. 141, Business Combinations and
SFAS No. 142, Goodwill and other Intangible assets. The Company capitalizes
goodwill arising as a result of the acquisition of a subsidiary and does not
amortize this goodwill. The goodwill is subject to an impairment review at least
annually with any impairment provision being charged to the Statement of
Operations in the relevant period.
Invu follows the provisions of SFAS No. 5, Accounting for
Contingencies. SFAS No. 5 requires that an estimated loss from a loss
contingency should be accrued for by a charge to income if it is probable that
an asset has been impaired or a liability has been incurred and the amount of
the loss can be reasonably estimated. Disclosure of a contingency is required if
these is a possibility that a loss has been incurred.
Results of Operations
The following is a discussion of the results of operations for the year
ended January 31, 2003, compared with the year ended January 31, 2002, and
changes in financial condition during the year ended January 31, 2003.
Net sales for fiscal year ended January 31, 2003 were $2,567,824, which
compares to $1,564,248 sales for the fiscal year ended January 31, 2002. The
significant increase in the level of sales reflects the Company's investment in
sales personnel and marketing which has facilitated the recruitment and
retention of a number of higher quality value added resellers. It is also a
reflection of the Company's growing reputation for high quality, easy to use and
cost effective software. The operating loss in the fiscal year ended January 31,
2003 was ($516,689), which is $404,051 less than the operating loss in the year
ended January 31, 2002 of ($920,740). The operating loss for the fiscal year
ended January 31, 2003 was due to: increased production, selling and
distribution, and research and development costs, which with a reduction in
administrative expenses totaled $3,084,513 in the year ended January 31, 2003 as
compared to $2,484,988 in the year ended January 31, 2002. The increase, which
amounts to $599,525, is partly due to movements in the exchange rate between
sterling and the US dollar during the fiscal year ended January 31, 2003. The
remainder of the increase reflects the Company's continued investment in product
development, sales and marketing support, and administrative infrastructure. The
operating loss reflects the consolidation of a technical, marketing and
administrative infrastructure that will support the significantly higher sales
revenues anticipated by Management as the Company continues to achieve greater
market share. The sales team, which includes field sales and sales support, has
been further strengthened, as has the technical development and support
department. Despite the release of Version 5.2 of the professional range in the
fiscal year ended January 31, 2003, the Company has further expanded its
development base to consolidate and enhance its technology even further with
13
technological improvements from the field of "artificial intelligence."
Management believes it can continue to exert similar control over operating
expenses during the Current Fiscal Year. The net loss in the fiscal year ended
January 31, 2003 was ($1,029,036), which is $246,594 less than the net loss in
the year ended January 31, 2002 of ($1,275,630)
In the fiscal year ended January 31, 2003, the Company incurred net
interest expense of $512,347 compared with net interest expense of $354,890 for
fiscal year ended January 31, 2002. This increase in interest was due to
increased bank borrowings, and interest associated with additional debt based
financing obtained during the fiscal years ended January 31, 2003 and January
31, 2002. See "Item 1. Description of Business - First Financing Transaction,
Second Financing Transaction and The Subsequent Financing Transaction." In view
of the increase in debt finance during the fiscal year ended January 31, 2003,
Management would expect an increase in interest expense. However, Management
believes that some of the existing debt finance may be converted into equity
during the next fiscal year.
The tax rates for the years 2003 and 2002 are zero due to a net loss in
each period.
The total current assets of the Company were $1,807,895 at January 31,
2003, an increase of $687,293, compared to $1,120,602 at January 31, 2002.
Working capital was negative $6,525,695 as of January 31, 2003, an increase of
$3,091,114 when compared with negative $3,434,581 as of January 31, 2002. These
changes are mainly due to increases in cash, accounts receivable, inventories,
short term credit facilities, accrued liabilities, deferred revenue, and current
maturities of long term obligations. The cash relates to bank balances held by
the Dutch subsidiary. The Dutch subsidiary acquired in August 2002 has a tax
liability of $1,931,560, which is also responsible for the large increase in the
negative working capital. However, based on professional advice, Management
believes that this liability will be expunged once agreement of the tax
computations and returns for the period ending January 31, 2003 has been reached
with the Dutch tax authorities, although no assurance can be given that the
applicable tax authorities will reach the same conclusion in the event of an
audit or other regulatory inquiry. Management believes that a significant part
of the current maturities of long term obligations, together with accrued
interest included in accrued liabilities, will ultimately be converted into
equity and not become repayable.
The Company has obtained a short term facility in the principal amount
of $410,925 from Bank Leumi and convertible loans from Vertical Investments
Limited in the aggregate principal amount of $275,000 during the year ended
January 31, 2003. Management believes these facilities and loans will be repaid
from the proceeds of future financings or, for the convertible loans, converted
into common stock of the Company.
Total assets of the Company were $3,536,818 at January 31, 2003, an
increase of $2,005,509, compared to $1,531,309 at January 31, 2002. The
difference is mainly attributable to increases in cash, accounts receivable,
inventories, and goodwill. The goodwill of $1,361,113 at January 31, 2003 is in
respect of the acquisition of the Dutch subsidiary in August 2002 for
consideration of $4,195,778, including professional fees. See "Financing
Management's Plan of Operation" below. An impairment review was carried out
during the year ended January 31, 2003 and no impairment provision was required.
The total current liabilities of the Company increased by $3,778,407
from $4,555,183 at January 31, 2002 to $8,333,590 at January 31, 2003. Long term
liabilities were $1,811,922 at January 31, 2003, a decrease of $281,818 when
compared to $2,093,740 at January 31, 2002. The increase in current liabilities
is due to an increases in short term credit facilities, mainly as a result of
the Bank Leumi advance, and in current maturities of long-term obligations,
which represents debt capital raised to finance the development of the products
and the infrastructure of the business. The accrued interest of such debt
finance, together with employment taxes and indirect taxes, have also increased
accrued liabilities. Management believes that a significant part of the current
maturities of long term obligations, together with accrued interest included in
accrued liabilities, will ultimately be converted into equity and not become
repayable. Deferred revenue has increased by $163,161 from $216,848 at January
31, 2002 to $380,009 at January 31, 2003. The Dutch subsidiary acquired in
August 2002 has a tax liability of $1,931,560 which is also responsible for the
large increase in current liabilities. However, based on professional advice,
Management believes that this liability will be expunged once agreement of the
tax computations and returns for the period ending January 31, 2003 has been
reached with the Dutch tax authorities, although no assurance can be given that
the applicable tax authorities will reach the same conclusion in the event of an
audit or other regulatory inquiry.
14
The Company has a commitment to purchase a minimum of 75,000 database
licenses from Gupta Technologies LLC for approximately $334,698 by December
2003. Management decided to buy this quantity of licenses in order to take
advantage of bulk discounts, which decreased the price per license from the
previously charged price of $30.57 to $4.46. As of January 2003, the Company had
made payments amounting to (pound)80,000 ($122,264) with remaining payments
scheduled throughout the Current Fiscal Year. See "Item 1.
Description of Business-Major Contracts."
Total stockholders' equity decreased by $1,491,080 during the year
ended January 31, 2003 from deficit $5,117,614 at January 31, 2002 to a deficit
of $6,608,694 at January 31, 2003 as a result of the net loss for the year. The
Company is evaluating various financing options, including issuing debt and
equity to finance future development, marketing of products, and strategic
acquisitions.
Financing Management's Plan of Operation
As a result of the increase in sales revenues, the Company is
approaching a position whereby it will be able to meet current operating expense
payments out of current revenue receipts. If revenues continue to grow as
predicted and assuming that cash collections are in line with Management's
forecasts, Management believes that the Company will be in a position to finance
the Company's day to day operations from internally generated working capital;
however the Company is seeking additional financing in order to pay down its
outstanding indebtedness and to enable the Company to further accelerate its
growth both organically and through acquisition.
The Company has a $328,740 short-term credit facility with an annual
interest rate currently of 5.75% with an English bank. The amount drawn against
the facility at January 31, 2003 was $284,288. This facility has been renewed
and the next review date has been set for February 10, 2004. The Company's bank
also provided a further credit facility of $986,220 in October 2001 by way of
notes payable with re-negotiated monthly repayments of $41,092 for May through
August 2003 and $82,184 from September 2003 through June 2004. This facility
currently bears interest at the rate of 5.75% per annum. All bank credit
facilities and notes payable are collateralized by all assets of the Company and
a corporate guarantee given by Vertical Investments Limited.
In August 1999, the Company received a loan in the aggregate principal
amount of $600,000 and a second loan in the principal amount of $400,000
(together "Loan Stock Instruments") from Alan David Goldman (the father of
Daniel Goldman), Vertical Investments Limited and Tom Maxfield (a non-executive
director of the Company). The Loan Stock Instruments currently bear interest at
the rate of 6% and 10% per annum, respectively, and may be converted into 1
share of common stock for each $0.65 and $0.50, respectively, of outstanding
principal and accrued but unpaid interest. If the Loan Stock Instruments are not
converted, they may be redeemed upon 30 days notice by the investors.
In February 2001, Vertical Investments Limited lent the Company
$1,000,000. Vertical Investments Limited made further advances of $250,000 in
May 2001, $50,000 in July 2001, $500,000 in September 2001, $275,000 in December
2001 and $275,000 in February 2002 (collectively, the "Vertical Loans").
Effective as of December 2001, the Vertical Loans then outstanding were
restructured to apply conversion features to enable the loans to be converted
into shares of the Company's common stock at conversion prices ranging from
$0.13 to $0.25 per shares at various times.
In May 2001, the Company received $50,000 from Paysage Investments
Limited and in June 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 June 2002, the Company secured a short term credit facility of
$410,925 from Bank Leumi at an annual interest rate currently at 6.75%. The
credit facility is collateralized by all assets of the Company and a corporate
guarantee given by Vertical Investments Limited. The amount drawn against the
15
facility at January 31, 2003 was $410,925. The amount drawn is payable on demand
at the bank's discretion. Negotiations for the renewal of this facility are
currently ongoing.
On May 24, 1999, the Government of the United Kingdom of Great Britain
and Northern Ireland and the Government of the State of Israel signed an
agreement concerning the bilateral co-operation of the two countries in private
sector industrial research and development and establishing a United
Kingdom-Israel Industrial Research and Development Fund, also known as The
Britech Fund. As a result, the Company entered into a Co-operation and Project
Funding Agreement on August 1, 2002 with Smashing Concepts Ltd., a software
development company based in Israel ("Smashing Concepts"), and The Britech
Foundation Limited, the non-profit administrator of The Britech Fund
("Britech"), pursuant to which Britech approved a proposal submitted jointly by
the Company and Smashing Concepts for the financial support of a software
development project between the two companies (the "Project").
Britech agreed to provide funds by conditional grant for the
implementation of the Project in an amount equal to the lesser of (pound)310,000
(US$484,282) or 50% of the actual expenditures on the Project (as contemplated
in the approved budget of the Project). Such amount will be divided equally
between the Company and Smashing Concepts. On August 22, 2002, the Company
received an initial payment of (pound)71,000 (US$110,916) from Britech, which
has been included in deferred revenue. Following the satisfactory completion of
the "integration phase" of the Project, Britech made an additional payment of
(pound)66,000 (US$103,105) to the Company on February 18, 2003. Britech will
make a final payment of (pound)18,000 (US$28,120) to the Company upon the
completion of the Project. The Company and Smashing Concepts are required to
make certain repayments to Britech of the grant amounts based on the gross sales
derived from the sale, leasing or marketing of innovations developed during the
course of the Project, as well as make certain royalty payments to Britech based
on sales of patented products developed during the course of the Project.
Additionally, the Company and Smashing Concepts are required to pay to Britech a
percentage of all licensing revenues achieved from products developed during the
course of the Project.
On August 23, 2002, INVU International Holdings Limited, a wholly-owned
subsidiary of the Company ("INVU Holdings"), entered into an Agreement for the
Sale, Purchase and Transfer of Shares (the "Agreement) pursuant to which INVU
Holdings agreed to purchase all of the issued and outstanding stock (the
"Corsham Stock") of Corsham Holding B.V., a company incorporated under Dutch law
("Corsham"), from B.V. Holding Maatschappij "De Hondsrug," a company
incorporated under Dutch law ("B.V. Holding"). In consideration for the Corsham
Stock, INVU Holdings agreed to (i) assume an aggregate of (Euro) 3,006,294
(US$2,923,928) of debt owed by B.V. Holding to Corsham and (ii) make a cash
payment equal to (Euro) 965,544 (US$939,090) to B.V. Holding. The Agreement
provides that the acquisition of the Corsham Stock would be effective as of
August 23, 2002. The purchase price for the Corsham Stock was based on the net
asset value of Corsham on August 23, 2002, as set forth in Corsham's balance
sheet, plus an amount equal to 18.5% of Corsham's net profits before taxes for
the financial year 2002 through August 23, 2002.
Pursuant to the terms of the Agreement for the Sale, Purchase and
Transfer of Shares dated as of August 23, 2002, by and among INVU Holdings, B.V.
Holding and Corsham (the "Second Agreement"), INVU Holdings and Corsham entered
into a Transfer of Trade Secret and Exclusive License of Know-How Agreement on
September 6, 2002, pursuant to which INVU Holdings agreed, under certain
conditions, to transfer confidential information, an exclusive license to use
its technology and its business plan to Corsham. In exchange for such transfer,
Corsham has agreed to (i) make a cash payment equal to (Euro) 965,544
(US$950,385) to INVU Holdings and (ii) reduce the debt owed by INVU Holdings to
Corsham by (Euro) 1,330,783 (US$1,309,890). Pursuant to the terms of the Second
Agreement, INVU Holdings and Corsham also entered into an Exclusive Copyright
and Trademark/Tradename License Agreement on September 6, 2002 pursuant to which
INVU Holdings agreed, inter alia, to grant exclusive software and copyright
licenses of certain of its products to Corsham for an initial term of four (4)
years. In consideration for such exclusive licenses, Corsham has agreed to (i)
reduce the debt owed by INVU Holdings to Corsham by an additional (Euro)
1,675,511 (US$1,649,205) and (ii) pay an aggregate amount equal to (Euro)
35,400,661 (US$34,844,871) to INVU Holdings, which amount shall be loaned to
Corsham by INVU Holdings pursuant to a Loan Agreement entered into by INVU
Holdings and Corsham dated as of September 6, 2002. These transactions have been
eliminated in the consolidated financial statements. The value of the
distribution and technology transfer rights licensed to Corsham was based on two
valuations that INVU Holdings received from independent accounting firms. The
Company has received independent tax advice that the transfers referred to above
16
will not result in a tax liability, although no assurance can be given that the
applicable tax authorities will reach the same conclusion in the event of an
audit or other regulatory inquiry relating to the transaction.
The distribution and technology transfer rights licensed to Corsham
will be written down in the financial statements of Corsham over a period
commensurate with standard accounting practices in the Netherlands to reflect
depreciation. It is, therefore, anticipated that this transaction will result in
a substantial reduction in Corsham's tax liability in the Netherlands. As a
result of this transaction, the cash holdings of the INVU group increased by
approximately (pound)322,627 (US$490,684).
Additionally, INVU Holdings changed the corporate name of Corsham to
INVU Netherlands BV.
As noted above, the Company has continued to raise significant funding
during difficult market conditions. The Company is in the process of seeking
further financing from a number of sources in order to pay down its outstanding
indebtedness and to enable the Company to further accelerate its growth both
organically and through acquisition. 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 C of the Consolidated Financial
Statements in conjunction with this paragraph regarding the Company's ability to
continue as a going concern.
Item 7. Financial Statements
The Financial Statements of the Company appear at pages F-1 to F-9.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The Board of Directors currently consists of five (5) persons, David
Morgan, Jon Halestrap, John Agostini, Daniel Goldman and Tom Maxfield. The
following table sets forth information about all directors and executive
officers of the Company and all persons nominated or chosen to become such.
NAME AGE OFFICE YEAR
ELECTED
David Morgan 42 President, Chief Executive Officer 1998
Officer
Jon Halestrap 43 Director, VP Sales and Marketing 2000
John Agostini 44 Director, Chief Finance Officer 1999
and Secretary
Daniel Goldman 33 Non-Executive Director and Chairman 1999
of the Board of Directors
Thomas Maxfield 54 Non-Executive Director 1999
David Morgan (Chief Executive Officer) - Mr. Morgan is 42 years old and
graduated in 1982 from the University of Warwick with a Bachelor of Laws
degree, with honors. From 1982 to 1986, he was assistant to the Director of the
Industrial & Marine Division of Rolls Royce plc. From 1986 to 1991, he was
Group Commercial Manager of Blackwood Hodge plc, a worldwide distributor of
construction and earthmoving equipment. From 1991 to 1992, he was managing
director of Hunsbury Computer Services Ltd, a systems integrator and subsidiary
of Blackwood Hodge. From 1992 to 1995, he was Managing Director of the UK
subsidiary of Network Imaging Inc., an international software and systems
house. From 1995 to 1996, he was Managing Director of Orchid Ltd, a UK computer
software reseller. From 1997 to the present, he has been a director of and the
17
Chief Executive Officer of INVU Plc. Since the Share Exchange on August 31,
1998, he has been Chief Executive Officer of the Company and served as Chairman
of the Board of Directors from that date until 2002.
Jon Halestrap (VP Sales and Marketing) - Mr. Halestrap is 43 years old
and graduated from Coventry Polytechnic in 1984 with a degree in Production
Engineering. From 1995 to 1996, he was Group Sales Director of Orchid Ltd, a UK
computer software reseller. Between November 1996 and May 1999, he was Channel
Director for Bentley Systems Limited, a leading supplier of Micro CAD systems
in the world. From June 1999 to July 2000, Mr. Halestrap was Northern European
Business Development Manager for Motiva Limited, a global information
management solutions company. Mr. Halestrap joined INVU on July 10, 2000 as
Vice President of Sales and Marketing and serves as a director of the Company.
John Agostini (Chief Finance Officer) - Mr. Agostini is 44 years old
and qualified as a chartered accountant with Grant Thornton in 1984. Since 1986
he has worked for various companies within the printing, construction, and
electronics industries, typically as a Finance/Commercial Director. From
December 1993 to October 1996, he held the position of Director of Finance and
Operations of Bizeq Limited, a security alarms distributor. From November 1996
to April 1997, Mr. Agostini served as European Financial Controller for Sunbeam
Europe Limited, a domestic appliance distributor. From April 1997 to February
1999, he served as Finance and Operations Director of the performance textiles
division of Porvair Plc. Mr. Agostini joined INVU in February 1999 as Chief
Finance Officer, director and Secretary.
Daniel Goldman (Non-Executive Director) - Mr. Goldman is 33 years old,
and works with emerging technology companies raising private equity finance and
also provides corporate finance advice. He has worked with a number of
companies in the fields of software and the internet, smart card technology,
medical devices and other areas of patented technology as a consultant. From
January 1997 until June 1997, Mr. Goldman worked with Elderstreet Corporate
Finance Ltd., a venture capital fund specializing in the high-tech sector. From
July 1997 through April 1998, Mr. Goldman worked with Alberdale & Co., a
venture capital fund specializing in the high-tech and healthcare sectors. From
April 1998 until June 1999, he served as a Corporate Finance Executive with
Shore Capital Group Plc, an investment bank specializing in corporate finance.
Mr Goldman is the chairman of Goldman Investments, a provider of strategic
advice and investment banking services and is currently a non-executive
director for a number of technology companies. These include Boomerang Software
Inc., an internet software publishing company based in Boston. Mr. Goldman
joined the Board of INVU Inc. on May 13, 1999 and was appointed as Chairman of
the Board of Directors in 2002.
Thomas Maxfield (Non-Executive Director) - Mr. Maxfield is 54 years
old. He has a B.A. honors degree in modern languages. Between 1984 and 1997 he
was a main board director of The Sage Group plc, a supplier of PC accounting
software. His responsibilities included the development of a national reseller
network, creating and maintaining telesales and field sales operations, and the
creation of the company's retail sales channel. From 1997 to the present, Mr.
Maxfield has served as a director of Seaham Hall Limited, a property
development company. Mr Maxfield joined the Board of INVU Inc. on May 13, 1999.
The Company is not aware of any "family relationships" among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.
The Company is not aware of any event (as listed in Item 401(d) of
Regulation S-B promulgated by the Commission) that occurred during the past
five years that are material to an evaluation of the ability or integrity of
any director, person nominated to become a director, executive officer,
promoter or control person of the Company.
The Company's Remuneration Committee was established in 2002 to review
remuneration and bonus payments to be made to the Company's executive officers.
Mr. Morgan, Mr. Goldman and Mr. Maxfield serve as members of the Remuneration
Committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders") to file reports of
ownership and changes of ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and 10% Stockholders of the Company are required
18
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
so filed. Based solely on correspondence with, and a review of copies of Section
16(a) forms received from executive officers and directors and 10% Stockholders
(if any), the Company believes that, during the last fiscal year (i) Daniel
Goldman failed to file a Form 4 in connection with the restructuring of the
Vertical Loans, (ii) Daniel Goldman failed to file a Form 4 regarding the
divestiture of his interest in Vertical Investments Limited and (iii) Oliver
Trust or its trustee, which indirectly owns Vertical Investments Limited, failed
to file a Form 3 upon its acquisition of the beneficial ownership of Vertical
Investments Limited.
Item 10. Executive Compensation
The following tables set forth the compensation paid by the Company to
its Executive Officers during the fiscal year ended January 31, 2003. No other
executive officer earned in excess of $100,000.
Annual Compensation Long Term Compensation
Securities
Name/Principal Underlying Other Annual
Position Year Salary Bonus Options Compensation
-------- ---- ------ ----- ------- ------------
David Morgan/Chief Executive 2003 $144,902 $7,641 -- $37,439(3)
Officer 2002 $132,710 -- 400,000(4) $28,129(3)
2001 $100,937 -- -- $29,046(3)
John Agostini/Chief Financial 2003 $114,049 $4,585 -- $22,656(1)
Officer 2002 $92,359 $8,608 250,000(4) $19,288(1)
2001 $ 93,750 $3,750 100,000(2) $19,536(1)
Jon Halestrap/VP Sales and 2003 $132,389 $6,113 -- $23,168(1)
Marketing 2002 $89,669 $31,085 250,000(4) $14,232(1)
2001 $ 73,482 -- -- $ 8,004(1)(5)
(1)Other Annual Compensation consists of the use of a Company car and/or payment
of a car allowance.
(2)In June 2000, Mr. Agostini was granted an option by David Morgan to purchase
100,000 shares of Company common stock at $2.00 per share. The option became
exercisable in March 2001. Mr. Morgan is a beneficiary of a discretionary trust,
the rest of which includes beneficial ownership of a majority of the Company's
Common Stock. The percentage of Mr. Morgan's beneficial interest in the assets
of the trust has not been determined. If he receives a distribution from the
trust, he has committed to give Mr. Agostini an option to purchase 100,000
shares.
(3)Other Annual Compensation consists of $34,798 ($26,198 in 2002 and $27,390 in
2001) for the use of a Company car and contributions to Mr. Morgan's private
health insurance plan in the amount of $2,641 ($1,931 in 2002 and $1,656 in
2001).
(4)In September 2001, Mr. Agostini and Mr. Halestrap were both granted options
to acquire 250,000 shares of the Company's Common Stock pursuant to the
Company's Enterprise Management Share Option Agreement (Group A). Twenty-five
percent of the options vest each year provided that certain performance targets
are met and are exercisable at an exercise price of $0.50 per share. The
performance goals relate to the achievement of predetermined net profit before
tax and interest. In December 2001, Mr. Morgan was granted an option to acquire
400,000 shares of the Company pursuant to the Executive Share Option Scheme at
an exercise price of $0.50 a share. Twenty-five percent of the options vest each
year.
(5)Mr. Halestrap was additionally allocated 100,000 shares of the Company's
Common Stock as a beneficiary of the Allocated Trust (see notes 4 and 7 to "Item
10. Security Ownership of Certain Beneficial Owners and Management").
No stock options were granted on behalf of the Company to any employee during
the Company's last fiscal year.
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended January 31, 2003 and unexercised options held as of January 31, 2003. No
options were exercised by the Named Executive Officers during 2002.
19
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Value of
Number of Unexercised
Number of Unexercised in-the-money
Shares Options options
Acquired at FY-end: at FY-end:
On Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable(1)
---- -------- -------------- ------------- ----------------
John Agostini.................. -- -- 100,000 (2)/250,000 $0
Jon Halestrap.................. -- -- 0/250,000 $0
David Morgan................... -- -- 100,000/300,000 $0
__________
(1) No options were in-the-money as of January 31, 2003.
(2) In June 2000, Mr. Agostini was granted an option by David Morgan to purchase
100,000 shares of Company common stock at $2.00 per share. The option became
exercisable in March 2001. Mr. Morgan is a beneficiary of a discretionary trust,
the rest of which includes beneficial ownership of a majority of the Company's
Common Stock. The percentage of Mr. Morgan's beneficial interest in the assets
of the trust has not been determined. If he receives a distribution from the
trust, he has committed to give Mr. Agostini an option to purchase 100,000
shares.
Director Compensation
Except as noted below, directors currently do not receive any cash
compensation from the Company for their services as members of the Board of
Directors. Directors are reimbursed for actual and reasonable out of pocket
expenses in connection with attendance at Board of Directors and committee
meetings.
Effective February 2, 1999, Mr. Goldman was entitled to receive
(pound)5,000 payable in six equal installments and 5,000 shares of the Company's
Common Stock from Montague as compensation for his services. Mr. Maxfield was
granted 10,000 shares of the Company's Common Stock from Montague for his
services as a director in April 1999.
As compensation for their services as non-executive directors of the
Company, in December 2001 the Company granted Mr. Goldman an option to purchase
150,000 shares of the Company's Common Stock and Mr. Maxfield an option to
purchase 50,000 shares of the Company's Common Stock. Each of the options are
exercisable at an exercise price of $0.50 and vest in one-fourth increments over
a four-year term.
Designations
As part of an investment agreement executed in August 1999, Mr. Goldman
was nominated and appointed to serve on the Company's board of directors. See
"Item 12. Certain Relationships and Related Transactions."
Employment Agreements
David Morgan. The Company entered into an employment agreement with Mr.
Morgan in June 1997. The Company agreed to pay Mr. Morgan (pound)92,000, which
was increased to (pound)97,125, as salary plus quarterly bonuses based upon
profit achievements. The profit achievements necessary for any bonus award will
be determined by the Company's Board of Directors. The Company reviews Mr.
Morgan's salary each year. The Company also agreed to provide Mr. Morgan with a
company car, to provide and maintain his membership in a private health care
plan and to contribute a sum equal to 5% of his total salary to his private
pension. No contributions have been made by the Company to Mr. Morgan's private
pension. The agreement may be terminated by either Mr. Morgan or the Company
with twelve months notice. In addition, the Company may terminate the agreement
at any time without prior notice if Mr. Morgan were to (1) commit an act of
gross misconduct or incompetence; (2) become of unsound mind; (3) file for
bankruptcy or make any arrangement with his creditors; (4) willfully refuse to
carry out duties vested in him by the Board of Directors; (5) be convicted of a
criminal offense unless, in the opinion of the Board of Directors, the
conviction does not affect his position or suitability for the position; or (6)
commit any conduct which, in the opinion of the Board of Directors, brings him
or the Company or any of the Company's subsidiaries into disrepute.
20
John Agostini. The Company entered into an employment agreement with Mr.
Agostini in January 1999. The Company agreed to pay Mr. Agostini an initial
salary of (pound)62,500, which has been increased to (pound)68,250. Mr. Agostini
was initially entitled to receive an annual bonus of (pound)2000, however in
2001 it was decided that Mr. Agostini is entitled to receive quarterly bonuses
of (pound)2000 subject to timely filing of Forms 10-QSB and 10-KSB. This
quarterly bonus has now been incorporated into his basic salary. Any further
bonus is subject to review by the Remuneration Committee of the Company. The
Company also agreed to provide Mr. Agostini with a company car. However, as of
September 2002, Mr Agostini elected to take a monthly car allowance of
(pound)900 in lieu of a company car. The agreement may be terminated by either
the Company or Mr. Agostini with one months notice, which was changed to three
months notice in 2001. However, the Company may terminate Mr. Agostini's
employment immediately in the event of gross misconduct. Upon termination, Mr.
Agostini is prohibited from competing with the Company for six months and is
subject to certain confidentiality provisions. In addition, any intellectual
property developed by Mr. Agostini is the property of Invu International
Holdings Limited, the Company's wholly owned subsidiary.
Jon Halestrap. The Company entered into an employment agreement with Mr.
Halestrap in June 2000. The Company agreed to pay Mr. Halestrap (pound)62,500 as
salary and a performance related bonus of (pound)22,500. The basic salary was
subsequently increased to (pound)68,250, and the performance related bonus has
now been incorporated into his basic salary. Mr. Halestrap's further bonuses are
subject to the Remuneration Committee's review. The Company also agreed to
maintain Mr. Halestrap's mobile phone contract, to provide him with a company
car and to grant him an option for not less than 100,000 shares of the Company's
Common Stock. The agreement may be terminated by either the Company or Mr.
Halestrap with three months notice by either party during his first year of
employment with the Company. Thereafter, the notice period will increase one
month for each years service to a maximum of six months. However, the Company
may terminate Mr. Halestrap's employment immediately in the event of gross
misconduct. Upon termination, Mr. Halestrap is prohibited from competing with
the Company for six months and is subject to certain confidentiality provisions.
In addition, any intellectual property developed by Mr. Halestrap is the
property of Invu International Holdings Limited, the Company's wholly owned
subsidiary.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the close of business on April
30, 2003 information as to the beneficial ownership of shares of the Company
Common Stock for all directors, each of the named executive officers (as
defined in Item 402(a)(2) of Regulation S-B promulgated by the Commission), for
all directors and executive officers as a group, and any person or "group" who
or which is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Company Common Stock. In addition, except as set
forth below, the Company does not know of any person or group who or which owns
beneficially more than 5% of its outstanding shares of Company Common Stock as
of the close of business on April 30, 2003.
Beneficial Ownership (1)
Name and Address Amount and Nature Percentage(1)(2)
of Beneficial Owner of Beneficial
Owner
Montague Limited (3)(4)(5) 19,755,890 65.00%
David Morgan (4)(5)(6) 100,000 0.33%
Jon Halestrap (4) (5) (7) 100,000 0.33%
Peter Fraser (4) (5) * *
John Agostini(11) 100,000 0.33%
Daniel Goldman(8) 42,500 0.14%
Thomas Maxfield(9) 671,859 2.17%
Roy G. Williams (10) 1,725,920 5.68%
Paul O'Sullivan(5) (12) * *
Vertical Investments
Limited (13) 17,481,674 36.58%
Officers and Directors as
a Group (5 persons) 1,014,359 3.25%
21
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking,
relationship or otherwise has or shares voting power and/or investment
power and as to which such person has the right to acquire such voting
and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the
sum of the number of shares outstanding as of such date and the number
of shares as to which such person has the right to acquire voting
and/or investment power with in 60 days.
(2) Based on 30,386,539 shares of Common Stock outstanding as of April 30,
2003.
(3) Montague Limited ("Montague") is a company organized under Isle of Man
law with a business address of 34 Athol Street, Douglas, Isle of Man
IM1 1RD United Kingdom. The directors of Montague are Eammon Harkin and
Barry John Williams. The sole issued and outstanding share capital of
Montague is beneficially owned by an Isle of Man discretionary trust
(the "Discretionary Trust") and, therefore, indirect beneficial
ownership of 18,654,252 shares of Company Common Stock that are held of
record by Montague. The trustee of the Discretionary Trust is Caymanx
Trust Company, an Isle of Man corporate trust ("Caymanx Trust"). The
directors and officers of Caymanx Trust are Eric John Crutchley
(Chairman), Francis Joseph Eammon Harkin (Managing Director), Peter
Adye Tomkins (Director), David William Trimble (Director), John Charles
Bierley (Director), Malcolm Brian Hartley (Director), Mark William
Solly (Director), and Barry John Williams (Alternate Director and
Secretary). The business address of Caymanx Trust is the same as
Montague. Montague has also made a distribution of 1,176,800 shares to
one beneficiary and has instructed the Company's transfer agent to
effectuate such transfer. As of April 30, 2003, the transfer agent was
awaiting documentation in connection with such transfer. Such number of
shares is not included in the 18,654,252 shares of Company Common Stock
held of record by Montague.
(4) Montague is the record owner of 1,101,638 shares that have been
allocated to certain individuals and entities and are held by for such
individuals and entities under a declaration of trust (the "Allocated
Trust").
(5) Such person or persons are within a class of beneficiaries of the
Discretionary Trust. The percentage of each such person's beneficial
interest, if any, in the assets of the Discretionary Trust has not been
determined at this time, and, therefore, such persons disclaim
beneficial ownership of such shares. Mr. Fraser's business address is
Wisteria House, I Kings Lane, Flore, Northamptonshire, NN7 4LQ.
(6) David Morgan is President and Chief Executive Officer of the Company
and is a member of the Company's Board of Directors. His business
address is The Beren, Blisworth Hill Farm, Stoke Road, Blisworth
Northamptonshire NN7 3DB. Consists of currently exercisable options to
purchase 100,000 shares of Common Stock at an exercise price of $0.50.
(7) Jon Halestrap is Vice President - Sales and Marketing of the Company
and is a member of the Company's Board of Directors. Mr. Halestrap has
been allocated 100,000 shares as a beneficiary of the Allocated Trust.
His business address is The Beren, Blisworth Hill Farm, Stoke Road,
Blisworth Northamptonshire NN7 3DB.
(8) Consists of 5,000 shares of Common Stock transferred to Mr. Goldman
from Montague as compensation for director services and currently
exercisable options to purchase 37,500 shares of Common Stock at an
exercise price of $0.50. Mr. Goldman's business address is Beit Sofri
33, Har Tuv POB 11029, Beit Shemesh, Jerusalem 99100, Israel.
(9) Includes 10,000 shares of Common Stock transferred to Mr. Maxfield from
Montague as compensation for director services, currently exercisable
options to purchase 12,500 shares of Common Stock at an exercise price
of $0.50, 75,000 shares of Common Stock acquired in connection with The
Second Financing Transaction and 574,359 shares of shares of Common
Stock that Mr. Maxfield has the right to acquire upon conversion of
Loan Stock Instrument A and Loan Stock Instrument B (assuming that all
accrued interest has been paid). See "Item 1. Description of Business -
The Second Financing Transaction." Mr. Maxfield's business address is
Marsden Hall, Lizard Lane, MarsdenTyne & Wear NE34 7AD.
22
(10) Pursuant to a Schedule 13G filed by Mr. Williams, Mr. Williams has the
following beneficial ownership with respect to shares of Common Stock.
Mr. Williams has sole voting and dispositive power over 659,780 shares
of Common Stock including 261,875 shares of Common Stock owned by
Mustardseed and has sole voting and power over such shares. Zalcany
owns 1,066,140 shares of Common Stock. Zalcany is owned 50% by Mr.
Williams and 50% by Richard Harris. Mr. Williams and Mr. Harris share
voting and dispositive power with respect to such shares. Mr. Williams
business address is Birkett House, 27 Albemarle Street, London W1X 4LQ.
(11) Mr. Agostini is the Chief Financial Officer and a director of the
Company. His business address is The Beren, Blisworth Hill Farm, Stoke
Road, Blisworth Northamptonshire NN7 3DB. Includes 100,000 shares of
common stock that Mr. Agostini may acquire upon the exercise of an
option privately arranged between Mr. Morgan and Mr. Agostini.
(12) Mr. O'Sullivan was the Chief Technical Officer and a director of the
Company until July 2000. His business address is 23 Denton Rd., Horton,
Northhampton NN72BE.
(13) Consists of 75,000 shares of Common Stock acquired in connection with
the Second Financing Transaction and 574,359 shares of Common Stock
that Vertical Investments Limited has the right to acquire upon
conversion of Loan Stock Instrument A and Loan Stock Instrument B
(assuming that all accrued interest has been paid) and 16,832,315
shares of Common Stock that may be acquired by Vertical Investments
pursuant to loan instruments and two stock options. See "Item 1.
Description of Business - The Second Financing Transaction" and "The
Subsequent Financing Transactions." Vertical Investments Limited's
business address is 22 Colomberie St. Helier, Jersey JE1 4XA, Channel
Islands, and the directors of Vertical Investments are David Hopkins
and Bernard Le Claire. Vertical Investments Limited is wholly owned by
Tyne & Wear Holdings Ltd., a company beneficially owned by the Oliver
Trust, a discretionary Jersey Trust, the Trustee of which is Seaton
Trustees Ltd., a Jersey company. Seaton Trustees Ltd.'s business
address, and the business address for its directors, is Seaton House,
19 Seaton Place St. Helier, Jersey, Channel Islands. The directors of
Seaton Trustees Ltd. are David Hopkins, Bernard Le Claire and Darren
Hocquard.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of January 31, 2003
regarding compensation plans (including individual compensation arrangements)
under which equity securities of the Company are authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available for
Number of securities Weighted average future issuance under
to be issued upon exercise price of equity compensation
exercise of outstanding options, plans (excluding
outstanding options, warrants and rights securities reflected in
warrants and rights column (a))
Plan Category (a) (b) (c)
--------------------------------------- ----------------------- -- ------------------- -------------------------
Equity compensation plans approved
by security holders 0 0 0
Equity compensation plans not
Approved by security holders 1,666,365 .50 See Footnote 1
----------------------- ---------------------- -------------------------
Total 1,666,365 .50 See Footnote 1
======================= ====================== =========================
(1) The Company's option plans do not have a specific number of shares
authorized for issuance. The Board of Directors and the Remuneration
Committee determine the number of options to be granted in any given
fiscal year.
The Company maintains three option plans, the Invu, Inc. Enterprise
Management Share Option Agreement (Group A) (the "Group A Agreement"), the Invu
Inc. Enterprise Management Share Option Agreement (Group B) (the "Group B
23
Agreement") and the Invu, Inc. Executive Stock Incentive Share Option Agreement
(the "Executive Agreement"), all of which are administered by the Board of
Directors.
Under each Group A Agreement, 25% of the options vest and become
exercisable each year provided that certain performance targets are met and the
optionee remains an employee of the Company, subject to certain exceptions. If
on the sixth anniversary of the date of grant, the performance targets have not
been met and such optionee continues to remain an employee of the Company,
subject to certain exceptions, the entire number of options shall vest and
become exercisable. Options granted under the Group A Agreement are exercisable
at an exercise price of $.50 per share.
Under each Group B Agreement, the entire number of options vest on the
third anniversary of the date of grant provided that certain performance goals
are met and provided that the optionee continues to remain an employee of the
Company, subject to certain exceptions. However, if an optionee has been
employed by the Company for five years and terminates employment with the
Company before the third anniversary of the date of grant, the option shall
become immediately vested and exercisable on the date of termination despite the
fact that performance goals have not been met. In addition, if the performance
goals have not been met by the sixth anniversary of the date of grant, the
entire option shall become vested and exercisable provided that the optionee
continues to remain employed with the Company, subject to certain exceptions.
Options granted under the Group B Agreement are also exercisable at an exercise
price of $.50 per share. The Group B Agreement may be amended by the Board of
Directors in its sole discretion provided that no amendment may be made without
the consent of an optionee if such amendment adversely affects the existing
rights of the optionee.
All options granted under the Group A Agreement and the Group B
Agreement shall expire on the tenth anniversary of the date of grant. In the
event of a change in control of the Company or a voluntary liquidation, both
Group A and Group B Agreements provide for accelerated vesting of options. An
optionee may not assign or transfer options provided that the personal
representatives of an optionee may exercise the option within one year of the
death of an optionee. Options under both plans may be exercised for cash only.
The Executive Agreement is for David Morgan and non-executive directors
of the Company and as such, optionees are not subject to employment or
performance criteria. Options granted under the Executive Agreement may be
exercised for cash only, vest 25% annually and expire on the tenth anniversary
of the date of grant. Option grants may be subject to accelerated vesting in the
event of a change of control or voluntary liquidation. Optionees are also
prohibited from assigning or transferring options; provided that the personal
representative of an optionee may exercise the option within one year of the
death of the optionee.
Item 12. Certain Relationships and Related Transactions
Guarantees of Indebtedness and Guarantee Fees
The Company has a $328,740 short-term credit facility with an annual
interest rate currently of 5.75% with an English bank. The Company's bank also
provided a further credit facility of $986,220 in October 2001 by way of notes
payable with re-negotiated monthly repayments of $41,092 for May through August
2003 and $82,184 from September 2003 through June 2004. This facility currently
bears interest at the rate of 5.75% per annum. All bank credit facilities and
notes payable are 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, had an interest until
December 2002. Cross guarantees were made by Invu Services Limited, Invu plc and
Invu International Holdings Limited. Invu International Holdings Limited also
executed a Debenture in favor of the bank.
In June 2002, the Company secured a short term credit facility of
$410,925 from Bank Leumi at an annual interest rate currently of 6.75%. 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 the Company, had an interest until December
2002.
24
Loans
In February 2001, the Company increased its non-interest bearing loan
of $5,635 made to David Morgan in September 1999 to $19,584. This loan was paid
in full in December 2002.
As of January 31, 2003, the Company had received unsecured loans
totaling $795,637 from Peter Fraser. These loans bear interest of $4,931 per
month.
In February 2001, Vertical Investments Limited, an entity in which
Daniel Goldman, a non-executive director of the Company had an interest until
December 2002, lent the Company $1,000,000. Vertical Investments Limited made
further advances of $250,000 in May 2001, $50,000 in July 2001, $500,000 in
September 2001, $275,000 in December 2001 and $275,000 in February 2002. These
loans are secured by a debenture covering all of the Company's assets, which is
subordinate to the debenture granted to the Company's bank. In addition, Paysage
Investments Limited, also an entity in which Daniel Goldman's brother has an
interest, loaned the Company $50,000 in May 2001. To date, no payments have been
made on any of these loans. See "Item 1. Description of Business - The First
Financing Transaction, The Second Financing Transaction and The Subsequent
Financing Transactions."
Employment and Indemnification Agreements
The Company does not maintain any Indemnification Agreements with its
directors. David Morgan, John Agostini and Jon Halestrap have entered into
employee employment agreements with the Company. See "Item 10. Executive
Compensation-Employment Agreements."
Transactions
The Company paid Impakt Software Limited $75,001 as of the fiscal year
ended January 31, 2003. Paul O'Sullivan, an individual listed in the beneficial
ownership table set forth in Item 11 and the Company's former Chief Technical
officer and director, is a director of Impakt Software Limited.
The Company paid Peter Fraser, an individual listed in the beneficial
ownership table set forth in Item 11, $63,998 for advisory services relating to
the acquisition of Corsham Holding BV.
The Company made purchases from Vertical Investments Limited, a company
in which Daniel Goldman, as a non-executive director of the Company, had an
interest until December 2002, totaling $13,692 with a balance of $14,726 owed at
January 31, 2003.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First
Amendment to Share Exchange Agreement, dated as of July 23, 1998
(incorporated by reference from Exhibit 2.1 of the Company's Current
Report on Form 8-K filed June 8, 1998 and Exhibit 99 of the Company's
Amendment to Current Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997
with the Secretary of State of the State of Colorado (incorporated by
reference from Exhibit 3.2 of the Company's Registration Statement on
Form 10-SB/A filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on
February 22, 1999, with the Secretary of State of the State of
Colorado (incorporated by reference from Exhibit 3.2 of the Company's
Annual Report on Form 10-KSB filed October 15, 1999).
25
3.3 Bylaws of the Company (incorporated by reference from Exhibit 2.2 of
the Company's Registration Statement on Form 10-SB/A filed August 29,
1997).
10.1 Investment Agreement, dated August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan, Alan David Goldman, and
Vertical Investments Limited (incorporated by reference from Exhibit
10.12 of the Company's Annual Report on Form 10-KSB filed October 15,
1999).
10.2 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 from Exhibit 10.13 of the Company's Annual
Report on Form 10-KSB filed October 15, 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 from Exhibit 10.14 of the Company's Annual
Report on Form 10-KSB filed October 15, 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 from Exhibit 10.15 of the
Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.5 Distribution Agreement, dated January 29, 2000, by and between INVU
Services and Gem Distribution Limited. (incorporated by reference from
Exhibit 10.13 of the Company's Annual Report on Form 10-KSB/A filed
May 18, 2000).
10.6 Overdraft Facility Agreement, dated December 13, 1999, by and between
Invu Services Limited and HSBC Bank plc. (incorporated by reference
from Exhibit 10.16 of the Company's Annual Report on Form 10-KSB/A
filed May 18, 2000).
10.7 Lease Agreement, effective January 1, 2000, by and between Invu
Services Limited, Roy Taylor and Diana Ruth Taylor (incorporated by
reference from Exhibit 10.24 of the Company's Annual Report on Form
10-KSB/A filed May 18, 2000).
10.8 Demand Promissory Note, dated May 1, 2000, by and between the Company
and GEM Advisors, Inc. (incorporated by reference from Exhibit 10.25 of
the Company's Annual Report on Form 10-KSB/A filed May 18, 2000).
10.9 Overdraft Facility, dated July 19, 2000, by and between the Company and
the Bank of Scotland (incorporated by reference from Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.10 Corporate Guarantee, dated July 18, 2000, by and among the Company,
Invu Plc, Invu Services Limited, Invu International Holdings Limited
and the Bank of Scotland (incorporated by reference from Exhibit 10.2
of the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.11 Debenture, dated July 13, 2000, by and between Invu International
Holdings Limited and the Bank of Scotland (incorporated by reference
from Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB
filed September 19, 2000).
10.12 Employment Agreement, dated June 30, 1997, by and between the Company
and David Morgan (incorporated by reference from Exhibit 10.4 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.13 Employment Agreement, dated June 9, 2000, by and between the Company
and John Halestrap (incorporated by reference from Exhibit 10.5 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
26
10.14 Employment Agreement, dated June 10, 1999, by and between the Company
and John Agostini (incorporated by reference from Exhibit 10.6 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.15 Letter Agreement, dated February 22, 2000, by and between David Morgan
and David Andrews (incorporated by reference from Exhibit 10.7 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.16 Letter Agreement, dated February 2, 1999, by and between David Morgan
and Daniel Goldman (incorporated by reference from Exhibit 10.8 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.17 Letter Agreement, dated April 27, 1999, by and between David Morgan and
Tom Maxfield (incorporated by reference from Exhibit 10.9 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.18 Debenture, dated October 24, 2001, between the Company and Vertical
Investments Limited (incorporated by reference from Exhibit 10.18 of
the Company's Annual Report on Form 10-KSB filed May 1, 2002).
10.19 Secured Guarantee, dated October 24, 2001, between the Company and
Vertical Investments Limited (incorporated by reference from Exhibit
10.19 of the Company's Annual Report on Form 10-KSB filed May 1, 2002).
10.20 Ranking Agreement, dated October 24, 2001, between Vertical Investments
Limited, Invu Services Limited and the Bank of Scotland (incorporated
by reference from Exhibit 10.20 of the Company's Annual Report on Form
10-KSB filed May 1, 2002).
10.21 Financing Arrangement, effective as of December 27, 2001, between
Vertical Investments Limited, the Company, Invu Services Limited, Invu
International Holdings Limited and Invu PLC (incorporated by reference
from Exhibit 10.21 of the Company's Annual Report on Form 10-KSB filed
May 1, 2002).
10.22 Loan Agreement, dated October 24, 2001, between Vertical Investments
Limited, Invu Services Limited, Invu International Holdings Limited,
Invu PLC, David Morgan, John Agostini and Jon Halestrap (incorporated
by reference from Exhibit 10.22 of the Company's Annual Report on Form
10-KSB filed May 1, 2002).
10.23 Amendment No. 1 to the Limited Manufacturing Agreement, effective
December 21, 2001 between Gupta Technologies, LLC and Invu Services
Limited (incorporated by reference from Exhibit 10.23 of the Company's
Annual Report on Form 10-KSB filed May 1, 2002).
10.24 Form of Invu Inc. Enterprise Management Share Option Agreement (Group
A) (incorporated by reference from Exhibit 10.5 of the Company's
Quarterly Report on Form 10-QSB filed December 14, 2001).
10.25 Form of Invu Inc. Enterprise Management Share Option Agreement (Group
B) (incorporated by reference from Exhibit 10.6 of the Company's
Quarterly Report on Form 10-QSB filed December 14, 2001).
10.26 Co-operation and Project Funding Agreement, dated as of August 1, 2002,
between and among The Britech Foundation Limited and Smashing Concepts
Ltd and INVU Inc. (incorporated by reference from Exhibit 10.10 of the
Company's Quarterly Report on Form 10-QSB filed September 16, 2002).
10.27 Agreement for the Sale, Purchase and Transfer of Shares, dated as of
August 23, 2002, between and among B.V. Holding Maatschappij "De
Hondsrug," INVU International Holdings Limited, and Corsham Holding
B.V. (incorporated by reference from Exhibit 10.11 of the Company's
Quarterly Report on Form 10-QSB filed September 16, 2002).
27
10.28 Agreement for the Sale, Purchase and Transfer of Shares, dated as of
August 23, 2002, between and among B. V. Holding Maatschappij "De
Hondsrug," and INVU International Holdings Limited. (incorporated by
reference from Exhibit 10.12 of the Company's Quarterly Report on Form
10-QSB filed September 16, 2002).
10.29 Exclusive Copyright and Trademark/Tradename License, dated as of
September 6, 2002, between and among INVU International Holdings Ltd.
and Corsham Holding B.V. (incorporated by reference from Exhibit 10.13
of the Company's Quarterly Report on Form 10-QSB filed September 16,
2002).
10.30 Transfer of Trade Secret and Exclusive License of Know-How Agreement,
dated as of September 6, 2002, between and among INVU International
Holdings Ltd. and Corsham Holding B.V. (incorporated by reference from
Exhibit 10.14 of the Company's Quarterly Report on Form 10-QSB filed
September 16, 2002).
10.31 Loan Agreement, dated as of September 6, 2002, between Invu
International Holdings Ltd. and Corsham Holding B.V. (incorporated by
reference from Exhibit 10.15 of the Company's Quarterly Report on Form
10-QSB filed September 16, 2002).
10.32 Loan Agreement, dated as of June 13, 2002, between Invu Services
Limited and Bank Leumi (UK) plc (incorporated by reference from Exhibit
10.16 of the Company's Quarterly Report on Form 10-QSB filed December
16, 2002).
*10.33 Form of Invu, Inc. Executive Stock Incentive Share Option Agreement.
*10.34 Term Loan Agreement, dated as of April 2, 2003, between Invu Services
Limited and Bank of Scotland.
*10.35 Overdraft Agreement, dated April 2, 2003, between Invu Services Limited
and Bank of Scotland.
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
*99.1 Certification by David Morgan pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*99.2 Certification by John Agostini pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Filed herewith
**Confidential materials deleted and filed separately with the Securities and
Exchange Commission.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
Item 14. Controls and Procedures
Within 90 days prior to the date of this annual report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the CEO and CFO, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic SEC
reports. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation.
28
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this annual report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.
INVU, Inc.
(Registrant)
Date: May 1, 2003 By: /s/ David Morgan
---------------------------------
David Morgan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-KSB has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE OFFICE DATE
--------- ------ ----
/s/ David Morgan President and Chief Executive Officer May 1, 2003
---------------------------- (Principal Executive Officer)
David Morgan
/s/ Jon Halestrap Director and VP Marketing and Sales May 1, 2003
----------------------------
Jon Halestrap
Director May __, 2003
----------------------------
Daniel Goldman
/s/ John Agostini Director and Chief Finance Officer May 1, 2003
----------------------------- (Principal Financial Officer and
John Agostini Chief Accounting Officer)
Director May ___, 2003
------------------------------
Tom Maxfield
S-1
CERTIFICATION
I, David Morgan, Chairman of the Board, President and Chief Executive Officer of
Invu, Inc. (the "Company"), certify that:
1. I have reviewed this report on Form 10-KSB of the Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading as with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
annual report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this report in being prepared;
b. evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's Board of Directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b. any fraud, whether of not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
6. The Company's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significant affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ David Morgan
--------------------------------------
David Morgan
President and Chief Executive
Officer (Principal Executive Officer)
May 1, 2003
S-2
CERTIFICATION
I, John Agostini, Chief Financial Officer of Invu, Inc. (the "Company"), certify
that:
1. I have reviewed this report on Form 10-KSB of the Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading as with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
annual report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this report in being prepared;
b. evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's Board of Directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and
b. any fraud, whether of not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and
6. The Company's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significant affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ John Agostini
----------------------------------------
John Agostini
Chief Financial Officer (Principal
Financial and Accounting Officer)
May 1, 2003
S-3
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First
Amendment to Share Exchange Agreement, dated as of July 23, 1998
(incorporated by reference from Exhibit 2.1 of the Company's Current
Report on Form 8-K filed June 8, 1998 and Exhibit 99 of the Company's
Amendment to Current Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997
with the Secretary of State of the State of Colorado (incorporated by
reference from Exhibit 3.2 of the Company's Registration Statement on
Form 10-SB/A filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on
February 22, 1999, with the Secretary of State of the State of
Colorado (incorporated by reference from Exhibit 3.2 of the Company's
Annual Report on Form 10-KSB filed October 15, 1999).
E-1
3.3 Bylaws of the Company (incorporated by reference from Exhibit 2.2 of
the Company's Registration Statement on Form 10-SB/A filed August 29,
1997).
10.1 Investment Agreement, dated August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan, Alan David Goldman, and
Vertical Investments Limited (incorporated by reference from Exhibit
10.12 of the Company's Annual Report on Form 10-KSB filed October 15,
1999).
10.2 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 from Exhibit 10.13 of the Company's Annual
Report on Form 10-KSB filed October 15, 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 from Exhibit 10.14 of the Company's Annual
Report on Form 10-KSB filed October 15, 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 from Exhibit 10.15 of the
Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.5 Distribution Agreement, dated January 29, 2000, by and between INVU
Services and Gem Distribution Limited. (incorporated by reference from
Exhibit 10.13 of the Company's Annual Report on Form 10-KSB/A filed
May 18, 2000).
10.6 Overdraft Facility Agreement, dated December 13, 1999, by and between
Invu Services Limited and HSBC Bank plc. (incorporated by reference
from Exhibit 10.16 of the Company's Annual Report on Form 10-KSB/A
filed May 18, 2000).
10.7 Lease Agreement, effective January 1, 2000, by and between Invu
Services Limited, Roy Taylor and Diana Ruth Taylor (incorporated by
reference from Exhibit 10.24 of the Company's Annual Report on Form
10-KSB/A filed May 18, 2000).
10.8 Demand Promissory Note, dated May 1, 2000, by and between the Company
and GEM Advisors, Inc. (incorporated by reference from Exhibit 10.25 of
the Company's Annual Report on Form 10-KSB/A filed May 18, 2000).
10.9 Overdraft Facility, dated July 19, 2000, by and between the Company and
the Bank of Scotland (incorporated by reference from Exhibit 10.1 of
the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.10 Corporate Guarantee, dated July 18, 2000, by and among the Company,
Invu Plc, Invu Services Limited, Invu International Holdings Limited
and the Bank of Scotland (incorporated by reference from Exhibit 10.2
of the Company's Quarterly Report on Form 10-QSB filed September 19,
2000).
10.11 Debenture, dated July 13, 2000, by and between Invu International
Holdings Limited and the Bank of Scotland (incorporated by reference
from Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB
filed September 19, 2000).
10.12 Employment Agreement, dated June 30, 1997, by and between the Company
and David Morgan (incorporated by reference from Exhibit 10.4 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.13 Employment Agreement, dated June 9, 2000, by and between the Company
and John Halestrap (incorporated by reference from Exhibit 10.5 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
E-2
10.14 Employment Agreement, dated June 10, 1999, by and between the Company
and John Agostini (incorporated by reference from Exhibit 10.6 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.15 Letter Agreement, dated February 22, 2000, by and between David Morgan
and David Andrews (incorporated by reference from Exhibit 10.7 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.16 Letter Agreement, dated February 2, 1999, by and between David Morgan
and Daniel Goldman (incorporated by reference from Exhibit 10.8 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.17 Letter Agreement, dated April 27, 1999, by and between David Morgan and
Tom Maxfield (incorporated by reference from Exhibit 10.9 of the
Company's Quarterly Report on Form 10-QSB filed September 19, 2000).
10.18 Debenture, dated October 24, 2001, between the Company and Vertical
Investments Limited (incorporated by reference from Exhibit 10.18 of
the Company's Annual Report on Form 10-KSB filed May 1, 2002).
10.19 Secured Guarantee, dated October 24, 2001, between the Company and
Vertical Investments Limited (incorporated by reference from Exhibit
10.19 of the Company's Annual Report on Form 10-KSB filed May 1, 2002).
10.20 Ranking Agreement, dated October 24, 2001, between Vertical Investments
Limited, Invu Services Limited and the Bank of Scotland (incorporated
by reference from Exhibit 10.20 of the Company's Annual Report on Form
10-KSB filed May 1, 2002).
10.21 Financing Arrangement, effective as of December 27, 2001, between
Vertical Investments Limited, the Company, Invu Services Limited, Invu
International Holdings Limited and Invu PLC (incorporated by reference
from Exhibit 10.21 of the Company's Annual Report on Form 10-KSB filed
May 1, 2002).
10.22 Loan Agreement, dated October 24, 2001, between Vertical Investments
Limited, Invu Services Limited, Invu International Holdings Limited,
Invu PLC, David Morgan, John Agostini and Jon Halestrap (incorporated
by reference from Exhibit 10.22 of the Company's Annual Report on Form
10-KSB filed May 1, 2002).
10.23 Amendment No. 1 to the Limited Manufacturing Agreement, effective
December 21, 2001 between Gupta Technologies, LLC and Invu Services
Limited (incorporated by reference from Exhibit 10.23 of the Company's
Annual Report on Form 10-KSB filed May 1, 2002).
10.24 Form of Invu Inc. Enterprise Management Share Option Agreement (Group
A) (incorporated by reference from Exhibit 10.5 of the Company's
Quarterly Report on Form 10-QSB filed December 14, 2001).
10.25 Form of Invu Inc. Enterprise Management Share Option Agreement (Group
B) (incorporated by reference from Exhibit 10.6 of the Company's
Quarterly Report on Form 10-QSB filed December 14, 2001).
10.26 Co-operation and Project Funding Agreement, dated as of August 1, 2002,
between and among The Britech Foundation Limited and Smashing Concepts
Ltd and INVU Inc. (incorporated by reference from Exhibit 10.10 of the
Company's Quarterly Report on Form 10-QSB filed September 16, 2002).
10.27 Agreement for the Sale, Purchase and Transfer of Shares, dated as of
August 23, 2002, between and among B.V. Holding Maatschappij "De
Hondsrug," INVU International Holdings Limited, and Corsham Holding
B.V. (incorporated by reference from Exhibit 10.11 of the Company's
Quarterly Report on Form 10-QSB filed September 16, 2002).
E-3
10.28 Agreement for the Sale, Purchase and Transfer of Shares, dated as of
August 23, 2002, between and among B. V. Holding Maatschappij "De
Hondsrug," and INVU International Holdings Limited. (incorporated by
reference from Exhibit 10.12 of the Company's Quarterly Report on Form
10-QSB filed September 16, 2002).
10.29 Exclusive Copyright and Trademark/Tradename License, dated as of
September 6, 2002, between and among INVU International Holdings Ltd.
and Corsham Holding B.V. (incorporated by reference from Exhibit 10.13
of the Company's Quarterly Report on Form 10-QSB filed September 16,
2002).
10.30 Transfer of Trade Secret and Exclusive License of Know-How Agreement,
dated as of September 6, 2002, between and among INVU International
Holdings Ltd. and Corsham Holding B.V. (incorporated by reference from
Exhibit 10.14 of the Company's Quarterly Report on Form 10-QSB filed
September 16, 2002).
10.31 Loan Agreement, dated as of September 6, 2002, between Invu
International Holdings Ltd. and Corsham Holding B.V. (incorporated by
reference from Exhibit 10.15 of the Company's Quarterly Report on Form
10-QSB filed September 16, 2002).
10.32 Loan Agreement, dated as of June 13, 2002, between Invu Services
Limited and Bank Leumi (UK) plc (incorporated by reference from Exhibit
10.16 of the Company's Quarterly Report on Form 10-QSB filed December
16, 2002).
*10.33 Form of Invu, Inc. Executive Stock Incentive Share Option Agreement.
*10.34 Term Loan Agreement, dated as of April 2, 2003, between Invu Services
Limited and Bank of Scotland.
*10.35 Overdraft Agreement, dated April 2, 2003, between Invu Services Limited
and Bank of Scotland.
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
*99.1 Certification by David Morgan pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*99.2 Certification by John Agostini pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Filed herewith
**Confidential materials deleted and filed separately with the Securities and
Exchange Commission.
E-4
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
ACCOUNTANTS
INVU, INC. AND SUBSIDIARIES
JANUARY 31, 2003 AND 2002
INVU, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONTENTS PAGE
Report of independent accountants 2
Consolidated financial statements
Consolidated balance sheets 3
Consolidated statements of operations 5
Consolidated statements of deficit in stockholders' equity 6
Consolidated statements of cash flows 7
Notes to consolidated financial statements 8
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors INVU, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of INVU, Inc. and
Subsidiaries as of January 31, 2003 and 2002 and the related consolidated
statements of operations, deficit in stockholders' equity and cash flows for
each of the years ended January 31, 2003 and 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of INVU, Inc. and
Subsidiaries as of January 31, 2003 and 2002 and the consolidated results of
their operations and their consolidated cash flows for each of the years ended
January 31, 2003 and 2002 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has experienced losses, is not generating cash from operations and
has a deficit in stockholders' equity. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
plans with respect to these matters are described in Note C. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note B to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard 142, "Goodwill and Other
Intangible Assets."
Grant Thornton
Northampton, England
April 30, 2003
Page F-2
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT JANUARY 31,
--------------------------------------------------------------------------------
2003 2002
$ $
ASSETS
Current assets
Cash and cash equivalents 57,214 -
Accounts receivable:
Trade, net 1,559,094 936,442
VAT recoverable and other 916 19,582
Inventories 123,596 78,782
Prepaid expenses 67,075 85,796
----------- -----------
Total current assets 1,807,895 1,120,602
----------- -----------
Equipment, furniture and fixtures
Computer equipment 283,430 148,579
Vehicles 277,098 287,722
Office furniture and fixtures 121,037 100,897
----------- -----------
681,565 537,198
Less accumulated depreciation 395,940 244,266
----------- -----------
285,625 292,932
----------- -----------
Intangible assets, net 82,185 117,775
Goodwill 1,361,113 -
----------- -----------
Total assets 3,536,818 1,531,309
=========== ===========
The accompanying notes are an integral part of these financial statements
Page F-3
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS AT JANUARY 31,
---------------------------------------------------------------------------------------------------------------
2003 2002
$ $
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
Current liabilities
Short-term credit facility 695,213 276,203
Current maturities of long-term obligations 3,643,239 2,945,681
Accounts payable 496,117 506,161
Accrued liabilities 1,187,452 610,290
Deferred revenue 380,009 216,848
Taxation liabilities 1,931,560 -
----------- -----------
Total current liabilities 8,333,590 4,555,183
----------- -----------
Long-term obligations, less current maturities 1,811,922 2,093,740
Commitments and contingencies - -
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 shares 1,746,223 1,746,223
Accumulated deficit (8,115,118) (7,086,082)
Accumulated other comprehensive (loss)/income (239,799) 222,245
----------- -----------
Deficit in stockholders' equity (6,608,694) (5,117,614)
----------- -----------
Total liabilities and deficit in stockholders' equity 3,536,818 1,531,309
=========== ===========
The accompanying notes are an integral part of these financial statements
Page F-4
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
2003 2002
$ $
Revenues 2,567,824 1,564,248
Expenses:
Production cost 255,863 208,247
Selling and distribution cost 970,180 607,432
Research and development cost 714,096 381,135
Administrative costs 1,144,374 1,288,174
----------- -----------
Total operating expenses 3,084,513 2,484,988
----------- -----------
Operating loss (516,689) (920,740)
----------- -----------
Other income (expense)
Interest, net (512,347) (354,890)
----------- -----------
Total other expense (512,347) (354,890)
----------- -----------
Loss before income taxes (1,029,036) (1,275,630)
----------- -----------
Income taxes - -
----------- -----------
Net loss (1,029,036) (1,275,630)
=========== ===========
Weighted average shares outstanding:
Basic and Diluted 30,386,539 30,386,539
=========== ===========
Net loss per common share:
Basic and Diluted (0.03) (0.04)
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page F-5
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common stock Accumulated comprehensive Comprehensive
Shares Amount deficit income/(loss) Total loss
$ $ $ $ $
Balance at January 31, 2001 30,386,539 1,746,223 (5,810,452) 157,514 (3,906,715)
Comprehensive loss:
Foreign currency translation
adjustment - - - 64,731 64,731 64,731
Net loss during the year - - (1,275,630) - (1,275,630) (1,275,630)
---------- --------- ---------- -------- ---------- ----------
Total comprehensive loss (1,210,899)
==========
Balance at January 31, 2002 30,386,539 1,746,223 (7,086,082) 222,245 (5,117,614)
Comprehensive loss:
Foreign currency translation
adjustment - - - (462,044) (462,044) (462,044)
Net loss during the year - - (1,029,036) - (1,029,036) (1,029,036)
----------
Total comprehensive loss (1,491,080)
---------- --------- ---------- -------- ---------- ==========
Balance at January 31, 2003 30,386,539 1,746,223 (8,115,118) (239,799) (6,608,694)
========== ========= ========== ======== ==========
The accompanying notes are an integral part of these financial statements.
Page F-6
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31,
----------------------------------------------------------------------------------------------
2003 2002
$ $
Net cash flows used in operating activities
Net loss during the period (1,029,036) (1,275,630)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortisation 195,059 135,185
(Profit)/loss on disposal of fixed assets (382) 1,046
Exchange difference (63,119) -
Changes in:
Accounts receivable (416,669) (660,265)
Inventories (29,727) (45,460)
Prepaid expenses 30,414 16,244
Accounts payable (86,061) (20,861)
Accrued liabilities 518,085 431,926
--------- ----------
Net cash used in operating activities (881,436) (1,417,815)
--------- ----------
Cash flows provided by/(used in) investing activities:
Acquisitions of property and equipment (106,295) (71,263)
Disposals of property and equipment 13,755 -
Acquisition of intangible assets - (143,470)
Net cash from acquisition of subsidiary 490,684 -
--------- ----------
Net cash provided by/(used in) investing activities 398,144 (214,733)
--------- ----------
Cash flows provided by financing activities:
Short-term credit facility 347,727 (1,372,182)
Borrowings received from notes payable 277,751 3,096,255
Repayment of borrowings (82,105) (28,694)
Principal payments on capital lease (63,453) (46,520)
--------- ----------
Net cash provided by financing activities 479,920 1,648,859
--------- ----------
Effect of exchange rate changes on cash 60,586 (16,311)
--------- ----------
Net increase in cash 57,214 -
Cash at beginning of period - -
--------- ----------
Cash at end of period 57,214 -
========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 190,000 $ 165,000
Taxation $ - $ -
Non-cash items during the period
Taxation liability assumed on acquisition $1,750,108 $ -
The accompanying notes are an integral part of these financial statements.
Page F-7
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
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). Holdings has one
subsidiary of its own, INVU Netherlands BV (formerly Corsham Holding BV). 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 for the UK market. INVU Netherlands BV is the sales,
marketing and trading company for the Benelux market and holds the licence to
the Benelux intellectual property rights to the INVU software. Holdings holds
the intellectual property rights to the INVU software. The Company has three
customers that accounted for 19%, 14% and 7% of the revenues for the year ended
January 31, 2003. For the prior year, the revenues were 18%, 15% and 10%
respectively.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1 Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries INVU Plc, Services, Holdings and INVU
Netherlands BV. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company follows the provisions of Statement of Financial
Accounting Standard No 141 "Business Combinations" and Statement of
Financial Accounting Standard No 142 "Goodwill and other Intangible
Assets". The Company capitalizes goodwill as a result of the
acquisition of a subsidiary undertaking and does not amortize this
goodwill. The goodwill is subject to an impairment review at least
annually with any impairment provision being charged to the Statement
of Operations in the relevant period.
An initial impairment review was performed and no impairment
provision was required. The Company intends to carry out its annual
impairment reviews in January of the relevant years.
2 Revenue recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2 "Software Revenue Recognition" (SOP 97-2)
as amended by Statement of Position 98-9 "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions"
(SOP 98-9) issued by the American Institution of Certified Public
Accountants ("AICPA"). Fees for services and maintenance are
generally charged to customers separately from the license of
software. Revenues from license fees are recognized upon product
shipment when fees are fixed, collectability is probable and the
Company has no significant obligations remaining under the licensing
agreement. In instances where a significant vendor obligation exists,
revenue recognition is delayed until such obligation has been
satisfied.
Page F-8
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
For those license agreements which provide the customers the right to
multiple copies in exchange for guaranteed amounts (including non
refundable advance royalties), license revenues are recognized at
delivery of the product master or the first copy. Per copy royalties
on sales which exceed the guarantee are recognized as earned.
Services revenue consists of training and consulting for which
revenue is recognized when the services are performed. Maintenance
revenue consists of ongoing support and maintenance and product
updates for which revenue is deferred and recognized rateably over
the term of the contract, normally twelve months.
3 Software development costs
Software development costs are included in research and development and
are expensed as incurred. Statement of Financial Accounting Standard
No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed" (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established, which the Company defines as establishment
of a working model. The working model criteria is used because the
Company's process of creating software (including enhancements) does
not include a detailed program design. To date, the period between
achieving technological feasibility and the general availability of
such software has been short and software development costs qualifying
for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs.
4 Equipment, furniture and fixtures
Equipment, furniture and fixtures are stated at cost. Depreciation is
provided in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives. The straight line
method of depreciation is followed for financial reporting purposes.
The useful lives are as follows:
Years
Computer equipment 4
Vehicles 4
Office furniture and fixtures 4
Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the
lives of assets are capitalized. Upon sale or retirement of depreciable
property, the cost and accumulated depreciation are removed from the
related accounts and any gain or loss is reflected in the results of
operations.
Page F-9
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
5 Intangible asset
The intangible asset 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.
The Company follows the provisions of Statement of Accounting Standards
(SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and items related to those assets. The Company
reviews long-lived assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. If the sum of the undiscounted
expected future cash flows is less than the carrying amount of the
assets, the Company recognizes an impairment loss. Impairment losses
are measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets. When fair values are not
available, the Company estimates fair value using the expected future
cash flows discounted at a rate commensurate with the risks associated
with the recovery of the assets.
6 Cash
For the purpose of the consolidated statements of cash flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company has $57,214 of cash and cash equivalents in foreign bank
accounts, as of January 31, 2003.
7 Inventories
Inventories consist of goods for resale and are stated at the lower of
FIFO (first-in, first-out) cost or market value.
8 Advertising costs
Advertising costs of $125,071 and $99,446 for the years ended January
31, 2003 and 2002 respectively, have been charged to expense as
incurred.
9 Income taxes
The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected
to reverse. An allowance against deferred tax assets is recorded when
it is more likely than not that such tax benefits will not be realized.
10 Use of estimates in financial statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Page F-10
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
11 Net loss per share
The Company has adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS No. 128).
The Company's basic net loss per share amount has been computed by
dividing net loss by the weighted average number of outstanding common
shares. For the years ended January 31, 2003 and 2002 no common stock
equivalents were included in the computation of diluted net earnings
per share. Convertible debentures, stock options and loan notes
excluded from the calculation of loss per share because their effect is
anti-dilutive amounted to 20,762,130 common shares on a weighted
average basis for the year ended January 31, 2003 (January 31, 2002:
4,358,487).
12 Fair value of financial instruments
The Company's financial instruments consists of cash, trade
receivables, borrowings, trade payables and accrued liabilities. The
carrying amount of these instruments approximate the fair values
because of their short maturity. The fair value of certain non-current
financial assets and liabilities are estimated to approximate carrying
value based on considerations of risk, current interest rates and
remaining maturities. The Company is unable to determine the fair value
of certain other non-current financial liabilities as there is no
market value for such instruments.
13 Stock-based compensation
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation." As permitted by the provisions of SFAS No.
123, the Company applies Accounting Principles Board Opinion 25 and
related interpretations in accounting for its employee share option
plans. As a result, compensation expense related to options granted is
measured based on the intrinsic value of the underlying common stock.
See Note below for a summary of the pro-forma effects on reported net
loss per share for the years ended January 31, 2003 and 2002 based on
the fair value of options and shares granted as prescribed by SFAS No.
123.
As permitted under SFAS No. 123 "Accounting for Stock Based
Compensation", the Company has elected to follow Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
No. 25") in accounting for share-based awards to employees, for options
granted.
Pro-forma information regarding net loss and net loss per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee share options and the options granted by
shareholders under the fair value method consistent with the method
prescribed by that Statement. The weighted average fair value at date
of grant for options granted during 2002 was $0.13 per option. No
options were granted during 2003. The fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions for 2003 and
2002:
2003 2002
---- ----
Risk-free interest rate 6.5% 6.5%
Dividend yield 0% 0%
Volatility factor 100% 100%
Expected life Eight Eight
Had the Company's option plan and the options granted to stockholders
been accounted for under SFAS No. 123, the Company's charge to income
for 2003 and 2002 would have been $nil and $209,918, respectively. Net
loss and loss per share would have been increased to the following
pro-forma amounts.
Year ended Year ended
January 31, January 31,
2003 2002
Net Loss applicable to common shareholders................ $ (1,029,036) $(1,275,630)
Employee compensation..................................... - (209,918)
------------- ------------
Pro-forma net loss applicable to common shareholders...... $ (1,029,036) $(1,485,548)
============= ============
Pro-forma net loss per share applicable to common
stockholders -- basic and diluted....................... ($0.03) ($0.05)
============= ============
14 Foreign currency translation
The functional currency of the Company and its Subsidiaries is the
British pound sterling, except INVU Netherlands BV which is the Euro.
The consolidated financial statements are presented in US dollars using
the principles set out in Statement of Financial Accounting Standard
No. 52 "Foreign Currency Translation" (SFAS No. 52). Assets and
liabilities are translated at the rate of exchange in effect at the
close of the period. Revenues and expenses are translated at the
weighted average of exchange rates in effect during the period. The
effects of exchange rate fluctuations on translating foreign currency
assets and liabilities into US dollars are included as part of the
accumulated other comprehensive income component of stockholders'
equity.
Exchange gains of $63,119 on foreign monetary balances are included
in the Statement of Operations.
15 Research and development costs
All research and development costs are expensed as incurred.
Page F-11
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
16 Contingencies
The Company follows the provision of Statement of Financial Accounting
Standard No 5 "Accounting for Contingencies" (SFAS No 5). SFAS 5
requires that an estimated loss from a loss contingency should be
accrued for by a charge to income if it is probable that an asset has
been impaired or a liability has been accrued and the amount of the
loss can be reasonably estimated. Disclosure of a contingency is
required if there is a possibility that a loss has been incurred.
17 Recent pronouncements
The FASB issued SFAS 143, Accounting for Asset Retirement Obligations
in June 2001. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 is effective
for fiscal years beginning after June 15, 2002. The Company expects
that the adoption of SFAS 143 will not have a material impact on its
financial position and results of operations.
The FASB issued SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in August 2001. SFAS 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of, supercedes SFAS 121 and is
effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS 144 did not have a material impact on the Company's
financial position and results of operations.
In June, 2002, the FASB issued Statement 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 replaces
previous accounting guidance provided by EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring)", and requires companies to recognize costs associated
with Exit or disposal activities only when a liability for these costs
are incurred (subsequent to a commitment to a plan) rather than at the
date of a commitment to an exit or disposal plan. Examples of costs
covered by the Statement include lease termination costs and certain
employee severance costs that are associated with a restructuring,
discontinued operations, plant closings, or other initiated after
December 31, 2002. Although management believes the adoption of SFAS
146 will not have a material impact on the Company's financial
statements, adoption of the Statement will result in timing differences
in the recognition and measurement of expenses relating to exit and
disposal activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure an amendment of FASB
Statement No. 123" ("SFAS 148"). SFAS 148 amends FASB Statement No.
123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee
compensation and to require prominent disclosures about the effects on
reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. SFAS 148 also amends APB
Opinion No. 28, "Interim Financial Reporting", to require disclosures
about those effects in interim financial information.
Page F-12
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
The Company currently intends to continue to account for its
stock-based compensation awards to employees and directors under the
accounting prescribed by Accounting Principles Board Opinion No. 25 and
will adopt the additional disclosure provisions of SFAS 148 during the
first quarter of its year ending January 31, 2004.
In December 2002, the FASB issued Interpretation 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. For a
guarantee subject to FASB Interpretation 45, a guarantor is required
to:
o measure and recognize the fair value of the guarantee at
inception (for many guarantees, fair value will be determined
using a present value method); and
o provide new disclosures regarding the nature of any
guarantees, the maximum potential amount of future guarantee
payments, the current carrying amount of the guarantee
liability, and the nature of any recourse provisions or
assets held as collateral that could be liquidated and allow
the guarantor to recover all or a portion of its payments in
the event guarantee payments are required.
The disclosure requirement of this Interpretation is effective for
financial statements for fiscal years ending after December 15, 2002
and did not have a material effect on the Company's financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements" and provides guidance on the
identification of entities for which control is achieved through means
other than through voting rights ("variable interest entities" or
"VIE's") and how to determine when and which business enterprise should
consolidate the VIE. This new model for consolidation applies to an
entity which either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving
additional subordinated financial support from other parties. The
provisions of this interpretation are immediately effective for VIEs
formed after January 31, 2003. For VIEs formed prior to January 31,
2003, the provisions of this interpretation apply to the first fiscal
year or interim period beginning after June 15, 2003. Management is
currently reviewing the application of FIN 46 and is unable to
determine the impact on the Company's results of operations or
financial condition.
NOTE C - 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 total liabilities exceeded its
total assets by $6,608,694 at January 31, 2003 and the Company had negative cash
flows from operations of $881,436 for the year to January 31, 2003. The Company
is starting to generate operating revenues and has obtained additional financing
during the year ended January 31, 2003 of $685,925. Operations to date have been
funded principally by equity capital and borrowings. However, the Company needs
to raise sufficient financing to meet current obligations and to fund operations
until the operations generate net cash inflows. The Company is in the process of
seeking the necessary 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 D - INVENTORIES
Inventories consist of the following:
January, 31 January, 31
2003 2002
$ $
Goods for resale 123,596 78,782
=========== ===========
Page F-13
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
NOTE E - 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
$164,370 ((pound)100,000). Amortisation of $50,943 ((pound)33,333) has been
charged during the period.
NOTE F - SHORT-TERM CREDIT FACILITY
At January 31, 2003 the Company had a $328,740 (or (pound)200,000) (at January
31, 2002 the amount was $282,660 (or (pound)200,000)),5.75% (at January 31,
2002, the interest rate was 6%) short-term credit facility with an English bank.
The credit facility is collateralized by all assets of the Company and a
corporate guarantee given by Vertical Investments Limited. The amount drawn
against the facility at January 31, 2003 was $284,288 ((pound)172,956), (January
31, 2002 $276,203 ((pound)195,431)). The amount drawn is repayable on demand at
the bank's discretion. The credit facility is due for review on February 10,
2004.
The Company also has a $410,925 ((pound)250,000) (January 31, 2002 $nil
((pound)nil)), 6.75% short-term credit facility with an English bank. The credit
facility is collateralised by all assets of the Company and a corporate
guarantee given by Vertical Investments Limited. The amount drawn against the
facility at January 31, 2003 was $410,925 ((pound)250,000), (January 31, 2002
$nil ((pound)nil)). The amount drawn is payable on demand at the bank's
discretion. Negotiations for the renewal of this facility are ongoing.
Page F-14
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations at January 31, 2003 and January 31, 2002, consist of the
following:
January 31, January 31,
2003 2002
$ $
Unsecured loan from an individual, no stated maturity date; bearing interest
of $4,931 per month ((pound)3,000) 795,637 735,818
4% above Libor rate (Libor rate was 3.97% and 4% at January 31, 2003 and 2002
respectively) notes payable to an English bank, monthly payment aggregating to
(pound)500, matured in March 2002, collateralised by all assets of the
Company and a corporate guarantee given by Vertical Investments Limited - 940
4% above Libor rate (Libor rate was 3.97% and 4% at January 31, 2003 and 2002
respectively) notes payable to an English bank, monthly payments aggregating to
(pound)1,333, maturing in June 2004, collateralised by all assets of the
Company, unlimited multilateral guarantees between subsidiary undertakings and a
corporate guarantee given by Vertical Investments Limited; a quarterly loan
guarantee premium of 1.5% per annum is payable on 85% of the
outstanding balance 41,640 56,530
2% above bank base rate (base rate was 3.75% and 4% at January 31, 2003 and 2002
respectively) notes payable to an English bank, 4 monthly payments of
(pound)25,000 each starting in May 2003 and 10 monthly payments of (pound)50,000
each starting in September 2003, collateralised by all assets of the Company,
unlimited multilateral guarantees between subsidiary undertakings and a
corporate guarantee given by Vertical Investments Limited 986,220 847,980
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 (i) with interest rate per annum of 1.5% above
UK bank base rates 159,000 159,000
Loan notes 2001-2005 (ii) with interest rate per annum of 7% 1,000,000 1,000,000
Loan notes 2001-2005 (iii) with interest rate per annum of 12% 500,000 500,000
Convertible loan 2001-2003 (iv) with interest rate per annum of 1.5% above 300,000 300,000
UK bank base rate
Convertible loan 2001-2005 (v) with interest rate per annum of 12% 550,000 275,000
Capital leases for vehicles, interest ranging from 10.2% - 16.9% with
maturities through 2005 122,664 164,153
--------- ---------
5,455,161 5,039,421
Less current maturities 3,643,239 2,945,681
--------- ---------
1,811,922 2,093,740
========= =========
Page F-15
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
Scheduled maturities of long-term obligation are as follows:
Year ending January 31, $
2004 3,643,239
2005 441,289
2006 574,996
2007 -
2008 -
Thereafter 795,637
--------------
5,455,161
==============
1) Convertible debentures
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:
a) immediately prior to a Public Offering
b) at the option of the investor for the B Notes and automatically for the
A Notes, upon new equity capital resulting in proceeds to the Company
of at least $4,000,000
c) at the option of the investor giving 30 days notice to the Company.
Interest amounting to $281,086 has been accrued to January 31, 2003 (January 31,
2002 $172,383) in respect of the A and B Convertible Notes.
Any outstanding principal not converted or redeemed by the anniversary date,
which was August 16, 2001, will be redeemed at par plus all outstanding interest
after August 2002 upon receipt of 30 days written notice from the Company or the
Investors. At January 31, 2003 the outstanding principal could have been
converted into 1,723,077 common shares.
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.
The convertible debentures are secured by a second charge over the Company's
assets.
Page F-16
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
2) Loan notes and convertible loan notes
The investors for the loan notes and convertible loan notes detailed
below are a related party of a minority shareholder and non-executive
director of the Company, a non-executive director of the Company and
Vertical Investments Limited. Each description below corresponds to the
same romanette listed on the first table of Note G.
i) The convertible loan notes are repayable at any time within 2 years
from the date of issue. They are convertible into common stock 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 after 45 days notice has
been given to the Company.
ii) The loan notes are repayable on August 26, 2005. At any time from May
1, 2002 until August 26, 2005, the investor may demand repayment of the
entire loan or any part thereof at any time after three days notice to
the Company. If the Company does not timely repay such amounts after
receiving notice, the investor may convert the repayment amount into
shares of the Company's common stock at a conversion price of $0.2175
per share or convert the repayment amount into shares of the Company's
subsidiaries at the equivalent per share conversion price. The loan is
secured by a second charge over the Company's assets.
iii) The loan notes are repayable by June 17, 2005. At any time from May 1,
2002 until June 17, 2005, the investor may demand repayment of $475,000
or any part thereof at any time after three days notice to the Company.
If the Company does not timely repay such amounts after receiving
notice, the investor may convert the repayment amount into shares of
the Company's common stock at a conversion price of $0.13 per share or
convert the repayment amount into shares of the Company's subsidiaries
at the equivalent per share conversion price. The remaining $25,000 is
repayable on June 17, 2005. The loan is secured by a second charge over
the Company's assets.
iv) $250,000 of the convertible loan notes are repayable by May 25, 2003
and the remaining $50,000 are repayable by July 2, 2003. At any time
from May 1, 2002 until July 2, 2003, the investor may convert any
amount of the principal, at any time after three days notice to the
Company, into shares of the Company's common stock at a conversion
price of $0.25 per share or convert any amount of the principal into
shares of the Company's subsidiaries at the equivalent per share
conversion price. The loan is secured by a second charge over the
Company's assets.
v) The convertible loan notes are repayable by May 1, 2005. At any time
from May 1, 2002 until May 1, 2005, the investor may convert any amount
of the principal at any time, after three days notice to the Company,
into shares of the Company's common stock at a conversion price of
$0.13 per share or convert any amount of the principal into shares of
the Company's subsidiaries at the equivalent per share conversion
price. The loan is secured by a second charge over the Company's
assets.
The investor in the loan notes and convertible loan notes referred to
in ii) - v) above was granted two options in the common stock of the
Company. The first option is for 2,700,000 shares of the Company's
common stock that may be exercised at any time from March 1, 2002 until
March 1, 2006 after three days notice for any amount of shares up to
2,700,000 at an exercise price of $0.25 per share.
Page F-17
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
The second option is for 450,000 shares of the Company's common stock
that may be exercised at any time from March 1, 2002 until March 1,
2006 after three days notice for any amount of shares up to 450,000 at
an exercise price of $0.875 per share.
On the date of issue of all of the convertible loan notes, the
conversion rate was in excess of the market price of the common stock
and therefore, no beneficial conversion feature expense has been
recorded in the financial statements.
3) Capital leases
The Company leases vehicles under noncancellable capitalized leases.
January 31, January 31,
2003 2002
$ $
Vehicles 277,098 287,722
Less accumulated depreciation (190,840) (134,410)
------------- -----------
86,258 153,312
============= ==========
Scheduled maturities of minimum lease payments are as follows:
Year ending January 31, $
2004 117,334
2005 16,528
2006 -
------------
133,862
Less amount representing interest (11,198)
------------
Present value of net minimum lease payments 122,664
============
The scheduled net minimum lease payments to maturity are included in the
long-term obligation table above.
Page F-18
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
NOTE H - COMMITMENTS
The Company leases office space and the rent expense totaled approximately
$65,150 and $60,600 for January 31, 2003 and 2002 respectively.
The future minimum rental commitments as of January 31, 2003 are as follows:
Year ending January 31, $
2004 38,460
========
The Company has a commitment to purchase a minimum of 47,603 database licences
for approximately $228,475 by June 2003.
NOTE I - INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No 109 "Accounting for Income Taxes". Accordingly, a deferred tax
liability or deferred tax asset (benefit) is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences between
pre-tax financial and taxable income.
Deferred tax benefits are recorded only to the extent that the amount of net
deductible temporary differences or carry forward attributes may be utilized
against current period earnings, offset against taxable temporary differences
reversing in future periods, or utilized to the extent of management's estimate
of future taxable income. Deferred tax liabilities are provided for on
differences between amounts reported for financial and tax basis accounting.
Utilization of net operating loss carry-forwards in the future may be limited if
changes in the Company's stock ownership create a change of control as provided
in Section 382 of the Internal Revenue Code.
At January 31, 2003, due to the Company's cumulative losses since inception, a
loss carry forward of approximately $1,270,000 for US Federal Tax purposes and
$3,770,000 for UK purposes, may be utilized in the future for an indefinite
period.
Net deferred tax assets resulting from the loss carry forward have been offset
by a valuation allowance of equal amounts at January 31, 2003 and January 31,
2002 due to the uncertainty of realizing the net deferred tax asset through
future operations. The valuation allowances were approximately $1,735,000 and
$1,175,000 at January 31, 2003 and January 31, 2002, respectively. The valuation
allowance increased approximately $ 560,000 and $475,000 at January 31, 2003 and
2002 respectively. The effective tax rate differs from the statutory rate as a
result of the valuation allowance. Gross deferred tax liabilities were
immaterial for all periods.
Page F-19
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
NOTE J - ACQUISITIONS
On August 23, 2002, the Group acquired 6,625,000 ordinary shares at a nominal
value per share of $0.44 ((euro)0.45) in Corsham Holding BV representing 100% of
the outstanding common shares of the company. Subsequent to the acquisition,
Corsham Holding BV changed its name to INVU Netherlands BV. Prior to the
acquisition, the trading assets of the company were removed and no continuing
revenues are expected to be generated.
The results of INVU Netherlands BV's operations have been included in the
consolidated financial statements since that date. Management believes that the
acquisition of INVU Netherlands BV will allow the Company to expand into Europe
with the advantage of generating cash and the possibility of creating tax
savings.
The aggregate purchase price was $4,195,778, including $1,271,769 of cash and
the assignment of an intercompany liability from the vendor of $2,924,009.
The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition.
At
August 23, 2002
$
Current assets
Cash 1,750,108
Intercompany receivable 2,924,009
-------------
Total current assets assumed 4,674,117
-------------
Current liabilities
Taxation liabilities 1,750,108
-------------
Total current liabilities assumed 1,750,108
-------------
Net assets acquired 2,924,009
Goodwill 1,271,769
-------------
Total consideration 4,195,778
=============
The Group paid more for the Company than the value of the net assets because
they believe that the current tax liability can be reduced via their expansion
into Europe. Of the total amount of goodwill, $nil is expected to be deductible
for tax purposes.
An impairment provision will be made against the goodwill when the expected tax
savings are realized.
NOTE K - RELATED PARTY TRANSACTIONS
At January 31, 2003 David Morgan owed $nil (January 31, 2002 $19,584) to the
Company. The maximum liability during the year amounted to $19,584 and the
interest charge amounted to $nil (January 31, 2002 $nil).
The Company made purchases during the year under normal commercial terms from
Impakt Software Limited, a company owned by Paul O'Sullivan who is a potential
beneficiary of a discretionary trust, the res 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 $75,001 (January 31, 2002 $136,340) and the balance owed by the
Company at January 31, 2003 was $1,256 (January 31, 2002 $6,477).
Page F-20
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003 AND 2002
--------------------------------------------------------------------------------
NOTE K - RELATED PARTY TRANSACTIONS (CONTINUED)
During the period, the company paid Peter Fraser, a minority shareholder of the
company, $63,998 for advisory services relating to the acquisition of Corsham
Holding BV.
The Company made purchases during the year under normal commercial terms from
Vertical Investments Limited, a company in which D. Goldman had an interest
until December 2002. Mr. Goldman is a minority shareholder and non-executive
director of the Company. A related party of Mr. Goldman is a beneficiary of a
trust that indirectly owns Vertical Investments Limited. Total purchases
amounted to $13,692 (2002: $nil) and the balance owed by the company at 31
January 2003 was $14,726 (2002: $nil).
NOTE L - STOCK OPTIONS
On September 14, 2001 the Company granted stock options to certain employees
including two directors to purchase an aggregate of 1,036,365 shares of its
common stock at an exercise price of $0.50 per share. The purchase of 650,000
shares of common stock is under the Enterprise Management Share Option Agreement
(Group A) and 386,365 is under the Enterprise Management Share Option Agreement
(Group B). The stock options contain performance targets over the next 3 to 4
years which accelerate the vesting of the options to the individuals. If the
performance targets are not met, the options would vest to the individuals on
the sixth anniversary of the date of grant. The options can be exercised after
they have been vested to the individuals and cease to be exercisable ten years
after the date of grant. On the measurement date of September 14, 2001, the
market price of the common stock was $0.20 per share and accordingly, no expense
charge has been recorded in the financial statements.
On December 27, 2001 the Company granted stock options to four Directors of the
Company (under the Executive Share Option Scheme) to purchase 630,000 shares of
its common stock at an exercise price of $0.50 per share. The stock options will
vest to the individuals at each anniversary from the date of grant in four
annual instalments.
The options can be exercised after they have been vested to the individuals and
cease to be exercisable ten years after the date of grant. On the measurement
date of December 27, 2001, the market price of the common stock was $0.10 per
share and accordingly, no expense charge has been recorded in the financial
statements.
Weighted
average
Options exercise price
------- --------------
Options outstanding at
February 1, 2001................. -- --
Exercised........................ -- --
Granted.......................... 1,666,365 $0.50
Cancelled or forfeited........... -- --
--------- ---------
Options outstanding at
January 31, 2002................. 1,666,365 0.50
Exercised........................ -- --
Granted.......................... -- --
Cancelled or forfeited........... -- --
--------- ---------
Options outstanding at
January 31, 2003................. 1,666,365 $0.50
========= =========
The weighted average fair value of the options granted during the year ended
January 31, 2002 was $0.13. No options were granted during the year ended
January 31, 2003.
The following table summarizes information about stock options outstanding at
January 31, 2003.
Weighted average Weighted Weighted
Range of Number remaining average Number average
exercise prices outstanding contractual life (in exercise price exercisable exercise price
years)
$0.50-$0.50 1,666,365 8.7 $0.50 157,500 $0.50
NOTE M - CONTINGENT LIABILITY
During the period there was a transfer of intellectual property between group
companies at a value of $38,754,351. This transfer eliminates on consolidation.
The Company has received independent tax advice that the transfers referred to
above will not result in a tax liability but no assurance can be given that the
applicable tax authorities will reach the same conclusion in the event of an
audit or other regulatory inquiry relating to the transaction.
NOTE N - SUBSEQUENT EVENTS
The Company has, since the year end, renegotiated the terms of the $986,220
((pound)600,000) bank loan included in Note G. The Company is required to repay
the bank loan by 4 monthly payments of (pound)25,000 each starting in May 2003
followed by 10 monthly payments of (pound)50,000 each starting in September
2003.
Page F-21