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, 2002
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the transition period from _____________to _____________
Commission File Number 000-22661
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INVU, INC.
(Name of Small Business Issuer in Its Charter)
Colorado 84-1135638
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
The Beren
Blisworth Hill Farm
Stoke Road
Blisworth Northamptonshire NN7 3DB
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United Kingdom (Zip code)
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(Address of Principal Executive Offices)
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:
Title of Each Class Name of Each Exchange
------------------- 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
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(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: $1,564,248
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of April 30, 2002, was approximately
$1,235,827. 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, 2002, there were 30,386,539 shares of the common stock, no par
value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
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INVU, Inc.
Page
PART I ......................................................................................................1
Item 1. Description of Business...............................................................................1
Item 2. Description of Properties.............................................................................9
Item 3. Legal Proceedings.....................................................................................9
Item 4. Submission of Matters to a Vote of Security Holders..................................................10
PART II .....................................................................................................10
Item 5. Market for Common Equity and Related Stockholder Matters.............................................10
Item 6. Management's Discussion and Analysis or Plan of Operations...........................................11
Item 7. Financial Statements.................................................................................14
PART III .....................................................................................................14
Item 9. Directors, Executive Officers, Promoters and Control Persons.........................................14
Item 10. Executive Compensation...............................................................................15
Item 11. Security Ownership of Certain Beneficial Owners and Management.......................................18
Item 12. Certain Relationships and Related Transactions.......................................................19
Item 13. Exhibits and Reports on Form 8-K.....................................................................20
SIGNATURES ....................................................................................................S-1
INDEX TO EXHIBITS...............................................................................................E-1
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..................................................F-3
Consolidated Balance Sheets as of January 31, 2002 and 2001.........................................F-4
Consolidated Statements of Operations for the year ended January 31, 2002 and January 31, 2001.....F-5
Consolidated Statements of Deficit in Stockholders' Equity for the year ended January 31, 2002 and
January 31, 2001....................................................................................F-6
Consolidated Statements of Cash Flows for the year ended January 31, 2002 and January 31, 2001 .....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 holds certain intellectual property rights,
and Invu Services Ltd. ("INVU Services"), an operating company.
The Share Exchange
On August 31, 1998, the Company consummated the acquisition of all of
the issued and outstanding capital stock of INVU Plc, a company incorporated
under English law ("INVU Plc"), in exchange for 26,506,552 shares (the "Share
Exchange") of common stock, no par value, of the Company (the "Common Stock"),
pursuant to a Share Exchange Agreement, dated as of May 19, 1998, between the
Company and INVU Plc's majority shareholder Montague Limited ("Montague"), an
Isle of Man company (as amended by a First Amendment to Share Exchange
Agreement, dated as of July 23, 1998 (the "Share Exchange Agreement")). As a
result of the Share Exchange, INVU Plc became a wholly-owned subsidiary of the
Company. As conditions precedent to the consummation of the Share Exchange, (i)
Montague received a power of attorney from Halcyon Enterprises Plc, a minority
shareholder and a company incorporated under English law ("Halcyon"), to
transfer its shares of INVU Plc to the Company, and (ii) all of the outstanding
shares of Series A Convertible Preferred Stock of the Company (the "Preferred
Stock") were converted into Common Stock of the Company at a conversion rate of
two (2) shares of Common Stock for each share of Preferred Stock.
Immediately prior to the Share Exchange, the Company had a total of
2,190,000 shares of Common Stock issued and outstanding after the conversion of
the Preferred Stock. Upon consummation of the Share Exchange, Montague and
Halcyon received in the aggregate 26,506,552 shares of Common Stock of the
Company in exchange for all of the issued and outstanding share capital of INVU
Plc.
The Market and Market Strategy
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
There has, in the recent past, been 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 60 Gigabyte hard disks, and these
machines are rapidly becoming repositories for lost files and information.
Management believes that this is a global problem that has resulted in an
international market for document management technologies, which Management
expects to grow significantly in the next five years. Information is now
regarded as the key resource for organizations and individuals. Management
believes that accessing and sharing information are two of the biggest
challenges currently facing businesses. Management expects that those
organizations that are able to harness and exploit information will derive a
competitive advantage in their markets.
By contrast, Management estimates that the availability of cost
effective services that enable organizations to manage and control this mass of
information has lagged behind the requirement for such services. Therefore,
Management believes that the market for document management services has the
potential for rapid growth in markets throughout the world. Further, the
document management market is applicable to all information users, both
organizations and individuals, and, therefore, while difficult to define, is
broad in terms of potential in the estimate of Management.
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 and company wide installations 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 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 being a leading supplier of information and document management
software.
For its professional range of products, which include INVU Series 100,
Series 200, Series 250, i200 and CodeFree Integration, 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. The
majority of the Company's development and marketing resources are now directed
at these fast growing and higher margin markets.
2
In November 1999, Management decided to adopt a value added reseller
(VAR) model for sales of its professional range in the UK. The Company is also
pursuing non-exclusive distributors for its products in other territories.
Management is extremely encouraged by the number and quality of the resellers
that have been recruited to date to sell the product. Each VAR is currently
engaged, as an accredited reseller, at an initial fee of approximately $3000,
with a recurring annual fee thereafter. Having now recruited 109 resellers, the
Company continues to monitor all existing resellers to ensure that they meet the
stringent INVU accreditation requirements. The Company continues its aggressive
VAR recruitment campaign, and Management expects to recruit a further 48 VARs by
January 31, 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 orders being received
from, amongst others, Universal Music Group, States of Jersey Police, Mansell
Construction (a large UK construction company), River Island, Millfield
Partnership Limited (a large firm of financial advisors), Samsung, Kawasaki,
Gerrard Private Bank, Close Bank, Greater Glasgow Primary Healthcare Trust,
Spirax Sarco, and Spar. Most of these organizations have also provided repeat
orders for INVU software.
The Company has also progressed further with regard to two Original
Equipment Manufacture (OEM) opportunities with Xerox and Epson UK. As an
Independent Software Vendor, INVU has been designated as a Xerox Business
Partner. Utilizing Xerox SDK (software development kits), the Company has now
developed software that provides seamless integration with the Xerox Document
Centre Range, of which 55,000 machines are currently in use in the UK. INVU has
undertaken sales training of key Xerox sales personnel and joint sales
initiatives are now underway. The INVU enhanced Document Centre has been branded
"VU Centre". Epson UK and INVU have agreed to a joint marketing strategy,
whereby Epson UK, with the assistance of INVU personnel, has introduced the INVU
product line to its resellers at formal events and roadshows.
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) has given INVU an experienced and dedicated team with which to
recruit a reseller base and explore other sales opportunities. 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 continues 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
fiscal year ended January 31, 2003 (the "Current Fiscal Year") and beyond.
The Company believes 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 international
market for document technologies is forecast to grow from $17.5 billion in 1999
to $41.6 billion in 2003 according to the AIIM Report: State of the Document
Technologies Market 1997-2003 prepared by the Gartner Group and Management
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.
3
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. Although INVU software has many layers of
sophistication, Management believes it is comparatively simple to use and
inexpensive.
The Company's professional range of products, INVU Series 100, Series
200 and ViewSafe, were first introduced in beta format in October 1999. Version
5.1 was released to distributors in May 2000, version 5.1.1 was released to
distributors in March 2001 and the latest version, 5.1.2, was released in
October 2001. Beta copies of Version 5.2 were released to several end users in
quarter four of the last fiscal year and the full product release is scheduled
at the beginning of the second fiscal quarter of the Current Fiscal Year. Each
subsequent version has built upon the original premise of ease of use, high
quality and price performance. Enhancements have been incorporated in the light
of customer feedback and technical advances achieved by the Company's
development team.
Version 5.2 will contain the newly developed OCR (Optical Character
Recognition) functionality, which works with all Microsoft OfficeTM and AdobeTM
file types and scanned images. This functionality will automatically allow a
user to keyword search all existing documents in the system. This release will
also contain 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 will also allow 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" is also planned
for release alongside Version 5.2. 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 will be a
generic adaptation of the bespoke program, which is already in use with
customers such as Universal Music Group. The workflow module to be released is
designed to be customer friendly and easy to use. This will be a separate 5.2
Module, which, when integrated with Version 5.2, will be sold as INVU Series
250, and charged accordingly.
The Company has successfully developed a highly sophisticated code free
integration tool for use with the INVU professional range of products. This
allows INVU products to be linked to any other Windows(TM) or Windows(TM)
emulation-based applications. For instance, an INVU scanned image of a supplier
invoice can be retrieved directly from an accounts software application, 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. During the year ended January 31, 2002, sales of the "codefree"
module have increased significantly, with one in three installations employing
this technology. Management expects this trend to continue throughout the
Current Fiscal Year and beyond.
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 quarter four of
the last fiscal year and the full product release is scheduled for May 2002.
Management believes that this product will form the basis of future developments
for many of its existing and future end users. In the opinion of Management,
this technology will place INVU in direct competition with the world's most
established document and content management solutions providers, but at a
significantly lower price level.
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 development has taken place. This
technology 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
4
even poor quality scanned images can yield words and phrases that INVU's
technology will retrieve. The Company expects this product to further enhance
filing and retrieval speeds for organizations with large multiple data storage
requirements across networks, intranets, extranets and the internet. After
"beta" trials are concluded, Management expects to launch this product during
the second fiscal quarter of the Current Fiscal Year. Full text retrieval
technology is already available within the latest release of Series 200 and
Series 250.
Research and development costs for the fiscal year ended January 31,
2002 were $381,135 compared with research and development costs of $313,587 for
the fiscal year ended January 31, 2001. Research and development costs for both
of the Company's last two fiscal years have been written off as incurred and
none of these sums have been borne directly by customers.
In summary, the Company currently has five products. Each product
addresses different market segments, which include (1) the small office/home
office market, or "SOHO" and (2) the small/medium enterprise market, or "SME,"
(3) the internet and (4) large enterprises.
Product Description Market
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 100 Single-user information and document SOHO/SME
management
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 200 multi-user information and document SME/Large Enterprise
management system
---------------------------------------- -------------------------------------- --------------------------------------
INVU Series 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/Internet
retrieve, view, edit, and file
information via the web
---------------------------------------- -------------------------------------- --------------------------------------
INVU Codefree Integration Fast track integration to "document SME/Large Enterprise
enable" existing applications
---------------------------------------- -------------------------------------- --------------------------------------
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 Altris Software, Inc., Key File Inc., FileNet Corporation, PC
Docs and Caere Corporation. Virtually all of these direct competitors have
significantly greater financial, technical, marketing and other resources than
the Company. The Company also expects that direct competition will increase as a
result of 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 are targeted at markets where, to
date, few of the Company's larger and more established competitors have secured
significant market penetration. Although the Company believes that it will
compete favorably in these markets, there can be no assurance that the Company
can maintain its competitive position against current and any potential
competitors, especially those with greater financial, marketing, service,
support, technical and other resources than the Company.
5
Major Contracts
The Company has also entered into approximately 109 "Accredited
Reseller Agreements" whereby resellers are authorized to provide the
professional range of products to end users.
On September 18, 2000, INVU Services entered into an Consulting
Services Agreement with Centura Software Limited in connection with the phased
delivery of a bespoke information management software solution provided by INVU
Services for Universal Music Group. This agreement has now been completed.
However, Management has secured and completed further significant phased
agreements with Universal Music Group during the last fiscal year and
anticipates further significant phased assignments over the next 12 months as it
becomes the solution of choice within key elements of that business.
The Company has also progressed further with regard to two Original
Equipment Manufacture (OEM) opportunities with Xerox and Epson UK. As an
Independent Software Vendor, INVU has been designated as a Xerox Business
Partner. Utilizing Xerox SDK (standard development kits), the Company has now
developed software that provides seamless integration with the Xerox Document
Centre Range, of which 55,000 machines are currently in use in the UK. INVU has
undertaken sales training of key Xerox sales personnel and joint sales
initiatives are now underway. The INVU enhanced Document Centre has been branded
"VU Centre". Epson UK and INVU have agreed to a joint marketing strategy,
whereby Epson UK, with the assistance of INVU personnel, has introduced the INVU
product line to its resellers at formal events and roadshows.
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 $628,399 in the aggregate,
are to be made by Invu Services quarterly until September 15, 2004. However; if
scheduled payments have been made, in June 2003 Invu Services may elect to
terminate the agreement. If Invu Services elects early termination, it will at
that time have received 75,000 licenses and paid approximately $314,199.
Employees
As of April 30, 2002, the Company had 19 employees, all of whom were
full-time, and a further five 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
6
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.
The First Financing Transaction
As of February 2, 1999, pursuant to a financing transaction (the "First
Financing Transaction") among Montague and Zalcany Limited ("Zalcany"),
Mustardseed Estates Limited ("Mustardseed"), and Tomuro Limited, all companies
incorporated under English law, and Richard Harris and Roy Grainger Williams
(collectively, the "Lenders"), Montague transferred 2,400,000 shares of the
Common Stock to such purchasers in exchange for $1,000 and a loan facility for
the Company in the principal amount of $656,000. Of this amount, $190,325 was
advanced to the Company prior to January 31, 1999, with the balance being
received on February 2, 1999.
The Second Financing Transaction
On August 23, 1999, the Company entered into an Investment Agreement
(the "Initial Investment Agreement"), with David Morgan, John Agostini, and Paul
O'Sullivan, on the one hand, and Alan David Goldman and Vertical Investments
Limited ("Vertical"), a company registered in Jersey and beneficially owned by
Daniel Goldman, on the other hand. The Initial Investment Agreement was
immediately followed by a Supplemental Agreement (the "Supplemental Agreement"
and, together with the Initial Investment Agreement, the "Final Investment
Agreement"), between the Company, David Morgan, John Agostini, Paul O'Sullivan
and INVU Services, on the one hand, and Alan David Goldman, Vertical, and Tom
Maxfield ("Maxfield", together with Alan David Goldman and Vertical,
collectively, the "Investors") on the other hand. Pursuant to the terms of the
Final Investment Agreement, the Investors advanced certain funds to the Company
in the aggregate principal amount of $1,000,000 in the principal amounts of
$333,334, $333,333 and approximately $333,333 among Alan David Goldman, Vertical
and Maxfield, respectively. In turn, the Company agreed to (1) pay in full any
and all amounts then outstanding pursuant to the First Financing Transaction and
to terminate such Agreement, (2) cause the Lenders to transfer to Montague
425,000 shares of the Common Stock then held by Lenders pursuant to the terms of
the First Financing Transaction (the "Transferred Shares"), and (3) cause
Montague to transfer 225,000 of such Transferred Shares to the Investors in
equal shares of 75,000 to each Investor.
The loans being made to the Company pursuant to the terms of the Final
Investment Agreement were evidenced by (1) a Loan Stock Instrument, dated as of
August 23, 1999, executed by the Company in favor of the Investors, in the
aggregate principal amount of $600,000 ("Loan Stock Instrument A"), and (2) a
second Loan Stock Instrument, dated as of August 23, 1999, executed by the
Company in favor of the Investors, in the aggregate principal amount of $400,000
("Loan Stock Instrument B" and together with Loan Stock Instrument A,
collectively, the "Loan Stock Instruments"). Until the Loan Stock Instruments
are redeemed pursuant to their terms upon the occurrence of certain events
described therein, the outstanding principal and accrued but unpaid interest (1)
under Loan Stock Instrument A shall, at the option of the Investors, be
converted into one share of the Common Stock for each $.65 of outstanding
principal and accrued but unpaid interest converted, and (2) under the Loan
7
Stock Instrument B shall, at the option of Investors, be converted into one
share of the Common Stock for each $.50 of outstanding principal and accrued but
unpaid interest converted.
Any amounts outstanding under Loan Stock Instrument A shall bear
interest at a rate of 6% per annum, payable in semi-annual installments in
arrears on January 1 and July 1 of each year accruing from day to day and
calculated monthly. In addition, Loan Stock Instrument A will be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange or if the Company raises
additional capital of at least $4,000,000. Any amounts outstanding under Loan
Stock Instrument B shall bear interest at a rate of 8% per annum for the first
six months following the date thereof, 9% per annum for the following six month
period, and 10% per annum thereafter. All accrued but unpaid interest on the
Loan Stock shall be payable in semi-annual installments in arrears on January 1
and July 1 of each year. Loan Stock Instrument B will also be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange, however, the Investors have
the option of converting if the Company raises additional capital of at least
$4,000,000. If the Loan Stock Instruments are not so converted, they may be
redeemed upon 30 days notice by the Company or the Investors on or after August
2002.
Pursuant to the terms of the Final Investment Agreement, the Investors
shall have the right to nominate one director of the Company, until the amounts
outstanding under the Loan Stock Instruments are redeemed or converted. Daniel
Goldman, the son of Alan David Goldman, is the nominee of the Investors.
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, an entity
controlled by Daniel Goldman, a non-executive director. 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 Investment 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
8
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
the Company's subsidiaries at the equivalent per share conversion price. The
Company requested 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 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 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, 2003 although the Company has the right to terminate
the lease at any time after December 31, 2001 provided that six months notice is
given. The monthly rent is currently approximately $5,000.
Item 3. Legal Proceedings
As reflected in the Company's 10-KSB for the fiscal year ended January
31, 2001, a complaint was filed against the Company on February 23, 2001, in the
United States District Court for the Southern District of New York on behalf of
GEM Advisors, Inc. ("GEM") seeking money damages in the amount of $100,000
together with interest from September 21, 2000, costs, disbursement and
attorneys' fees. The complaint relates to a $100,000 demand promissory note (the
"Note") dated May 1, 2000 and payable to the order of GEM. The Note bears
interest at a rate of 3% per annum and if payment is not made upon demand, the
rate increases to 15% per annum from the date of demand through and including
the date of payment. GEM was entitled to convert the unpaid balance and interest
into shares of the Company's Common Stock if payment was not made on demand.
Demand on the Note was made by GEM on September 21, 2000 and GEM sent the
Company a conversion notice on December 18, 2000 electing to convert the Note
into 179,643 shares of the Company's Common Stock. The Note was subsequently
converted and a share certificate was delivered to GEM, which GEM returned to
the Company contending that the timeliness of the delivery of the share
certificate violated the terms of related Note agreements. GEM's complaint
pleads claims for judgment on the Note (First Cause of Action), money had and
received (Second Cause of Action), money lent (Third Cause of Action),
attorneys' fees (Fourth Cause of Action), and unjust enrichment (Fifth Cause of
Action).
In response, the Company filed an answer on or about April 16, 2001,
denying that any amounts are owing under the Note, and denying liability under
GEM's remaining causes of action. It is the Company's position that GEM made a
binding election to convert unpaid amounts due under the Note into shares of the
Company's Common Stock, and that the Company's tender of the share certificate
to GEM, and GEM's acceptance and retention of the share certificate, fully
satisfied the Company's obligations under the Note and discharged the Company
from any further liability under the Note.
On August 9, 2001, GEM filed a Motion for Summary Judgment. The Company
filed a Cross-Motion for Summary Judgment on August 27, 2001.
On March 26, 2002, the Court issued an Opinion and Order denying GEM's
motion for summary judgment, and granting the Company partial summary judgment
on its cross-motion dismissing the Second, Third and Fifth Causes of Action in
the complaint. The Court granted the Company's motion to dismiss the First Cause
of Action insofar as it stated a cause of action to recover under the Note, but
sustained an unpled claim for breach of contract based upon the Company's
alleged failure to timely deliver the share certificate. The Court also refused
to dismiss the Fourth Cause of Action for attorneys' fees at this time.
9
The Court issued an Order dated March 27, 2002, setting an April 26,
2002 deadline for submitting a joint pretrial order, and a May 3, 2002 ready
date for trial. The latter order was amended to allow the parties until May 3,
2002 to file a joint pretrial order.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters for submission to a vote of security holders
during the last fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock is listed on the OTC Electronic Bulletin Board. The
following table indicates the quarterly high and low bid price for the Common
Stock on the OTC Electronic Bulletin Board for the fiscal years ending January
31, 2001 and January 31, 2002 and for the quarter ending April 30, 2002. 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 2001
1st Quarter $6.9375 $2.75
2nd Quarter $3.875 $1.125
3rd Quarter $1.625 $1.125
4th Quarter $1.5312 $0.4688
Fiscal 2002
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 (Feb 1 to Apr 18)
1st Quarter $0.17 $0.09
As of April 19, 2002, there were approximately 141 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
Since the Company's 10-QSB for the quarter ended October 31, 2001, the
Company restructured its loans with the Goldman affiliated entities allowing for
such entities to convert the loans into shares of the Company's Common Stock at
conversion prices ranging from $0.13 per share to $0.25 per share at the times
described under "Item 1. Description of Business - The Subsequent Financing
Transaction." The Company also granted Daniel Goldman the right to acquire,
until March 1, 2006, 2,700,000 shares of the Company's Common Stock at an
exercise price of $0.25 and 450,000 shares of the Company's Common Stock at an
exercise price of $0.875 (together, the "Options"). The issuance of the loans
and the Options were not, and the issuance of the shares of Common Stock on
10
conversion of the loans and shares of Common Stock on exercise of the Options
will not be, registered under the Securities Act but instead were and will be
issued in reliance on the exemption from registration set forth in Section 4(2)
of the Securities Act. The transactions were privately negotiated transactions
without any general solicitation or advertising. The Goldman affiliated entities
are "sophisticated investors" within the meaning of the Securities Act and have
access to all information concerning the Company needed to make an informed
decision with respect to the transactions. In particular, Daniel Goldman is a
non-executive director of the Company.
The certificates evidencing the Conversion Shares will bear a legend
reflecting that the Conversion Shares are subject to the restriction on transfer
under the Securities Act, including Rule 144 promulagated thereunder.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following description of "Management's Plan of Operation"
constitutes forward-looking statements for purposes of the Securities Act and
the Exchange Act, and as such involves known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. The words
"expect", "estimate", "anticipate", "predict", "believes", "plan", "seek",
"objective", "will" and similar expressions are intended to identify
forward-looking statements. Important factors that could cause the actual
results, performance or achievement of the Company to differ materially from the
Company's expectations include the following: 1) one or more of the assumptions
or other cautionary factors discussed in connection with particular
forward-looking statements or elsewhere in this Form 10-KSB prove not to be
accurate; 2) the Company is unsuccessful in increasing sales through its
anticipated marketing efforts; 3) mistakes in cost estimates and cost overruns;
4) the Company's inability to obtain financing for general operations including
the marketing of the Company's products; 5) non-acceptance of one or more
products of the Company in the marketplace for whatever reason; 6) the Company's
inability to supply any product to meet market demand; 7) generally unfavorable
economic conditions that would adversely effect purchasing decisions by
distributors, resellers or consumers; 8) development of a similar competing
product at a similar price point; 9) the inability to successfully integrate one
or more acquisitions, joint ventures or new subsidiaries with the Company's
operations (including the inability to successfully integrate businesses that
may be diverse as to type, geographic area, or customer base and the diversion
of Management's attention among several acquired businesses) without substantial
costs, delays, or other problems; 10) if the Company experiences labor and/or
employment problems such as the loss of key personnel, inability to hire and/or
retain competent personnel, etc.; 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) litigation expenses and any potential
damage awards against the Company in connection with litigation. All written or
oral forward-looking statements attributable to the Company are expressly
qualified in their entirety by such factors. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Notwithstanding the foregoing, the Company is not entitled to rely on the safe
harbor for forward looking statements under 27A of the Securities Act or 21E of
the Exchange Act as long as the Company's stock is classified as a penny stock
within the meaning of Rule 3a51-1 of the Exchange Act. A penny stock is
generally defined to be any equity security that has a market price (as defined
in Rule 3a51-1) of less than $5.00 per share, subject to certain exceptions.
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto.
The Company develops, markets and sells 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 by being simple to install and use,
intuitive and cost effective, yet powerful.
The Company's objective is to establish itself as a leading global
supplier of information and document management software and services.
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 recruit more third party value added resellers.
11
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.
Results of Operations
The following is a discussion of the results of operations for the year
ended January 31, 2002, compared with the year ended January 31, 2001, and
changes in financial condition during the year ended January 31, 2002.
Net sales for fiscal year ended January 31, 2002 were $1,564,248, which
compares to $502,218 sales for the fiscal year ended January 31, 2001. The
dramatic increase in the level of sales reflects the Company's investment in
sales personnel, and marketing which has facilitated the recruitment of a
significant number of high 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 net loss in the fiscal year ended January 31, 2002
was ($1,275,630), which is $836,779 less than the net loss in the year ended
January 31, 2001 of ($2,112,409). The net loss for the fiscal year ended January
31, 2002 was due to: increased production, research and development, and
administrative expenses (including expenses incurred in complying with U.S.
securities laws and other expenses relating to public company requirements) to a
total of $2,484,988, which reflected the Company's investment in product
development, marketing support, and administrative infrastructure. The loss
reflects the establishment 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 Company only concluded its development stage at the end of the second
fiscal quarter for the year ended January 31, 2002 and its attention and
resources have been particularly diverted towards sales and marketing, technical
support, product development and administrative collateral. The sales team,
which includes field sales and sales support, has effectively grown in size by
40%, and the technical support department has grown by the equivalent amount.
Despite the release of the professional range in the fiscal year ended January
31, 2001, the Company has further expanded its development base to consolidate
and enhance its technology even further. However, as previously predicted by
Management, overall operating expenses have been relatively stable with an
increase of only $35,460 from $2,449,528 in the fiscal year ended January 31,
2001 to $2,484,988 in the fiscal year ended January 31, 2002. Management
believes it can continue to exert similar control over operating expenses during
the Current Fiscal Year.
In the fiscal year ended January 31, 2002 , the Company incurred net
interest expense of $354,890 compared with net interest expense of $165,099 for
fiscal year ended January 31, 2001. This increase in interest expense was due to
the increased bank and loan interest in the fiscal year ended January 31, 2002
due to increased bank loan borrowings, and interest associated with the Second
Financing Transaction and subsequent debt based financing obtained during the
year. See "Item 1. Description of Business - First Financing Transaction and
Second Financing Transaction" and "The Subsequent Financing Transaction." In
view of the increase in debt finance during the fiscal year ended January 31,
2002, Management would expect an increase in interest expense. However,
Management expects the second financing transaction to be converted into equity
in August 2002 and also believes that some of the remaining debt finance may be
converted into equity during the next fiscal year.
The tax rates for the years 2002 and 2001 are zero due to a net loss in
each period.
The total current assets of the Company were $1,120,602 at January 31,
2002, an increase of $664,265, compared to $456,337 at January 31, 2001. Working
capital was negative $3,434,581 as of January 31, 2002, compared with negative
$2,256,025 as of January 31, 2001. These changes are due to the increases in
current maturities of long-term obligations, accrued liabilities and deferred
revenue and decreases in short-term credit facilities and accounts payable.
$1,000,000 of current maturities of long-term obligations may be converted into
common stock in August 2002. The significant increase in business activities has
resulted in significant increases in accounts receivable whilst at the same time
accounts payable have been slightly reduced.
Total assets of the Company were $1,531,309 at January 31, 2002, an
increase of $763,027, compared to $768,282 at January 31, 2001. The difference
is mainly attributable to increases in accounts receivable and stock and the
purchase of EasiFile, which is reflected in intangible assets.
The total current liabilities of the Company increased by $1,842,821
from $2,712,362 at January 31, 2001 to $4,555,183 at January 31, 2002. Long term
liabilities were $2,093,740 at January 31, 2002 compared to $1,962,635 at
January 31, 2001. The increase in current liabilities is primarily attributable
to the increase in current maturities of long-term obligations, which represents
12
debt capital raised to finance the development of the products and the
infrastructure of the business. The accrued interest of such debt finance has
also increased accrued liabilities. Deferred revenue has been separately
disclosed this year and has increased by $154,899 from $61,949 at January 31,
2001 to $216,848 at January 31, 2002. The Company has a commitment to purchase a
minimum of 75,000 database licenses from Gupta Technologies LLC for
approximately $315,000 by June 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 $28.69 to $4.20. See "Item 1.
Description of Business - Major Contracts".
Total stockholders' equity decreased by $1,210,899 during the year
ended January 31, 2002 from deficit $3,906,715 at January 31, 2001 to a deficit
of $5,117,614 at January 31, 2002 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 now that its development stage has ended and its operational stage
has commenced.
Financing Management's Plan of Operation
The Company remains committed to raising the necessary funds to enable
the business to fulfill its potential and is engaged in or presently pursuing
the following financing transactions.
The Company has a $282,660 short-term credit facility with an annual
interest rate currently of 6% with an English bank. The amount drawn against the
facility at January 31, 2002 was $276,203. This facility is due for review on
September 30, 2002. The Company believes that at such maturity date the facility
will be extended. The Company's bank also provided a further credit facility of
$847,980 in October 2001 by way of notes payable with monthly repayments of
$70,665 commencing in November 2002 until October 2003. This facility currently
bears interest at the rate of 6% 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, has an interest.
In February 2001, Vertical Investments Limited, an entity controlled by
Daniel Goldman, a non-executive director of the Company, 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. See "Item 1. Description of Business - The
First Financing Transaction, The Second Financing Transaction and The Subsequent
Financing Transaction."
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.
The Loan Stock Instruments described in Item 1 under The Second
Financing Transaction, if not converted into shares of the Company's Common
Stock and provided that 30 days notice has been given, may be called by the
Company or the Investors may demand that the Company redeem the Loan Stock
Instruments in August 2002. The Company anticipates that the Loan Stock
Instruments will be converted.
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. Assuming that the Loan Stock
Instruments are converted, management anticipates that a further requirement of
$1,000,000 would be necessary to achieve the break even position and meet all
outstanding obligations. Management estimates the financing it is seeking, if
consummated, would fulfill the Company's working capital requirements for a
period up to the point at which net sales revenues could sustain the Company's
day to day operations and also enable the Company to further accelerate it's
growth both organically and through acquisition. There can, however, be no
assurance that the above transaction will be consummated or that additional debt
or equity financing will be available, if and when needed, or that, if
available, such financing could be completed on commercially favorable terms.
Failure to obtain additional financing if and when needed, 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.
13
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 41 President, Chief Executive Officer, and 1998
Chairman of the Board of Directors
Jon Halestrap 42 Director, VP Sales and Marketing 2000
John Agostini 43 Director, Chief Finance Officer and Secretary 1999
Daniel Goldman 32 Non-Executive Director 1999
Thomas Maxfield 53 Non-Executive Director 1999
David Morgan (Chief Executive Officer) - Mr. Morgan is 41 years old and
graduated in 1982 from the University of Warwick with a Bachelor of Laws
degree, with honors. From 1982 to 1986, he was assistant to the Director of the
Industrial & Marine Division of Rolls Royce plc. From 1986 to 1991, he was
Group Commercial Manager of Blackwood Hodge plc, a worldwide distributor of
construction and earthmoving equipment. From 1991 to 1992, he was managing
director of Hunsbury Computer Services Ltd, a systems integrator and subsidiary
of Blackwood Hodge. From 1992 to 1995, he was Managing Director of the UK
subsidiary of Network Imaging Inc., an international software and systems
house. From 1995 to 1996, he was Managing Director of Orchid Ltd, a UK computer
software reseller. From 1997 to the present, he has been a director of and the
Chief Executive Officer of INVU Plc. Since the Share Exchange on August 31,
1998, he has been Chairman and Chief Executive Officer of the Company.
Jon Halestrap (VP Sales and Marketing) - Mr. Halestrap is 42 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 43 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.
14
Daniel Goldman (Non-Executive Director) - Mr. Goldman is 32 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.
Thomas Maxfield (Non-Executive Director) - Mr. Maxfield is 53 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders") to file reports of
ownership and changes of ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and 10% Stockholders of the Company are required
by SEC regulations to furnish the Company with copies of all Section 16(a)
forms so filed.
The Company believes that, during the last fiscal year, the following
forms required to be filed under Section 16(a) were not filed or were not
timely filed: (i) Forms 5 for David Andrews, a non-executive director of the
Company who resigned in April 2002, and Daniel Goldman related to stock options
grants exercisable for 30,000 and 150,000 shares of the Company's Common Stock,
respectively, (ii) Forms 4 for Montague, related to two transfers of Company
Common Stock in the aggregate amount of 1,170,000, (iii) Forms 4 for the
Montague beneficiaries, including Peter Fraser, David Morgan and Jon Halestrap,
who may have been required to jointly file Forms 4 along with Montague as
described in (ii) above and (v) Forms 5 regarding the above described failure
to file Forms 4.
Item 10. Executive Compensation
The following tables set forth the compensation paid by the Company to
its Executive Officers during the fiscal year ended January 31, 2002. No other
executive officer earned in excess of $100,000.
15
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities
Name/Principal Underlying Other Annual
Position Year Salary Bonus Options Compensation
--------- ---- ------ ----- ------- ------------
David Morgan/Chief Executive 2002 $132,710 -- 400,000(4) $28,143(3)
Officer 2001 $100,937 -- -- $29,046(3)
2000 $ 97,964 -- -- $22,279(1)
John Agostini/Chief Financial 2002 $ 92,359 $ 8,608 250,000(4) $19,288(1)
Officer 2001 $ 93,750 $ 3,750 100,000(2) $19,536(1)
2000 $ 86,312 -- -- $18,339(1)
Jon Halestrap/VP Sales and 2002 $ 89,669 $31,085 250,000(4) $14,232(1)
Marketing 2001 $ 73,482 -- -- $ 8,004(1)(5)
(1)Other Annual Compensation consists of the use of a Company car.
(2)In June 2000, Mr. Agostini was granted an option by David Morgan to purchase
100,000 shares of Company common stock at $2.00 per share. The option became
exercisable in March 2001. Mr. Morgan is a beneficiary of a discretionary trust,
the rest of which includes beneficial ownership of a majority of the Company's
Common Stock. The percentage of Mr. Morgan's beneficial interest in the assets
of the trust has not been determined. If he receives a distribution from the
trust, he has committed to give Mr. Agostini an option to purchase 100,000
shares.
(3)Other Annual Compensation consists of $26,198 ($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 $1,931 ($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").
Option Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options Granted
Underlying to Employees in
Name Options Fiscal Year Exercise Price Expiration Date
---- ------- ----------- -------------- ---------------
John Agostini 250,000(1) 15% $ 0.50 09/13/11
Jon Halestrap 250,000(1) 15% $ 0.50 09/13/11
David Morgan 400,000 24% $ 0.50 12/27/11
(1)All vesting and exercisability of such options is subject to the achievement
of performance targets described in the footnotes to the previous table.
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, 2002 and unexercised options held as of January 31, 2002. No
options were exercised by the Named Executive Officers during 2001.
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 Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(1)
----- --------- --------- ------------- ----------------
John Agostini.................. -- -- 100,000 (2)/250,000 $0
Jon Halestrap.................. -- -- 0/250,000 $0
David Morgan................... -- -- 0/400,000 $0
-----------
(1)No options were in-the-money as of January 31, 2002.
(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.
16
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. The Company also agreed in February 2000
to pay Mr. Andrews (pound)25,000 as consideration for his services as a
director.
As compensation for their services as non-executive directors of the
Company, the Company granted Mr. Andrews, who resigned in April 2002, an option
to purchase 30,000 shares of the Company's Common Stock, 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 as
salary plus quarterly bonuses based upon profit achievements. The profit
achievements necessary for any bonus award will be determined by the Company's
Board of Directors. The Company reviews Mr. Morgan's salary each year. The
Company also agreed to provide Mr. Morgan with a company car, to provide and
maintain his membership in a private health care plan and to contribute a sum
equal to 5% of his total salary to his private pension. No contributions have
been made by the Company to Mr. Morgan's private pension. The agreement may be
terminated by either Mr. Morgan or the Company with twelve months notice. In
addition, the Company may terminate the agreement at any time without prior
notice if Mr. Morgan were to (1) commit an act of gross misconduct or
incompetence; (2) become of unsound mind; (3) file for bankruptcy or make any
arrangement with his creditors; (4) willfully refuse to carry out duties vested
in him by the Board of Directors; (5) be convicted of a criminal offense unless,
in the opinion of the Board of Directors, the conviction does not affect his
position or suitability for the position; or (6) commit any conduct which, in
the opinion of the Board of Directors, brings him or the Company or any of the
Company's subsidiaries into disrepute.
John Agostini. The Company entered into an employment agreement with Mr.
Agostini in January 1999. The Company agreed to pay Mr. Agostini an initial
salary of (pound)62,500, which was increased to (pound)65,000. 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. Any bonus is
subject to review by the Board of Directors. The Company also agreed to provide
Mr. Agostini with a company car. The agreement may be terminated by either the
17
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. Mr.
Halestrap's commission's are subject to the Board of Director's regular review.
The Company also agreed to maintain Mr. Halestrap's mobile phone contract, to
provide him with a company car and to grant him an option for not less than
100,000 shares of the Company's Common Stock. The agreement may be terminated by
either the Company or Mr. Halestrap with three months notice by either party
during his first year of employment with the Company. Thereafter, the notice
period will increase one month for each years service to a maximum of six
months. However, the Company may terminate Mr. Halestrap's employment
immediately in the event of gross misconduct. Upon termination, Mr. Halestrap is
prohibited from competing with the Company for six months and is subject to
certain confidentiality 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, 2002 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, 2002.
Beneficial Ownership (1)
Name and Address Amount and Nature Percentage(1)(2)
of Beneficial Owner of Beneficial
Owner
Montague Limited (3)(4)(5) 22,132,690 72.84%
David Morgan (4)(5)(6) * *
Jon Halestrap (4)(7) 100,000 0.33%
Peter Fraser (5) * *
John Agostini(11) 100,000 0.33%
Daniel Goldman(8) 17,486,674 36.58%
Thomas Maxfield(9) 659,359 2.13%
Roy G. Williams (10) 1,725,920 5.68%
Paul O'Sullivan(5) (12) * *
Officers and Directors as a Group (6 persons) 18,346,033 37.85%
(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,
2002.
(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
18
Barry John Williams. The sole issued and outstanding share capital of
Montague is owned of record by an Isle of Man corporation related to
the corporate trustee of a discretionary trust (the "Discretionary
Trust"), the rest of which includes beneficial ownership of the capital
stock of Montague and, therefore, indirect beneficial ownership of
19,754,252 shares of Company Common Stock that are held of record by
Montague. 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, 2002, the transfer agent was
awaiting documentation in connection with such transfer.
(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.
(7) Jon Halestrap is Vice President - Sales and Marketing of the Company
and is a member of the Company's Board of Directors. Mr. Halestrap has
been allocated 100,000 shares as a beneficiary of the Allocated Trust.
His business address is The Beren, Blisworth Hill Farm, Stoke Road,
Blisworth Northamptonshire NN7 3DB.
(8) Includes 5,000 shares of Common Stock transferred to Mr. Goldman from
Montague as compensation for director services, 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, which
is controlled by Mr. Goldman, has the right to acquire upon conversion
of Loan Stock Instrument A and Loan Stock Instrument B (assuming that
all accrued interest has been paid) 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." 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 and 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.
(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.
19
Item 12. Certain Relationships and Related Transactions
Guarantees of Indebtedness and Guarantee Fees
The Company has a $282,660 short-term credit facility with an annual
interest rate of 6% with an English bank. The bank also provided a credit
facility of $847,980 in October 2001 bearing an annual interest rate of 6% by
way of notes payable with monthly repayments of $70,665 commencing in November
2002. All bank credit facilitieis and notes payable are secured by all assets of
the Company and a corporate guarantee made by Vertical Investments Limited, a
company in which Daniel Goldman, a non-executive officer, has an interest. 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.
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. To date, no
payments have been made on this loan.
As of January 31, 2002, the Company had received unsecured loans
totaling $735,818 from Peter Fraser. These loans bear interest of $4,304 per
month.
In February 2001, Vertical Investments Limited, an entity controlled by
Daniel Goldman, a non-executive director of the Company, 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 $132,609 as of the fiscal year
ended January 31. 2002. 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.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First
Amendment to Share Exchange Agreement, dated as of July 23, 1998
(incorporated by reference from Exhibit 2.1 of the Company's Current
Report on Form 8-K filed June 8, 1998 and Exhibit 99 of the Company's
Amendment to Current Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997
with the Secretary of State of the State of Colorado (incorporated by
reference from Exhibit 3.2 of the Company's Registration Statement on
Form 10-SB/A filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on
February 22, 1999, with the Secretary of State of the State of
Colorado (incorporated by reference from Exhibit 3.2 of the Company's
Annual Report on Form 10-KSB filed October 15, 1999).
3.3 Bylaws of the Company (incorporated by reference from Exhibit 2.2 of
the Company's Registration Statement on Form 10-SB/A filed August 29,
1997).
20
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).
21
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.
*10.19 Secured Guarantee, dated October 24, 2001, between the Company and
Vertical Investments Limited.
*10.20 Ranking Agreement, dated October 24, 2001, between Vertical Investments
Limited, Invu Services Limited and the Bank of Scotland.
*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.
*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.
*10.23 Amendment No. 1 to the Limited Manufacturing Agreement, effective
December 21, 2001 between Gupta Technologies, LLC and Invu Services
Limited.
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).
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
*Filed herewith
(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.
22
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, 2002 By: /s/ David Morgan
-----------------------------------
David Morgan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this annual report on Form 10-KSB has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE OFFICE DATE
--------- ------ ----
/s/ David Morgan President, Chief Executive Officer May 1, 2002
-------------------------------------------- and Chairman of the Board of
David Morgan Directors (Principal Executive
Officer)
/s/ Jon Halestrap Director and VP Marketing and Sales May 1, 2002
--------------------------------------------
Jon Halestrap
Director May _, 2002
--------------------------------------------
Daniel Goldman
/s/ John Agostini Director and Chief Finance Officer May 1, 2002
-------------------------------------------- (Principal Financial Officer and
John Agostini Chief Accounting Officer)
Director May _, 2002
--------------------------------------------
Tom Maxfield
S-1
INDEX TO EXHIBITS
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First
Amendment to Share Exchange Agreement, dated as of July 23, 1998
(incorporated by reference from Exhibit 2.1 of the Company's Current
Report on Form 8-K filed June 8, 1998 and Exhibit 99 of the Company's
Amendment to Current Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997
with the Secretary of State of the State of Colorado (incorporated by
reference from Exhibit 3.2 of the Company's Registration Statement on
Form 10-SB/A filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on
February 22, 1999, with the Secretary of State of the State of
Colorado (incorporated by reference from Exhibit 3.2 of the Company's
Annual Report on Form 10-KSB filed October 15, 1999).
3.3 Bylaws of the Company (incorporated by reference from Exhibit 2.2 of
the Company's Registration Statement on Form 10-SB/A filed August 29,
1997).
E-1
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.
*10.19 Secured Guarantee, dated October 24, 2001, between the Company and
Vertical Investments Limited.
*10.20 Ranking Agreement, dated October 24, 2001, between Vertical Investments
Limited, Invu Services Limited and the Bank of Scotland.
*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.
*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.
*10.23 Amendment No. 1 to the Limited Manufacturing Agreement, effective
December 21, 2001 between Gupta Technologies, LLC and Invu Services
Limited.
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).
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
*Filed herewith
E-3
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
INVU, INC. AND SUBSIDIARIES
JANUARY 31, 2002 AND 2001
F-1
INVU, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONTENTS PAGE
Report of independent certified public accountants F-3
Consolidated financial statements
Consolidated balance sheets F-4
Consolidated statements of operations F-5
Consolidated statements of deficit in stockholders' equity F-6
Consolidated statements of cash flows F-7
Notes to consolidated financial statements F-8
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors INVU, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of INVU, Inc. and
Subsidiaries as of January 31, 2002 and 2001 and the related consolidated
statements of operations, deficit in stockholders' equity and cash flows for the
years ended January 31, 2002 and 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of INVU, Inc. and
Subsidiaries as of January 31, 2002 and 2001 and the consolidated results of
their operations and their consolidated cash flows for the years ended January
31, 2002 and 2001 in conformity with generally accepted accounting principles 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.
/s/ Grant Thornton
Grant Thornton
Northampton, England
April 12, 2002
F-3
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------------------------------------------------
January 31, January 31,
2002 2001
$ $
ASSETS
Current assets
Accounts receivable:
Trade, net 936,442 310,098
VAT recoverable and other 19,582 5,847
Inventories 78,782 35,150
Prepaid expenses 85,796 105,242
---------- ----------
Total current assets 1,120,602 456,337
---------- ----------
Equipment, furniture and fixtures
Computer equipment 148,579 82,989
Vehicles 287,722 289,970
Office furniture and fixtures 100,897 102,350
---------- ----------
537,198 475,309
Less accumulated depreciation 244,266 163,364
---------- ----------
292,932 311,945
Intangible assets 117,775 -
---------- ----------
1,531,309 768,282
========== ==========
LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
Current liabilities
Short-term credit facility 276,203 1,682,975
Current maturities of long-term obligations 2,945,681 69,624
Accounts payable 506,161 544,524
Accrued liabilities 610,290 353,290
Deferred revenue 216,848 61,949
---------- ----------
Total current liabilities 4,555,183 2,712,362
---------- ----------
Long-term obligations, less current maturities 2,093,740 1,962,635
Deficit in stockholders' equity
Preferred stock, no par value
Authorised - 20,000,000 shares; nil shares issued and outstanding - -
Common stock, no par value
Authorised - 100,000,000 shares; issued and outstanding
- 30,386,539 (2001: 30,386,539) shares 1,746,223 1,746,223
Accumulated deficit (7,086,082) (5,810,452)
Accumulated other comprehensive income 222,245 157,514
---------- ----------
(5,117,614) (3,906,715)
---------- ----------
1,531,309 768,282
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------
January 31, January 31,
2002 2001
$ $
Revenues 1,564,248 502,218
Expenses:
Production cost 208,247 136,697
Selling and distribution cost 607,432 950,682
Research and development cost 381,135 313,587
Administrative costs 1,288,174 1,048,562
----------- ----------
Total operating expenses 2,484,988 2,449,528
----------- ----------
Operating loss (920,740) (1,947,310)
----------- ----------
Other income (expense)
Interest, net (354,890) (165,099)
----------- ----------
Total other expense (354,890) (165,099)
----------- ----------
Loss before income taxes (1,275,630) (2,112,409)
----------- ----------
Income taxes - -
----------- ----------
Net loss (1,275,630) (2,112,409)
=========== ==========
Weighted average shares outstanding:
Basic and Diluted 30,386,539 30,210,341
=========== ==========
Net loss per common share:
Basic and Diluted (0.04) (0.07)
=========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Accumulated
other
Common stock Accumulated comprehensive Comprehensive
Shares Amount deficit income Total loss
$ $ $ $ $
Balance at January 31, 2000 30,206,896 1,641,432 (3,698,043) 6,844 (2,049,767)
Issuance of no par common stock ($0.58 per share) 179,643 104,791 - - 104,791
Comprehensive loss:
Foreign currency translation adjustment - - - 150,670 150,670 150,670
Net loss during the year - - (2,112,409) - (2,112,409) (2,112,409)
--------------
Total comprehensive loss (1,961,739)
==============
---------- --------- ----------- -------- -----------
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)
=========== ========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
INVU, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------
January 31, January 31,
2002 2001
$ $
Net cash flows used in operating activities
Net loss during the period (1,275,630) (2,112,409)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortisation 135,185 99,996
Loss on disposal of fixed assets 1,046 -
Changes in:
Accounts receivable (660,265) (302,213)
Inventories (45,460) (12,836)
Prepaid expenses 16,244 (96,572)
Accounts payable (20,861) 442,166
Accrued liabilities 431,926 242,516
----------- -----------
Net cash used in operating activities (1,417,815) (1,739,352)
----------- -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (71,263) (130,875)
Acquisition of intangible assets (143,470) -
----------- -----------
Net cash used in investing activities (214,733) (130,875)
----------- -----------
Cash flows provided by financing activities:
Short-term credit facility (1,372,182) 1,345,146
Borrowings received from notes payable 3,096,255 813,436
Repayment of borrowings (28,694) (306,489)
Principal payments on capital lease (46,520) (43,241)
Proceeds from issuance of stock - 104,791
----------- -----------
Net cash provided by financing activities 1,648,859 1,913,643
----------- -----------
Effect of exchange rate changes on cash (16,311) (43,416)
----------- -----------
Net decrease in cash - -
Cash at beginning of period - -
----------- -----------
Cash at end of period - -
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 165,000 98,000
The accompanying notes are an integral part of these financial statements.
F-7
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
--------------------------------------------------------------------------------
NOTE A - COMPANY DESCRIPTION
INVU, Inc. (the Company) is a holding company which operates one subsidiary INVU
Plc, which is a holding company for two subsidiaries of its own, INVU Services
(Services) and INVU International Holdings Limited (Holdings). The Company was
incorporated under the laws of the State of Colorado, United States of America,
in February 1997. INVU Plc, Services and Holdings are companies incorporated
under English Law. The Company operates in one industry segment which includes
developing and selling software for electronic management of many types of
information and documents such as forms, correspondence, literature, faxes,
technical drawings and electronic files. The Company has three customers that
accounted for 18%, 15% and 10% of the revenues for the year ended January 31,
2002. For the prior year, the revenues were 9%, 0% and 5% respectively. Services
is the sales, marketing and trading company and Holdings holds the intellectual
property rights to the INVU software.
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 and Holdings. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
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.
F-8
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
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.
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.
F-9
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
6 Cash
For the purpose of the consolidated statements of cash flows, the
Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
7 Inventories
Inventories consist of licensed goods and goods for resale and are
stated at the lower of FIFO (first-in, first-out) cost or market value.
8 Advertising costs
Advertising costs of $99,446 and $344,466 for the years ended January
31, 2002 and 2001 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.
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, 2002 and 2001 no common stock
equivalents were included in the computation of diluted net earnings
per share. Convertible debentures and loan notes excluded from the
calculation of loss per share because their effect is anti-dilutive
amounted to 4,358,487 common shares on a weighted average basis for the
year ended January 31, 2002.
F-10
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
12 Fair value of financial instruments
The Company's financial instruments consists of cash, trade
receivables, borrowings, trade payables and accrued liabilities. The
carrying amount of these instruments approximate the fair values
because of their short maturity. The fair value of 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.
13 Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board
("APB") No. 25, Accounting for Stock Issued to Employees and Financial
Accounting Standard (SFAS No. 123), Accounting for Stock-Based
Compensation. Under APB No. 25, compensation cost is recognized over
the vesting period based on the difference, if any, on the date of
grant between the quoted market price of the Company's stock and the
amount an employee must pay to acquire the stock.
14 Foreign currency translation
The functional currency of the Company and its Subsidiaries is the
British pound sterling. The consolidated financial statements are
presented in US dollars using the principles set out in Statement of
Financial Accounting Standard No. 52 "Foreign Currency Translation"
(SFAS No. 52). Assets and liabilities are translated at the rate of
exchange in effect at the close of the period. Revenues and expenses
are translated at the weighted average of exchange rates in effect
during the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into US dollars are
included as part of the accumulated other comprehensive income
component of stockholders' equity.
15 Research and development costs
All research and development costs are expensed as incurred.
16 Reclassifications
Certain items in the 2001 financial statements have been reclassified
to conform to the current presentation.
F-11
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
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 $5,117,614 at January 31, 2002 and the Company had negative cash
flows from operations of $1,417,815 for the year to January 31, 2002. The
Company is starting to generate revenues from operations and has obtained
additional financing during the year ended January 31, 2002 of $3,096,255.
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
2002 2001
$ $
Goods for resale 78,782 35,150
=========== ==========
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
$141,330 ((pound)100,000). Amortisation of $23,555 ((pound)16,667) has been
charged during the period.
NOTE F - SHORT-TERM CREDIT FACILITY
At January 31, 2002 the Company had a $282,660 (or (pound)200,000) (at January
31, 2001 the amount was $1,169,000 (or (pound)800,000)), 6% (at January 31,
2001, the interest rate was 7.5%) short-term credit facility with an English
bank. The Company's bank has, in the past, agreed to temporary borrowings in
excess of the formal facility during the period to January 31, 2002. The credit
facility is collateralized by all assets of the Company and a corporate
guarantee given by Vertical Investments Limited, a company in which a
non-executive director of this Company has an interest. The amount drawn against
the facility at January 31, 2002 was $276,203 ((pound)195,431), (January 31,
2001 $1,682,975 ((pound)1,151,855)). The amount drawn is repayable on demand at
the bank's discretion. The credit facility is due for review on September 30,
2002.
F-12
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
NOTE G - LONG-TERM OBLIGATIONS
Long-term obligations at January 31, 2002 and January 31, 2001, consist of the
following:
January 31, January 31,
2002 2001
$ $
Unsecured loan from an individual, no stated maturity date; bearing interest
of $4,304 per month ((pound)3,000) 735,818 759,245
4% above Libor rate (Libor rate was 4% and 5.72% at January 31, 2002 and 2001
respectively) notes payable to an English bank, monthly payment aggregating to
(pound)500, maturing in March 2002, collateralised by all assets of the
Company and a corporate guarantee given by Vertical Investments Limited 940 6,818
4% above Libor rate (Libor rate was 4% and 5.72% at January 31, 2002 and 2001
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 56,530 81,821
2% above Libor rate (Libor rate was 4% and 5.72% at January 31, 2002 and 2001
respectively) notes payable to an English bank, monthly payments aggregating to
(pound)50,000, starting in November 2002 and maturing in October 2003,
collateralised by all assets of the Company, unlimited multilateral guarantees
between subsidiary undertakings and a corporate guarantee given
by Vertical Investments Limited 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 -
Loan notes 2001-2005 (ii) with interest rate per annum of 7% 1,000,000 -
Loan notes 2001-2005 (iii) with interest rate per annum of 12% 500,000 -
Convertible loan 2001-2003 (iv) with interest rate per annum of 1.5% above 300,000 -
UK bank base rate
Convertible loan 2001-2005 (v) with interest rate per annum of 12% 275,000 -
Capital leases for vehicles, interest ranging from 10.2% - 16.9% with
maturities through 2005 164,153 184,375
---------- ----------
5,039,421 2,032,259
Less current maturities 2,945,681 69,624
---------- ----------
2,093,740 1,962,635
========== ==========
F-13
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
Scheduled maturities of long-term obligation are as follows:
Year ending January 31, $
2003 2,945,681
2004 734,960
2005 322,964
2006 -
2007 -
Thereafter 1,035,816
--------------
5,039,421
==============
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 $172,383 has been accrued to January 31, 2002 (January 31,
2001 $99,241) in respect of the A and B Convertible Notes.
Any outstanding principal not converted or redeemed by the anniversary date,
which was August 16, 2001, will be redeemed at par plus all outstanding interest
in August 2002 upon receipt of 30 days written notice from the Company or the
Investors. At January 31, 2002 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.
F-14
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
2) Loan notes and convertible loan notes
All of 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. 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.
F-15
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
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,
2002 2001
$ $
Vehicles 287,722 289,970
Less accumulated depreciation (134,410) (88,902)
------------- -------------
153,312 201,068
============= =============
Scheduled maturities of minimum lease payments are as follows:
Year ending January 31, $
2003 95,330
2004 85,247
2005 11,864
-----------
192,441
Less amount representing interest 28,288
-----------
Present value of net minimum lease payments 164,153
===========
The scheduled net minimum lease payments to maturity are included in the
long-term obligation table above.
F-16
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
NOTE H - COMMITMENTS
The Company leases office space and the rent expense totaled approximately
$60,600 and $50,500 for January 31, 2002 and 2001 respectively.
The future minimum rental commitments as of January 31, 2002 are as follows:
Year ending January 31, $
2003 29,850
=======
The Company has a commitment to purchase a minimum of 75,000 database licences
for approximately $315,000 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, 2002, due to the Company's cumulative losses since inception, a
loss carry forward of approximately $4,700,000 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, 2002 and January 31,
2001 due to the uncertainty of realizing the net deferred tax asset through
future operations. The valuation allowances were approximately $1,175,000 and
$700,000 at January 31, 2002 and January 31, 2001, respectively. The valuation
allowance increased approximately $475,000 and $283,000 at January 31, 2002 and
2001 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.
F-17
INVU, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002 AND 2001
NOTE J - RELATED PARTY TRANSACTIONS
At January 31, 2002 David Morgan owed $19,584 (January 31, 2001 $5,635) to the
Company. The maximum liability during the year amounted to $19,584 and the
interest charge amounted to $Nil (January 31, 2001 $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 rest of which includes beneficial
ownership of the Company's common stock. The percentage of Mr O'Sullivan's
interest in the assets of the trust has not been determined. Total purchases
amounted to $136,340 (January 31, 2001 $85,800) and the balance owed by the
Company at January 31, 2002 was $6,477 (January 31, 2001 $2,233).
NOTE K - CONTINGENT LIABILITY
A complaint was filed against the Company on February 23, 2001 relating to a
$100,000 demand promissory note dated May 1, 2000 and payable to the order of
GEM Advisors Inc (GEM). The note bears interest at a rate of 3% per annum and if
payment is not made upon demand, the rate increases to 15% per annum. GEM was
entitled to convert the unpaid balance and interest into shares of the Company's
Common Stock if payment was not made on demand. Demand on the note was made by
GEM on September 21, 2000, subsequently GEM sent the Company a conversion notice
on December 18, 2000 electing to convert the note into 179,643 shares of the
Company's Common Stock. The note was subsequently converted and a share
certificate was delivered to GEM, which GEM returned to the Company contending
that the timeliness of the delivery of the share certificate violated the terms
of the note agreements. Although the Company is unable to predict any outcome of
the litigation, it is the Company's position that GEM made a binding election to
convert unpaid amounts due under the note into shares of the Company's Common
Stock, and that the Company fully satisfied the obligations under the note.
The Company has provided for its own legal expenses incurred to January 31, 2002
in respect of this litigation in these financial statements. The Company has no
obligation to pay for the legal expenses of GEM.
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.
The total number of stock options outstanding at January 31, 2002 were 1,066,365
and zero at January 31, 2001. The weighted average of the stock options granted
during the year was zero.
NOTE M - RECENT PRONOUNCEMENT
On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS 141), Business Combinations
and SFAS 142, Goodwill and Other Intangible Assets. SFAS 141 is effective for
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142.
These statements address how intangible assets that are acquired individually,
with a group of other assets or in connection with a business combination should
be accounted for in financial statements upon and subsequent to their
acquisition. The new statements require that all business combinations initiated
after June 30, 2001 be accounted for using the purchase method and establish
specific criteria for the recognition of intangible assets separately from
goodwill.
The Company will adopt SFAS 141 on February 1, 2002, as required by the new
statement. Upon adoption, the Company will no longer amortize goodwill and other
indefinite lived intangible assets. In the future, the Company will be required
to test any goodwill and intangible assets that are determined to have an
indefinite life for impairment at least annually. Other than in those periods in
which the Company may record an asset impairment, the Company expects that the
adoption of SFAS 142 will not impact its financial position or its results of
operations.
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 Company expects that the
adoption of SFAS 144 will not have a material impact on its financial position
and results of operations.
NOTE N - SUBSEQUENT EVENT
On both February 5, 2002 and February 28, 2002, the Company received $137,500 in
the form of loan notes which bear interest at the rate of 12% per annum from
Vertical Investments Limited, a company in which Daniel Goldman, a non-executive
director of this company, has an interest. The loan notes are repayable by May
1, 2005. At any time from May 1, 2002 until May 1, 2005, 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 after three
days notice to the Company, into the 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.
F-18