First Virtual Struggling to Stay Afloat

First Virtual Holdings Inc. needs money and needs it fast.

Once viewed as a pioneer of Internet payments and commerce, First Virtual lost $15.9 million on revenue of $1.45 million in 1997 and is negotiating with several investment firms to secure financing. The San Diego-based business has about $3 million left in the bank and is burning through it at a rate of $800,000 a month.

"They are trying to close a piece of financing they very much need to continue their operations," said Michael B. Nemeroff, Lehman Brothers research analyst.

Lehman still rates First Virtual a "buy," though Mr. Nemeroff concedes "it's a very risky issue." The company went public in December 1996 at $9 per share, and the price has been under $1 since the end of February.

The stock was trading at 84.4 cents late Thursday, up 9.4 cents for the week.

In First Virtual's favor is a strong leadership team, including innovators in electronic messaging technology. The company has alliances with First Data Corp., Paymentech Inc., and GE Capital Corp., and officials from those organizations sit on First Virtual's board.

Founded in 1994 by Lee Stein, a lawyer and adviser to Hollywood celebrities, First Virtual developed an on-line payment system based on e- mail instead of open Internet transmissions. It therefore portrayed itself as a more secure alternative to competing concepts from Cybercash Inc. and Digicash Inc.

First Virtual signed 3,000 merchants and 250,000 individuals for its VirtualPIN numbers, enabling small on-line purchases. But "there just doesn't seem to be much of a demand," said Geri Spieler, Gartner Group research analyst. "It doesn't appear that the consumer is spooked about giving a credit card on-line."

The company is no longer promoting VirtualPIN, deeming the market "fairly small," according to its president, Keith Kendrick.

As the payment product lagged, First Virtual changed its focus toward interactive marketing and advertising and cut nearly a quarter of its staff. It is pursuing clients for its Interactive Messaging Platform but has not signed any deals, Mr. Kendrick said.

The platform, to be available in the summer, combines e-mail and payment systems. Businesses using the technology could e-mail a marketing pitch to customers, who could purchase a product by replying to the message.

Marketing companies and banks are realizing the desirability of e-mail communications, Mr. Kendrick said. The interest and use of e-mail should grow as the technology evolves to also carry audio and graphics, he added.

The new product puts First Virtual in a competitive marketplace, said Gary Craft, electronic commerce research analyst for BancAmerica Robertson Stephens. He said it might use its Internet payment feature as a springboard to other things.

Demand for the product will tell the tale. First Virtual has no takers yet, though it says three companies have asked it to assess their e-mail needs.

"It could be very intriguing to companies either now or as electronic transactions really take off," Mr. Nemeroff said.

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