<PAGE>
As filed with the Securities and Exchange Commission on November 3, 1998
Registration No. 333-50175
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
VIRTUALFUND.COM, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of 41-1612861
incorporation or organization) (I.R.S Employer Identification No.)
7090 Shady Oak Road
Eden Prairie, Minnesota 55344
(612) 941-8687
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Copies to:
Sandra Ferrian, Esq. Timothy Scallen, Esq.
General Counsel Oppenheimer, Wolff & Donnelly, LLP
VirtualFund.com, Inc. Plaza VII
7090 Shady Oak Road 45 South Seventh Street, Suite 3400
Eden Prairie, Minnesota 55344 Minneapolis, Minnesota 55402
(612) 941-8687 (612) 607-7385
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, dated November 3, 1998
PROSPECTUS
VIRTUALFUND.COM, INC.
----------
141,333 SHARES OF
COMMON STOCK
($.01 PAR VALUE)
--------
This Prospectus relates to up to an aggregate of 141,333 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
VirtualFund.com, Inc., a Minnesota corporation ("VFC" or the "Company"), that
may be sold from time to time by one individual currently holding restricted
shares of the Company's Common Stock (the "Selling Shareholder"). See "Selling
Shareholder." The Shares have been acquired pursuant to a Stipulation of
Settlement agreement entered into by the Company. See "VirtualFund.com, Inc. -
Recent Developments" and "Selling Shareholder." The Company will not receive any
proceeds from the sale of the Shares. The Company has agreed to pay the expenses
of registration of the Shares, including certain legal and accounting fees,
other than commissions or discounts.
Any or all of the Shares may be offered from time to time in transactions
on the NASDAQ National Market, in brokerage transactions at prevailing market
prices or in transactions at negotiated prices. See "Plan of Distribution."
The Shares offered hereby have not been registered under the blue sky or
securities laws of any jurisdiction, and any broker or dealer should assure the
existence of an exemption from registration or effectuate such registration in
connection with the offer and sale of the Shares.
The Common Stock is traded on the NASDAQ National Market under the symbol
"VFND." On November 2, 1998, the last reported sale price of the Common Stock as
reported on the NASDAQ National Market was $1.75 per share.
--------------------
FOR INFORMATION CONCERNING CERTAIN RISKS RELATED TO THIS OFFERING,
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer contained herein, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities offered hereby in any jurisdiction in which
it is not lawful or to any person to whom it is not lawful to make any such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
The date of this Prospectus is November 3, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval system. This Web site can be
accessed at http://www.sec.gov. In addition, the Common Stock of the Company is
listed on the NASDAQ National Market, and reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
National Association of Securities Dealers, 1735 K. Street N.W., Washington,
D.C. 20006. This Prospectus does not contain all of the information set forth in
the Registration Statement and exhibits thereto which the Company has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), and to which reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus:
(a) the Annual Report on Form 10-K for the year ended June 30, 1997;
(b) the Annual Report on Form 10K for the year ended June 30, 1998;
(c) the Quarterly Report on Form 10-Q for the three month periods ending
September 28, 1997, December 28, 1997, and March 29, 1998
respectively;
(d) Proxy Statement for the annual meeting of stockholders held April 2,
1998; and
(e) the description of the Company's Common Stock contained in the
Company's Registration Statement filed pursuant to Section 12 of the
Exchange Act and any amendment or report filed for the purpose of
updating any such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document all or part of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
In February, 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128 ("FAS No. 128"), "Earnings Per Share,"
which is effective for financial statements issued for the periods ended after
December 15, 1997. The Company has adopted the standard as required.
FAS No. 128 requires previously reported amounts be recalculated and
disclosed for consistency purposes. The Company has recalculated the EPS for the
five years ending June 30, 1997. EPS for the year ended June 30, 1994 was
previously reported as $.57 per share. Under the new standards, the Company
would have reported $.56 per share. All other previously reported EPS results
had no change under the new standards.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Sandra Ferrian, General
<PAGE>
Counsel, VirtualFund.com, Inc., 7090 Shady Oak Road, Eden Prairie, Minnesota
55344 or by telephone to (612) 941-8687.
RISK FACTORS
PROSPECTIVE INVESTORS IN THE SHARES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION
APPEARING IN THIS PROSPECTUS.
CASH NEEDS. The Company has a credit agreement with a commercial finance
company that has adequately financed its cash requirements in the past.
Previously, net operating losses in fiscal 1996 of $10,461,534 and fiscal 1997
of $17,199,688 resulted in a need for additional financing. In September 1996,
projected cash requirements in excess of available sources required the issuance
of private placements of common stock and warrants to purchase common stock in
the Company. There can be no assurances that cash availability under the credit
agreement will be adequate to meet future needs, or that other sources of
financing would be available to the Company on favorable terms, or at all, if
the Company's operations are further affected by declining revenue from a lack
of sales or significant returns of existing products, introduction difficulties
with new product lines, competitive product introductions, or by market
conditions in general. In addition, there can be no assurance that the Company
can achieve or maintain profitability on a quarterly or annual basis in the
future.
POTENTIAL ACCELERATION OF SENIOR DEBT. The Company's Senior Debt Agreement
includes financial covenants, which the Company must meet. Currently, the
Company is in compliance with all of the financial covenants required by its
Senior Lender General Electric Capital Credit, Inc. (GE). For further
information, refer to Form 10-K, Item 14(a)1. Financial Statements, Note #5 of
the Notes to Consolidated Financial Statements. The financial performance of the
Company in the past has made it necessary for the Company to renegotiate the
financial covenants to avoid being declared in violation of the covenants by GE.
If future financial performance were to cause covenant violations and the
Company is unable to renegotiate its loan covenants at that time, it could be
forced to seek replacement financing at prices which may not be favorable to the
Company. If adequate sources of financing are not available, the Company may be
required to sell certain product lines or technologies on less than favorable
terms. As of June 30, 1998, no amounts were owed to the Company's Senior Debt
Lender. However, the Company anticipates additional borrowings under the
agreement in the future.
TECHNOLOGY AND INDUSTRY PRESSURES/RELIANCE ON NEW TECHNOLOGY. The pre-press
and wide-format color printing industries are highly competitive and are
characterized by frequent technological advances and new product introductions
and enhancements. As product life cycles get shorter, the resulting consumable
stream generated by the installed base may be negatively impacted. Accordingly,
the Company believes that its future success depends upon its ability to enhance
current products, to develop and introduce new and superior products on a timely
basis and at acceptable pricing, to respond to evolving customer requirements,
and to design and build products which achieve general market acceptance.
NEW PRODUCT DESIGN AND DEVELOPMENT. The process of developing new products
involves adopting new and emerging technologies and components which may not
have product histories or long term use testing to establish expected life
cycles in the field or to assure long term field use.
PRODUCT QUALITY ISSUES. Any quality, durability or reliability problems
with existing or new products, regardless of materiality, or any other actual or
perceived problems with the Company's products could have a material adverse
effect on market acceptance of such new products. Any quality problems with
components could result in "epidemic" or wide-spread failures of the products in
the field causing return and refund requests that would likely have a material
effect on the financial results of the Company and future sales potential. There
can be no assurance that such problems or perceived problems will not arise with
respect to any existing products.
PRODUCT ACCEPTANCE/MARKET ANTICIPATION. There is no assurance the Company's
products will achieve market acceptance. In addition, the market anticipation or
the announcement of new products and technologies, whether offered by the
Company or its competitors, could cause customers to defer purchases of the
Company's existing products, which could have a material adverse effect on the
Company's business and financial condition.
The Company is currently undertaking a number of development projects and
has introduced a new family of printers, the DisplayMaker(R) 4000, 5000 and 6000
or HiRes 8-Color series, during September 1997. Two new versions
<PAGE>
of these printers have been introduced since February, 1998. The DisplayMaker
7000 was introduced in August, 1998. Sales of these and the related products
comprise approximately 43% of the Company's total revenues for fiscal 1998.
Additionally, in August 1998 the Company introduced the Giclee PrintMakertFA, an
8-Color HiRes drum-based printer. Although the Company has had successes
introducing new products in the past, some earlier products have experienced
limited market acceptance, the introductions of some products have been delayed,
and the quality and reliability reputation of certain products may unfavorably
affect new products. There can be no assurance that the Company will be
successful with the new DisplayMaker series or future product introductions,
that future market introductions will be timely and competitive, that future
products will be priced appropriately, or that future products will achieve
market acceptance. The Company's inability to achieve market acceptance, for
technological or other reasons, could have a material adverse effect on the
Company's financial condition.
PRODUCT MALFUNCTION. The Company is aware of intermittent customer issues
with the performance and formulation of certain inks used in the Company's
printers. The Company has taken steps to address the ink issues with its
supplier. However, failure to address ink functionality issues, or some other
failure of the product to perform as expected by the customer may result in
customer requests for compensatory supplies or other requests which could have a
material adverse effect on the Company's financial performance.
DEPENDENCE ON SUPPLIERS. The Company is dependent on sole source suppliers
for the heads for PressMate-FS(R) and DisplayMaker Express (DME). Over the time
that the Company has worked with its supplier for the PressMate printheads,
there have been quality and consistency issues with the printheads supplied. The
Company does not have a written agreement with this supplier and cannot purchase
the supplies from another source. Currently, the Company does not sell
significant numbers of the PressMate-FS printers which utilize the sole-sourced
component. However, the Company has an installed base of printers who purchase
consumables from the Company and could experience head failure or need a
replacement. Overall, the percentage of the Company's revenues related to the
product utilizing this head is less than 7% of fiscal 1998 revenue. The Company
is also dependent upon a sole source supplier for the heads for the DME printer.
Quality and consistency of the printheads delivered by this supplier have also
been a problem. Although the Company currently sells very few new DME printers,
there is an installed base of printers who purchase consumables from the Company
and could experience printhead failure or require replacement. The Company has a
written agreement with the sole source supplier of the DME heads. The written
agreement includes the manufacturing specifications and directions which would
allow a second supplier to produce the printheads should the current supplier be
unable to cure any defaults under the manufacturing and supply agreement. The
adverse effect upon the Company if the Company were unable to resolve an issue
with the supplier, may be considered material if the effect were a significant
increase in the returns of the DME printer based on the inability to supply
replacement print heads. Overall, the percentage of the Company's revenues
related to the product utilizing this head is less than 9% of fiscal 1998
revenue.
The Company's aqueous inkjet printers are based on a printhead supplied
pursuant to a written contract with Hewlett-Packard Company. The Company does
not anticipate availability or quality issues which would affect the supply of
printheads supplied by Hewlett-Packard Company (HP). The revenues of the Company
associated with sales of this product or products including those components
represent approximately 67% of the Company's fiscal 1998 revenue. If the Company
is unable to resolve the availability and quality issues, the Company's
production, support of its installed base, and quality requirements will be
materially adversely affected.
COMPETITIVE PRICING/PRODUCT INTRODUCTIONS. Various potential actions by any
of the Company's competitors, especially those with a substantial market
presence, could have a material adverse effect on the Company's business,
financial condition and results of operations. Such actions may include
reduction of product price, increased promotion, announcement or accelerated
introduction of new or enhanced products, product giveaways, product bundling or
other competitive actions. Additionally, a competitor's entry into the
wide-format market in such ways as to compete more directly and effectively with
the Company's products could adversely affect operational results.
UNCERTAINTY REGARDING DEVELOPMENT OF WIDE-FORMAT MARKET; UNCERTAINTY
REGARDING MARKET ACCEPTANCE OF NEW PRODUCTS. The Wide-Format market is
relatively new and evolving. The Company's future financial performance will
depend in large part on the continued growth of this market and the continuation
of present Wide-Format printing trends such as use and customization of
large-format advertisements, use of color, transferring of color images onto a
variety of substrates, point-of-purchase printing, in-house graphics design and
production and the demand for limited printing runs of less than 200 copies. The
failure of the Wide-Format market to achieve anticipated growth levels or a
substantial change in Wide-Format printing customer preferences could have a
material adverse effect on the
<PAGE>
Company's business, financial condition and results of operations. Additionally,
in a new market, customer preferences can change rapidly and new technology can
quickly render existing technology obsolete. Failure by the Company to respond
effectively to changes in the Wide-Format market, to develop or acquire new
technology or to successfully conform to industry standards could have a
material adverse effect on the business and financial condition and results of
operations of the Company.
TECHNOLOGICAL ADVANCEMENTS. The digital color inkjet printing market is
rapidly moving to two distinct technologies for the placement of ink on a
substrate: thermal inkjet cartridges and piezo-electric printheads. Any company
without a secure, economical source of one or both of these products will face
serious competitive pricing and margin pressures going forward. The Company
currently has a license to remanufacture specific HP 300 dpi inkjet cartridges
for use in its wide-format, roll-fed color inkjet printers. HP has introduced a
new inkjet cartridge with a capability of producing output resolution of 600
dpi. The Company has secured the use of this product in non-roll fed devices and
has introduced a product based on this cartridge. However, the market for
non-roll fed devices is considered a low volume market niche by Company
management. In addition, Lexmark has developed a 600 dpi inkjet cartridge. Both
companies are competitors in the wide-format color market. At this time the
Company does not have a source of 600 dpi printheads for use on roll fed
printers. The Company is considering several component suppliers in its search
for a dependable, manufacturable piezo-electric printhead. No one source has
been identified for use in a future product as of this time. Should the market
for wide-format color demand the increased resolution provided by these new
products and the Company be unable to secure adequate supplies at reasonable
prices or develop a reasonably priced substitute from other sources, the
Company's sales of printer engines and the related gross margins could be
negatively impacted.
The Company's products target the market for high quality printing output.
Hardware and software technological advances have enhanced actual and perceived
resolution. There is no assurance that other companies will not achieve actual
or apparent resolution with less expensive printers and supplies and therefore
capture the market held by higher cost printers.
EXPANSION AND DIVERSIFICATION TO SOFTWARE AND SERVICES OUTSIDE OF THE CORE
PRINTER BUSINESS. The Company's continuing efforts to expand sales and increase
profits and desire to reposition itself as a diversified technology company is
stimulating a series of new product development activities. Currently the focus
of these new business opportunities is primarily internet based software and
service businesses. During this past year, the Company launched an electronic
commerce (e-commerce) initiative for selling specialty media for wide-format
printers under the brand name of Supplies*By*Air(TM). Internet based software
and service activities represent an extension of many of the printing and
publishing tools which are integral to the core technology of the Company. The
Company is currently developing a commercialization of its internet software and
has not generated any revenue from sales of this product.
Expansion into technologies outside of the core hard-copy base printer
business involves significant risk. Such risk includes, but is not limited to,
the following factors: New products may not meet customer needs or may face
significant competition from companies with lower overhead and product costs
and/or greater marketing and promotional budgets. In addition, the Company may
not be able to attract and retain key personnel and it may not be able to
develop the products in the time needed to gain market acceptance. Due to the
early stage development, the Company may not be able to predict product features
needed to gain market acceptance, development may require more time and
resources than anticipated for the development, or it may turn out that the
product can not be feasibly developed. Diversification also carries the risk
that the new activity will distract management time and resources from focusing
on the core hard-copy based printer business. In addition, diversification may
involve risks related to the resources required to participate in this new
business including, but not limited to, risks related to raising cash or
obtaining cash investments, doing business with one or more "partners" as a
partnership or joint venture, and risks related to acquisitions or other
combinations of businesses.
INTENSE COMPETITION. The computer printer industry is intensely competitive
and rapidly changing. Some of the Company's existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
technical resources, more established and larger sales and marketing
organizations, greater name recognition, larger customer bases and significantly
greater financial resources than the Company, which may result in a competitive
advantage. Suppliers of wide-format print engines and systems compete on the
basis of print quality, color, print time, print size, product features,
including ease of use, service, and price. Competitive product sales practices
such as price reductions, increased promotion, product giveaways and bundling,
or announcement or accelerated introduction of new or enhanced products could
have a material adverse effect on the sales and financial condition of the
Company. New
<PAGE>
product introductions and changes in pricing structure by competitors have had,
and can be expected to continue to have, a significant impact on the demand for
the Company's products. Currently Hewlett-Packard has announced and is supplying
a new 54-inch wide-format inkjet printer. ENCAD has announced and is shipping a
new version of its printer line with 600 dpi cartridges. These products are
expected to compete for market share with the Company's current DisplayMaker
5000, 6000 and 7000 series of printers. It is possible that the Company's sales
of certain products will compete with, or displace sales of, other products sold
by the Company.
The Company's DisplayMaker HiRes 8-Color series and DesignWinder Pro
products are based on relatively new technology, are complex and must be
reliable and durable to achieve market acceptance and enhance revenue
opportunities. Development and production of new, complex technologies and
products often have associated difficulties and delays. Consequently, customers
may experience unanticipated reliability and durability problems that arise only
as the product is subjected to extended use over a prolonged period of time.
There can be no assurance that the Company has completely resolved operational
problems that have occurred in the past or that the Company will successfully
resolve any future problems in the manufacture or operation of the Company's
existing printers or any new product. Failure by the Company to resolve
manufacturing or operational problems with its existing printers or any new
product in a timely manner could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's HiRes 8-Color DisplayMaker series of printers and the
DesignWinder product platforms utilize HP licensed inkjet technology. The
Company also purchases licensed inkjet cartridges from HP who is a sole source
of the cartridge component for the Company's aqueous ink consumable offerings.
The Company also competes with HP in the wide-format digital color printing
market. Both Companies design and market wide-format printing devices.
Currently, the Company has been granted access to these and selects new
technologies for use in its products and pays a royalty for those rights.
Revenues associated with the sale of these products or products including those
components represented approximately 67% of the Company's fiscal 1998 revenues.
As new technologies are developed, there can be no assurance the Company will be
able to negotiate additional licenses for newly developed technologies or that
the new terms are equal to the terms currently in place.
Certain companies that supply the Company with consumable products such as
ink and media compete with the Company by selling directly to users or selling
to competitors who may offer the products to the users. Additionally, OEM
private label ink products that may be used in the Company's own products may
compete with ColorSpan(R) products. Further, a number of competitors have
introduced consumables which they allege to be compatible with the Company's
products and have priced the consumables below the ColorSpan-branded
consumables.
Although the Company believes that its Big Color(R) products possess
certain advantages over the competitors' products, the increased competition has
impacted sales volumes and margins and may continue to impact volumes and
margins in the future. The Company has generally competed in these markets by
introducing technologically advanced products that create new market demand and
products which offer optimum performance characteristics. There can be no
assurance that the Company will be able to continue to innovate to the extent
necessary to maintain a competitive advantage in these markets or that other
competitors will not achieve sufficient product performance to achieve customer
satisfaction with their products offering better pricing or other competitive
features.
INDUSTRY CONSOLIDATION. As a growth industry, the wide-format digital
printing market has generated many new entrants into the fragmented market with
new products and new technologies. As the market matures, and the industry's
growth rate slows, companies with technological or manufacturing efficiency
advantages will emerge as the market leaders maintaining or increasing their
market share. Those companies with less marketable advantages will face
significant pressure on revenue growth and gross margins. In order to remain
competitive, the smaller companies within this sector may have to seek merger or
consolidation opportunities with other companies.
If the Company were to merge with another company within the printer
industry, short-term financial results and the market price of the Company's
stock may be negatively impacted. Merger or consolidation of competitors may
enhance the financial strength and competitive abilities of such competitor(s)
which could adversely affect the Company's sales and financial performance.
DEPENDENCE ON COMPONENT AVAILABILITY AND COSTS. Certain components used in
the Company's current and planned products, including printer marking engines
and other printer components, are currently available from sole sources, and
certain other components are available from only a limited number of sources.
Substantially all of the
<PAGE>
Company's revenue is subject to these risks. The Company has in the past
experienced delays as a result of the failure of certain suppliers to meet
requested delivery schedules and standards of product performance and quality.
In addition, losses from operations of the Company have in the past restricted
cash availability and the ability to keep supplier debt current or within the
established credit limits. The requirement to bring certain component suppliers'
debt obligations current, or other restrictions in credit terms of such
component suppliers, could result in an inability to manufacture certain product
lines and thereby adversely affect the financial performance of the Company. The
Company's inability to obtain sufficient supply of components, or to develop
alternative sources, could result in delays in product introductions,
interruptions in product shipments, the need to redesign products to accommodate
substitute components or the need to substitute alternative components which may
not have the same performance capabilities, any of which could have a material
adverse effect on the Company's operating results. A portion of the total
manufacturing cost of the Company's typesetting and Big Color products is
represented by certain components whose prices have fluctuated significantly in
recent years. Significant increases or decreases in the price or reductions in
the availability of certain components could have a material affect on the
Company's operating results.
The Company is dependent on a sole source supplier for the printheads and
hot melt ink used in DisplayMaker Express. The Company has experienced
availability and quality issues with this supplier that have affected shipping
schedules and customer satisfaction and have negatively impacted operating
results in the past. While the Company has taken strong corrective measures in
dealing with this supplier, there can be no assurance that this supplier will be
able to meet the Company's production requirements in the future or that the
quality of on-going product supply will be acceptable.
The Company sells consumable print media and inks for use with its Big
Color product line, and film used with the PressMate-FS. The Company depends on
the availability of consumable products to support its installed base of print
engines. There is no assurance that the suppliers of these consumables will
continue to offer their products to the Company, or that the consumable products
will continue to be available to the Company at the same quantity, pricing and
terms. The unavailability of consumable products or negative changes in quality
could adversely impact the market acceptance of the Company's new and existing
products, and may adversely affect sales of consumables.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
results of operations have fluctuated and are expected to continue to fluctuate
significantly. These fluctuations have been caused by various factors,
including, but not limited to: the timing of new product announcements; product
introductions and price reductions by the Company and its competitors; the
availability and cost of key components and materials for the Company's
products; fluctuations and availability in customer financing; the relative
percentages of sales of consumables and printer architectures; risks related to
international sales and trade; and general economic conditions. In addition, the
Company's operating results are influenced by the seasonal buying patterns of
its customers, which have in the past generally resulted in reduced revenues and
earnings during the Company's first fiscal quarter. Further, the Company's
customers typically order products on an as-needed basis, and, as a result,
virtually all of the Company's sales in any given quarter result from orders
received in that quarter. The Company rarely operates with a backlog of orders
from quarter to quarter. Certain products require significant capital
expenditures, causing some customers to delay their purchasing decision. Delays
in purchases of low-volume, high-cost printers may cause significant
fluctuations in the sales volume for a given period. Also, the Company's
manufacturing plans, sales staffing levels and marketing expenditures are
primarily based on sales forecasts. Accordingly, deviations from these sales
forecasts may cause significant fluctuations in operating results from quarter
to quarter and may result in unanticipated quarterly earnings shortfalls or
losses. Historically, a large percentage of orders have been received and
shipped near the end of each month. If anticipated sales and shipments do not
occur, expenditure and inventory levels may be disproportionately high and
operating results could be adversely affected.
RETURNS RESERVES. The Company has established reserves for the return of
merchandise. The amount of the returns reserve is based on historical data
regarding returns of products. For new products there may be insufficient
information to accurately predict return rate and therefore the required reserve
may not be sufficient. Additionally, there is no assurance that there will not
be an unknown or unanticipated problem with a product or any component thereof,
or a defect or shortage of repair components or the consumable media or inks
that are needed to use the product which could cause the actual returns to
exceed the reserves. Returns of a product which exceed reserves could have an
adverse effect on the financial operations and results of the Company.
DEPENDENCE ON CONSUMABLES REVENUES. The Company anticipates it will derive
an increasing component of its revenues and operating income from the sale of
ink, paper, film and other consumables to its customers. During fiscal
<PAGE>
1998, consumables revenue was 59% of total revenue. To the extent sales of the
Company's consumables are reduced because its customers are unsuccessful in
marketing their own printing services, product iterations by competitors and the
Company make the Company's products obsolete or customers substitute third-party
or private label consumables for those of the Company, the Company's results of
operations could be adversely affected. Reduced life cycles of hardware products
are expected to negatively impact consumable revenues. Further, although the
Company's consumables are manufactured specifically to operate with its printing
products to produce optimum results, there can be no assurances that other
manufacturers of printing inks and papers will not develop products that can be
sold and compete with the Company's printing products, or that other products
will not produce results which are satisfactory to the customer at a lower cost.
The Company alleges that at least one manufacturer has improperly used the
Company's trade secrets to commence such competition. Although the Company is
involved in legal action against such manufacturer for misappropriation of trade
secrets, there can be no assurances that other manufacturers will not
independently and legitimately develop competing consumable products. In
addition, product quality issues, limitations in the availability of sole source
consumables or changes in credit or trade terms from sole sources could
adversely affect the sales of consumables.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company's ability to
compete effectively will depend, in part, on its ability to maintain the
proprietary nature of its technologies through patents, copyrights and trade
secrets. Important features of the Company's products are incorporated in
proprietary software, some of which is licensed from others and some of which is
owned by the Company. The Company attempts to protect its proprietary software
with a combination of patents, copyrights, trademarks and trade secrets,
employee and third-party nondisclosure agreements and other methods of
protection. Despite these precautions, it may be possible for unauthorized third
parties to copy certain portions of the Company's products or to
reverse-engineer or obtain and use information that the Company regards as
proprietary. Further, the Company's intellectual property may not be subject to
the same level of protection in all countries where the products are sold. There
can be no assurance that the measures taken by the Company will be adequate to
protect the intellectual property or that others will not independently develop
or patent products similar or superior to those developed, patented or planned
by the Company, or that others will not be able to design products which
circumvent any patents relied upon by the Company.
The Company has been granted various United States patents for inventions
related to resolution of conventional laser printer engines, high-resolution
imaging and image enhancement and wide-format printing technologies and
techniques, the Company's Big Ink(TM) Delivery System, product patents, and
consumable formulations. Additional patent applications are pending. There can
be no assurance that patents will be issued from any of these pending
applications. With regard to current patents or patents that may be issued,
there can be no assurance that the claims allowed will be sufficiently broad to
protect the Company's technology or that issued patents will not be challenged,
invalidated or violated, requiring expenditures of cash to pursue and enforce
the Company's rights in the patented technology. Applications to patent the
basic TurboRes(R), ThermalRes(R) and Big Ink Delivery System approaches and
related technologies have been filed in selected foreign countries. Patent
applications filed in foreign countries are subject to laws, rules and
procedures which differ from those of the United States, and there can be no
assurance that foreign patents will be granted as a result of these
applications. Furthermore, even if these patent applications result in the
issuance of foreign patents, some foreign countries provide significantly less
patent protection than the United States.
The Company relies on a variety of trademarks in the promotion and
identification of its products. The Company has a variety of trademarks which
are registered, and others that are not registered, or cannot be registered.
There is no assurance that there will not be some challenge to the rights of the
Company to use one or more trademarks, or an allegation that the use or display
of one or more trademark violates the trademark rights of another party, which
could subject the Company to damages and losses related to the inability to use
recognized marks in the promotion of its products.
Additionally, patent, copyright and trademark protection has not been
sought, or may not be available in all foreign countries. Although the Company
has not received any notices from third parties alleging intellectual or
proprietary property infringement, there can be no assurance that third parties
will not assert infringement claims against the Company in the future or that
any such assertion will not require the Company to expend funds defending such
claims or requiring the Company to enter into royalty arrangements on such terms
as may be available, which may adversely affect financial performance of the
Company. Any claim that the Company's current or future products or
manufacturing processes infringes on the proprietary rights of others, with or
without merit, could result in costly litigation which could adversely affect
the financial performance of the Company.
<PAGE>
The Company is actively pursuing development of new and unique print
solutions and processes, media and inks. There are a significant number of
patents which are already filed relating to printing cartridges, printing
methods and processes, mechanical printer features, medias and inks. Many of
these patents are held by companies which are larger and have greater resources
to pursue violation of intellectual property. Although the research and
development process involves an analysis of protected proprietary rights in any
technology that is being pursued, there is no assurance that competitors or
others will not interpret any such products or processes developed by the
Company as violating protected intellectual rights and pursue legal action,
which could be costly and may affect the financial performance of the Company.
In addition, although the Company does not have any knowledge of violations of
its intellectual property rights, there can be no assurance that the Company
will not be forced to take action to protect its intellectual property
portfolio. Such enforcement activity could require the expenditure of
significant cash resources and could affect the financial performance of the
Company.
Although the Company has not received notices from third parties alleging
infringement claims that the Company believes would have a material adverse
effect on the Company's business, there can be no assurance that third parties
will not claim that the Company's current or future products or manufacturing
processes infringe the proprietary rights of others. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into a royalty or licensing agreement. 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 upon the
Company's business, financial condition and results of operations. If the
Company does not obtain such licenses, it could encounter delays in product
introductions while it attempts to design around such patents, or it could find
that the development, manufacture or sale of products requiring such licenses
could be enjoined. In addition, the Company could incur substantial costs in
defending itself in suits brought against the Company on such patents or in
bringing suits to protect the Company's patents against infringement, which
could adversely affect the Company's financial condition or results. If the
outcome of any such litigation is adverse to the Company, the Company's business
and financial results could be adversely affected.
LITIGATION AND LITIGATION COSTS. The Company has instituted action against
a competitor for copyright violation and other causes of action. The competitor
has counter-claimed for copyright misuse by the Company Although the Company
does not believe any of its practices violate applicable copyright laws, there
is no assurance that claims or actions will not be commenced by customers,
competitors or governmental authorities based on copyright, trade or anti-trust
claims which could affect the Company's operations and cash position.
The Company is also engaged in various actions related to transactional
matters, employee matters, customers' credit and product quality and/or warranty
issues. Some of these actions include claims against the Company for punitive,
exemplary or multiple damages. An award of punitive damages may not bear a
direct relationship to the actual or compensatory damages claimed from the
Company. Although the Company does not believe there are any actions pending or
threatened against the Company which would have a material adverse impact on the
financial position of the Company, there is no assurance that there will not be
an adverse award of multiple punitive or exemplary damages which could adversely
affect the cash position of the Company.
Any litigation which the Company is involved in may have an adverse impact
on the Company's operations and may result in a distraction or diversion of
management's attention, thereby adversely affecting the operations of the
Company.
INTERNATIONAL OPERATIONS. The Company expects that international revenues
will continue to represent a substantial portion of its total revenues. (In
fiscal 1997, international operations composed 42% of total sales.)
International operations are subject to various risks, including exposure to
currency fluctuations, political and economic instability, differing economic
conditions and trends, differing trade and business laws, unexpected changes in
applicable laws, rules, regulatory requirements or tariffs, difficulty in
staffing and managing foreign operations, longer customer payment cycles,
greater difficulty in accounts receivable collection, potentially adverse tax
consequences and varying degrees of intellectual property protection.
Fluctuations in currency exchange rates could result in lower sales volume
reported in U.S. Dollars. Fluctuations in foreign exchange rates are
unpredictable and may be substantial. From time to time the Company has engaged
in limited foreign currency hedging transactions. The Company's European
subsidiary extends credit in the normal course of business in five relatively
stable European currencies. In addition, the financing agreement in place allows
the subsidiary to factor those receivables and receive Dutch guilders in which
it pays its expenses. The impact of this is to effectively hedge the Company's
exposure to foreign currency
<PAGE>
risk. Substantially all other transactions are in U.S. dollars. There can be no
assurance that the Company will be successful if it engages in such practices to
a significant degree in the future.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon certain key personnel, including Mr. Masters, its Chief Executive
Officer and President, Lawrence Lukis, Chief Engineer, and key research and
development staff. The loss of key management or technical personnel could
adversely affect the Company's business. The Company maintains key person life
insurance in the amount of $2,000,000, payable to the Company, on each of Mr.
Masters and Mr. Lukis. In addition, the Company has certain non-compete and
continuation contracts with key personnel. The Company also depends on its
ability to attract and retain highly skilled personnel. Competition for
employees in technology related markets is high and there can be no assurance
that the Company will be able to attract and retain the employees needed. In
addition, past financial performance of the Company may limit the ability to
hire and retain management professionals.
THE YEAR 2000 ISSUE. The Company is currently working to resolve the
potential impact of the Year 2000 on the processing of time-sensitive
information by its computerized information systems. Year 2000 issues may arise
if computer programs have been written using two digits (rather than four) to
define the applicable year. In such case, programs that have time-sensitive
logic may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. The Company
utilizes a number of computer programs across its entire operation. Year 2000
issues could impact the Company's information systems as well as computer
hardware and equipment that is part of its telephone network such as switches,
termination devices and SONET rings that contain embedded software or
"firmware."
The Company's exposure to potential Year 2000 problems exists in two
general areas: technological operations in the sole control of the Company, and
technological operations dependent in some way on one or more third parties. The
majority of the Company's exposure in potential Year 2000 problems is in the
latter area where the situation is much less within the Company's ability to
predict or control. The Company's business is heavily dependent on third
parties, many of whom are themselves heavily dependent on technology. The
Company cannot control the Year 2000 readiness of those parties. In some cases,
the Company's third-party dependence is on vendors of technology who are
themselves working towards solutions to Year 2000 problems. The Company has
initiated projects to identify and correct the potential problem in all of its
enterprise systems. The costs incurred to date total less than $30,000 and have
been expensed in the financial statements. The Company is using internal
resources to test the software modifications. Funding for this area is expected
to, and has come from, cash flow from operations. Management expects that
additional costs for this issue will not be material.
THE COMPANY'S PRODUCTS. The Company designs and sells products which are
heavily reliant on software. While the Company has taken appropriate steps to
ensure the readiness of this software and believes it to be Year 2000 compliant,
the Company cannot be certain that the software will operate error free, or that
the Company will not be subject to litigation, whether the software operates
error free or not. However, the Company believes that based on its efforts to
ensure compliance and the fact that the calculations needed in and by its
products are not date dependent, it is not reasonably likely that the Company
will be subject to such litigation.
CONTINGENCY PLANS. The Company has not yet completed its planning and
preparations to handle the most reasonably likely worst case Year 2000 scenarios
described above. The Company intends to develop contingency plans for these
scenarios during fiscal 1999. The Company believes that this is the appropriate
timeframe for developing such plans and that efforts prior to that time should
be focused on renovation, testing and verification of its system modifications.
ENVIRONMENTAL. The Company is subject to local and federal laws and
regulations regarding the use, storage and disposition of inks used with the
Company's print products. Although the Company believes it is in compliance with
all such laws and regulations, and the Company is not aware of any notice or
complaint alleging any violation of such laws or regulations, there can be no
assurance that there will not be some accidental contamination, disposal or
injury from the use, storage, or disposition of inks or other materials used in
the Company's operations. In the event of such accident, the Company could be
held liable for any damages that result and any such liability could have a
material adverse effect on the Company's financial condition. In addition, there
can be no assurance that the Company will not be required to comply with
environmental claims, laws, or regulations in the future which could result in
significant costs which could materially adversely affect the Company's
financial condition.
<PAGE>
TAX LIABILITY. The Company sells its products from its offices in Eden
Prairie, Minnesota and reports sales and income tax liability based on sales
occurring at that location. It is possible that one or more state or local
taxing authorities could determine that there have been taxable transactions
occurring within their jurisdiction and seek recovery of taxes for current
and/or past periods. In addition, it is possible that local, state or federal
taxing authorities will take issue with the reporting or determination of tax
liability and seek additional taxes for current and/or past periods. The Company
currently has a net operating loss ("NOL") carryforward that may be used to
offset future federal taxable income. However, there is no assurance that the
NOL will continue to be available as an offset against future federal taxable
income or that there will be sufficient taxable income to fully utilize the NOL.
VOLATILITY OF STOCK PRICE. The trading price of the Company's common stock
is subject to wide fluctuations in response to variations in operating results,
changes in the laws or regulations to which the Company may be subject,
announcements of new products or technological innovations by the Company or its
competitors, overall economic conditions and indicators, market conditions
unrelated to Company performance, and general conditions in the industry.
Factors such as quarterly variation in actual or anticipated operating results,
changes in earnings estimates by analysts, and analysts' reactions to Company
statements and actions also contribute to stock price fluctuations. In addition,
the prices of securities of many high technology companies have experienced
significant volatility in recent years for reasons frequently unrelated to the
operating performance of the specific companies. These fluctuations may
materially affect the market price of the Company's common stock.
One time in the past, following fluctuations in the market price of the
Company's stock, a securities action was commenced alleging that the Company and
certain insiders had knowledge of certain material, adverse information about
the Company prior to the time that such information allegedly caused a drop in
the market price of the stock. Because the Company's stock has historically
fluctuated significantly, it is possible that following a significant change in
the market price of the stock another securities action could be commenced
against the Company. Such action, whether commenced by one or more individuals
or by a class of securities holders, could result in substantial costs and
diversion of management's attention and resources and thereby cause an adverse
affect on the business and financial performance of the Company.
BRAND AWARENESS. The Company is currently in the process of changing its
name to VirtualFund.com, Inc. and has changed the name of its principal
operating subsidiary from LaserMaster Corporation to ColorSpan Corporation. The
Company has significant brand awareness associated with its LaserMaster trade
names. If the market is unable to accept or delays the acceptance of the name
change, the Company's financial performance and sales may be negatively
impacted.
CONTROL OF THE COMPANY'S STOCK. As of August 31, 1998, officers and
directors as a group beneficially owned 21.32% of the outstanding shares of the
Company's stock. One of the Company's suppliers owns 14.7% of the Company's
outstanding shares. Although the impact of the holdings of the officers and
directors and the supplier is not believed to be material, such control may have
the effect of reducing liquidity of the stock which may affect shareholder
value.
The Company's Board has adopted a shareholder rights plan. In addition,
Minnesota Statutes govern "control share acquisitions" and require potential
acquirers of at least 20% of the Company's stock to provide notice and
information to the Company about the proposed acquisition of stock and limits
voting rights in acquired stock unless such voting rights are approved by an
affirmative vote of shareholders and the control share acquisition is
consummated within 180 days after shareholder approval. The effect of the
statute is to limit the opportunity for a hostile takeover of control of the
Company unless there is a majority of shareholders consenting to the acquirer's
control. The Company believes that the shareholder rights plan or the control
share acquisition statute will not adversely affect shareholder value and may
enhance shareholder value.
DILUTION. The Company has outstanding a large number of stock options and
warrants to purchase the Company's Common Stock. To the extent such options or
warrants are exercised, there will be further dilution. The Company expects to
seek additional acquisitions in pursuing its strategies and intends to grant
additional stock options and stock bonuses to the employees of the acquired
companies. For these reasons, the Company's acquisition program will result in
further substantial ownership dilution to investors.
RISKS RELATED TO ACQUISITIONS. A key component of the Company's growth
strategy is the acquisition of Information Technology professional service firms
that meet the Company's criteria for revenues, profitability, growth
<PAGE>
potential and operating strategy. The successful implementation of this strategy
depends on the Company's ability to identify suitable acquisition candidates,
acquire such companies on acceptable terms and integrate their operations
successfully with those of the Company. There can be no assurance that the
Company will be able to identify suitable acquisition candidates or that the
Company will be able to acquire such candidates on acceptable terms. Moreover,
in pursuing acquisition opportunities the Company may compete with other
companies with similar growth strategies, certain of which competitors may be
larger and have greater financial and other resources than the Company.
Competition for these acquisition targets likely could also result in increased
prices of acquisition targets and a diminished pool of companies available for
acquisition. Acquisitions also involve a number of other risks, including
adverse effects on the Company's reported operating results from increases in
goodwill amortization, acquired in-process technology, stock compensation
expense and increased compensation expense resulting from newly hired employees,
the diversion of management attention, potential disputes with the sellers of
one or more acquired entities and the possible failure to retain key acquired
personnel. Client satisfaction or performance problems with an acquired firm
could also have a material adverse impact on the reputation of the Company as a
whole, and any acquired subsidiary could significantly underperform relative to
the Company's expectations. The Company's pursuit of an overall acquisition
strategy or any individual pending or future acquisition may have a material
adverse effect on the Company's business, results of operations and financial
condition. To the extent the Company chooses to use cash consideration for
acquisitions in the future, the Company may be required to obtain additional
financing, and there can be no assurance that such financing will be available
on favorable terms, if at all. As the Company issues stock to complete future
acquisitions, existing stockholders will experience further ownership dilution.
<PAGE>
VIRTUALFUND.COM, INC.
GENERAL RISKS
VirtualFund.com, Inc. (the "Company") designs, manufactures and markets
wide-format (up to 72" wide prints), high-resolution color inkjet printers,
chemical-free film imagers ("filmsetters"), and related image processing
equipment for professional printing applications through its operating
subsidiaries ColorSpan Corporation, ColorSpan Europe, Ltd. and ColorSpan
Asia/Pacific, Inc. In addition, the Company sells related consumable products
for its installed base of printers, consisting primarily of ink, media (such as
specialty papers, canvas, vinyl, etc.), film, toner (ink-like powder) and
process units (which facilitate transfer of toner to the media surface). The
Company's products combine advanced computer technology with the Company's own
sophisticated software, hardware and proprietary printers ("engines") to produce
professional-quality printed output at an affordable cost.
The Company's HiRes 8-Color DisplayMaker printer series (the DisplayMaker
4000, 5000, 6000, 7000 and two additional iterations of each of these printers)
and the DesignWinder Pro, along with the DesignWinder and the DisplayMaker
Professional, and DisplayMaker Express Big Color(R) wide-format, digital inkjet
color printers, are designed to be cost-effective solutions for the short-run
digital computer printing of photo-realistic, wide-format color posters, signs,
and banners. The Company's Halon(R) product allows users to print digital files
to various color laser copiers including those produced by Canon, Kodak and
Xerox. The PressMate(R)-FS, a proprietary desktop chemical-free FilmSetter(TM) ,
is capable of film output generated without the use of chemicals (dry film)
typically associated with developing film, with effective resolution of 2400
dots per inch. The ColorMark(R) Pro 3000 Print Server is a raster image
processor which is capable of supporting a combination of DisplayMaker
Professional, DesignWinder, DesignWinder Pro DisplayMaker Express and
DisplayMaker HiRes 8-Color series printers, PressMate-FS Personal
FilmSetters(TM), and Halon color laser copier interfaces, as well as offering
time-saving features specifically designed for high-volume, production
environments. The RIPStation(TM) is an entry-level print server (raster image
processor).
The primary users of the Company's products are commercial printers,
reprographic service bureaus, photo labs, quick printers, exhibit builders,
in-house print shops, printers, publishers, government and educational
facilities, and corporate marketing departments. Applications include
point-of-purchase signs, trade show exhibit graphics, banners, billboards,
courtroom graphics, pre-press positional proofing (proofs or other quick output
to demonstrate concepts for advertising or graphics layouts), digital photo
imaging and backlit signage.
The products are sold through a network of domestic resellers and
international value-added distributors. In the U.S./Canada, the Company uses a
factory sales team to assist the resellers in closing business. The Company's
sales efforts are supported by a direct mail marketing program designed to
achieve frequent contact with its potential customers. The Company complements
its direct mail efforts by advertising in trade journals and by exhibiting
regularly at industry trade shows.
The Company's domestic offices are in Eden Prairie, Minnesota. The
Company's European sales subsidiary is headquartered in Hoofddorp, The
Netherlands, and the Company's Asia/Pacific sales and technical support facility
is located in San Jose, California. The Company opened a Latin American sales
office in Miami, Florida.
FINANCIAL PERFORMANCE
In the fiscal years ended June 30, 1997 and 1996, the Company generated net
losses of $17.2 million and $10.5 million, respectively. Included in those
losses were restructuring and other special charges totaling $14.9 million and
$9.9 million in fiscal 1997 and 1996, respectively. As a result of those losses,
the Company had an Accumulated Deficit totaling $19.1 million dollars and total
equity was reduced to $11.9 million as of June 30, 1997.
In Fiscal 1998, with the release of its new products, the Company returned
to profitability reporting $1.7 million in earnings for the year. Although the
Company has returned to profitability and is taking the steps management
believes are necessary to remain profitable in the future, there can be no
assurance the Company can remain profitable in the future or that there will not
be a need for other restructuring or special charges.
<PAGE>
RECENT DEVELOPMENTS
In July 1997, the Company entered into a Stipulation of Settlement
agreement (the "Settlement Agreement") which received final court approval in
October 1997 in relation to a class action lawsuit alleging violations of the
Securities and Exchange Act of 1934 by the Company and various officers and
directors of the Company. Under the Settlement Agreement, the Company is
obligated to (i) contribute the number of shares of common stock of the Company
equal to a value of $636,000 on January 23, 1998 (141,333 shares) or (ii)
contribute $636,000 to the account of the plaintiff class. The Company has
chosen to contribute shares of common stock to the authorized depository under
the Settlement Agreement, Norwest Bank, N.A. in accordance with the Settlement
Agreement and related Depository Agreement dated July 11, 1997 (the "Depository
Agreement"). Norwest Bank, N.A., as Depository, is authorized to sell the common
stock once it becomes freely transferable and deposit the proceeds from such
sale into a depository account established for the class plaintiffs. Pursuant to
the Settlement Agreement, the Company must use its best efforts to register the
common stock to permit free transferability. See "Selling Shareholder."
At the Company's Annual Meeting held April 2, 1998 the shareholders of the
Company approved an amendment to the Articles of Incorporation of the Company to
reflect a change in the name of the Company from "LaserMaster Technologies,
Inc." to "VirtualFund.com, Inc." The Company has effected such change with the
Secretary of State of the State of Minnesota and is currently in the process of
effecting the other necessary changes with NASDAQ and other regulatory
authorities.
SELLING SHAREHOLDER
The following table sets forth certain information as to the maximum number
of Shares that may be sold by the Selling Shareholder pursuant to this
Prospectus.
<TABLE>
<CAPTION>
Number of Number of Number of Percentage
Shares Shares Shares Owned
Owned Prior Offered Owned After After
Name to Offering Hereby Offering Offering
---- ----------- ------ -------- --------
<S> <C> <C> <C> <C>
Norwest Bank, N.A. (LaserMaster 141,333 141,333 0 *
Technologies, Inc. Securities
Litigation QSF)
</TABLE>
* Less than 1%.
Norwest Bank, N.A. is a party to the Depository Agreement and is designated
as the Depository for the plaintiff class funds under the Settlement Agreement.
Pursuant to the Settlement Agreement and the Depository Agreement, Norwest Bank,
N.A. possesses the authority to sell the Shares and deposit proceeds from such
sale into a depository account for the benefit of the class of plaintiffs. See
"Recent Developments."
PLAN OF DISTRIBUTION
The Shares will be offered and sold by the Selling Shareholder for its own
account. The Company will not receive any proceeds from the sale of the Shares
pursuant to this Prospectus. The Company has agreed to pay the expenses of
registration of the Shares, including a certain amount of legal and accounting
fees estimated to be less than $20,000 in total.
The Selling Shareholder may offer and sell the Shares from time to time in
transactions on the NASDAQ National Market, in brokerage transactions at
prevailing market prices or in transactions at negotiated prices. Sales may be
made to or through brokers or dealers who may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholder or the
purchasers of Shares for whom such brokers or dealers may act as agent or to
whom they may sell as principal, or both. As of the date of this Prospectus, the
Company is not aware of any agreement, arrangement or understanding between any
broker or dealer and the Selling Shareholder.
The Selling Shareholder and any brokers or dealers acting in connection
with the sale of the Shares hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions
<PAGE>
received by them and any profit realized by them on the resale of Shares as
principals may be deemed underwriting compensation under the Securities Act.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended June 30, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for the
Company by Dorsey & Whitney, 220 South Sixth Street, 2200 First Bank Place East,
Minneapolis, MN 55402.
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Selling Shareholder
or any other person. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy to any person in any jurisdiction in which such
offer or solicitation would be unlawful or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any offer or sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that the information contained herein is
correct as of any time subsequent to the date hereof.
----------
TABLE OF CONTENTS
Page
----
Available Information 2
Incorporation of Certain Documents By Reference 2
Risk Factors 4
VirtualFund.com, Inc 13
Selling Shareholder 14
Plan of Distribution 14
Experts 15
Legal Matters 15
<PAGE>
141,333 Shares
VIRTUALFUND.COM, INC.
Common Stock
------------
PROSPECTUS
------------
November 3, 1998
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fee......................... $ 178.87
Accounting Fees and Expenses................. 7,000.00
Legal Fees and Expenses...................... 11,000.00
Miscellaneous................................ 1,821.13
Total...................... $20,000.00
All fees and expenses other than the SEC registration fee are estimated.
The expenses listed above will be paid by the Company.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan; (2) acted in good faith; (3) received no
improper personal benefit and Section 302A.255 (with respect to director
conflicts of interest), if applicable, has been satisfied; (4) in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and (5) reasonably believed that the conduct was in the best interests
of the corporation in the case of acts or omissions in such person's official
capacity for the corporation or reasonably believed that the conduct was not
opposed to the best interests of the corporation in the case of acts or
omissions in such person's official capacity for other affiliated organizations.
Article IX of the Bylaws of VFC provides that VFC shall indemnify officers and
directors to the extent permitted by Section 302A.521 as now enacted or
hereafter amended.
The Company also maintains an insurance policy or policies to assist in
funding indemnification of directors and officers for certain liabilities.
ITEM 16. LIST OF EXHIBITS
*3.1 Amendment to Articles of Incorporation of Company.
*10.1 Stipulation of Settlement dated July 11, 1997 between Lockridge
Grindal Nauen & Holstein P.L.L.P., Chestnut & Brooks, P.A., Hinshaw &
Culbertson and Faegre & Benson, LLP.
10.2 Common Stock Purchase Agreement dated September 16, 1996 between
LaserMaster Technologies, Inc. and Sihl-Zurich Paper Mill on Sihl AG,
and a business group consisting of Melvin L. Masters, TimeMasters,
Inc., Grandchildren's Realty Alternative Management Program I Limited
Partnership and Grandchildren's Realty Alternative Management Program
I #2 Limited Partnership. (incorporated by reference to Exhibit 10.1
to Registrant's Form 10-K for the year ended June 30, 1996, File No.
000-18114).
*5 Opinion of Dorsey & Whitney LLP regarding legality.
23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5 to this
Registration Statement).
*24 Power of Attorney (included on signature page).
* Previously filed.
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change to such information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act if, in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change in the information set forth in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on this Amendment No. 1 to Form S-3 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on
November 3, 1998.
VIRTUALFUND.COM, INC.
By /s/ Melvin L. Masters
-----------------------------
MELVIN L. MASTERS
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Melvin L. Masters Chairman, President, Chief Executive November 3, 1998
- ----------------------- Officer and Director
Melvin L. Masters (PRINCIPAL EXECUTIVE OFFICER)
/s/ James Horstmann Chief Financial Officer November 3, 1998
- -----------------------
James Horstmann
/s/ Ralph D. Rolen Director November 3, 1998
- -----------------------
Ralph D. Rolen
/s/ Jean-Louis Gassee Director November 3, 1998
- -----------------------
Jean-Louis Gassee
/s/ Rohan Champion Director November 3, 1998
- -----------------------
Rohan Champion
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
*3.1 Amendment to Articles of Incorporation of Company
*10.1 Stipulation of Settlement dated July 11, 1997 between
Lockridge Grindal Nauen & Holstein P.L.L.P., Chestnut &
Brooks, P.A., Hinshaw & Culbertson and Faegre & Benson, LLP
*5 Opinion of Dorsey & Whitney LLP regarding legality
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Oppenheimer, Wolff & Donnelly, LLP (included in
Exhibits to this Registration Statement).
- ------------------
* Previously filed.
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement of
VirtualFund.com, Inc. on Form S-3 of our reports dated August 8, 1997, appearing
in the Annual Report on Form 10-K of VirtualFund.com, Inc. (formerly LaserMaster
Technologies, Inc.) for the year ended June 30, 1997 and to all reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
November 3, 1998
