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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 27, 2000
VIRTUALFUND.COM, INC.
(Exact name of registrant as specified in its charter)
Minnesota 0-18114 41-1612861
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
7100 Shady Oak Road
Eden Prairie, Minnesota 55344
(Address of registrant's principal executive offices)
(952) 941-8687
(Registrant's telephone number)
7090 Shady Oak Road
Eden Prairie, MN 55344
(Former name or former address, if changed since last report.)
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Item 1. Business
General Business .................................................... 3
Digital Graphics Business Unit (DGBU) ........................... 4
Internet Services Business Unit (ISBU) .......................... 5
Venture Resource Group subset of ISBU ........................... 6
B2BXchange, Inc. ............................................. 6
RSPNetwork, Inc. ............................................. 11
Strategy / ISBU ..................................................... 12
The Global Market / ISBU ............................................ 14
Products / ISBU / B2BXchange / RSPNetwork ........................... 16
Product Development / ISBU .......................................... 20
Sales and Marketing / ISBU .......................................... 20
Revenue Model / ISBU / B2BXchange / RSPNetwork ...................... 22
ISBU's CEOS ..................................................... 22
B2BXchange ...................................................... 22
RSPNetwork ...................................................... 23
Pricing / B2BXchange / RSPNetwork ................................... 23
B2BXchange ...................................................... 23
RSPNetwork ...................................................... 24
Manufacturing / ISBU ................................................ 24
Service and Support / ISBU .......................................... 25
Competition / ISBU .................................................. 25
Item 5. Other Events .................................................... 27
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Cautionary Statement
We desire to take advantage of the "safe harbor" provisions contained in the
Private Securities Litigation Reform Act of 1995 (the "Act"). This Form 8-K
contains statements, which are intended as "forward-looking statements" within
the meaning of the Act. The words or phrases "expects", "will continue", "is
anticipated", "we believe", "estimate", "projects", "hope" or expressions of a
similar nature denote forward-looking statements. Those statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from historical results or results presently anticipated or
projected. Those risks and uncertainties include those discussed in this Form
8-K. We wish to caution you not to place undue reliance on forward-looking
statements. The factors listed in this Exhibit Form 8-K have affected the
Company's performance in the past and could affect future performance. Those
factors include, but are not limited to, the risk that a product may not be
available when expected or may contain technical difficulties; uncertain demand
for new or existing products; the impact of competitor's advertising, products
or pricing; availability of sources of financing; economic developments, both
domestically and internationally; new accounting standards; risks associated
with the acquisition and integration of new businesses; risks related to the
diversification into new Internet software and information technology business;
and, the impact of the initiation, defense and resolution of litigation. Anyone
deciding to invest in our common stock will take on financial risk. In deciding
whether to invest, individuals should carefully consider the factors included in
this Form 8-K and other information publicly available to them. If we are unable
to implement our plans successfully, we may lose our investment in one or more
of the programs described in this Form 8-K.
Item 1. BUSINESS.
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General Business
VirtualFund.com, Inc., referred to as "VirtualFund," "VFND," "the Company,"
"us," "our," and "we" in this Form 8-K, is a development-stage Internet Venture
Resource Company actively engaged in business-to-business, or B2B, e-commerce.
Our goal is to become a leader in B2B e-commerce by establishing a presence in
major segments of the global marketplace. During the fiscal year ended June 30,
2000, we operated in two business segments: the Digital Graphics Business Unit
("DGBU") and the Internet Services Business Unit ("ISBU"). On October 21, 1999,
we announced our intention to sell the DGBU assets and to focus our future
efforts on further developing the ISBU (see Strategy/ISBU).
On June 13, 2000, we completed the sale of the DGBU assets to MacDermid
Incorporated ("MacDermid"). As a result, the DGBU operations are disclosed in
the financial data as discontinued operations. We believe that our new focus on
the Internet and B2B economy will allow us to capitalize on new opportunities
for the Internet-based technologies and business-to-business solutions.
The ISBU, started in fiscal 1999, designs and develops technology solutions for
the Internet-based B2B economy. ISBU products and technologies target Small
businesses, Middle-market companies and Enterprise workgroups ("SME companies").
In addition to other development stage activities, the ISBU currently includes
two subsidiaries wholly owned by VFND: (i) B2BXchange, Inc. ("B2BXchange") (this
subsidiary was formed in fiscal year 2001 after the initial product debut in
October 1999) and (ii) RSPNetwork, Inc. ("RSPNetwork"). In early fiscal year
2001, we created a new segment of activity within the ISBU. This activity is
currently referred to as the Venture Resource Group. As we define and expand our
involvement with and in development stage Internet companies and opportunities,
we ultimately intend to establish this emerging portion of our business as the
Venture Resource Business Unit ("VRBU").
As a startup in a new sector, our business strategy is rapidly evolving, as are
many aspects of e-commerce. Our strategy, goals and business objectives are
constantly being updated, both as B2B e-commerce grows and as our capabilities
develop. Information in this report, unless we say otherwise, is as of June 30,
2000, the end of our fiscal year.
The following diagram represents the structure of the Company as of June 30,
2000. The overarching goal of many of our recent B2B e-commerce activities is to
optimize and extend the amount of time a user spends accessing the services,
market tools, and B2B software applications available at www.B2BXchange.net. In
other words, we are working to optimize his or her use of B2BXchange.net with a
specific focus on increasing the "stickiness" of our B2B portal through
continuing updates which add new functionality.
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[The following organization chart includes VirtualFund.com at the top with two
lines connected to business units within the Company. On the left is the DGBU,
reflected as Discontinued Operations. On the right is a line to the ISBU which
consists of two divisions: (1) the Venture Resource Group on the left includes
B2BXchange, Inc. and RSPNetwork, Inc.; (2) the Commerce Environment Operating
System on the right focuses on our development programs. A better representation
of this chart is available within the HTML verion of this Form 8-K.]
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VirtualFund.com, Inc.
Nasdaq: VFND
|
|
------------------------------------
| |
Digital Graphics Business Unit (DGBU) |
Divested to MacDermid |
June 2000 |
|
[Discontinued Operations] |
|
|
Internet Services Business Unit (ISBU)
|
|
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| |
Venture Resource Group Commerce Environment Operating System
(Consisting of two wholly owned subsidiaries) (CEOS)
| (An operating group within VFND)
| |
-------------------------------------------- |
| | |
B2BXchange, Inc. RSPNetwork, Inc. CEOS Development Programs
---------------- ---------------- -------------------------
o Responsible for the buildout of the o Responsible for developing o Online tools to promote web site
1,600+ VerticalXchange Platform of global Internet infrastructure "stickiness"
trading communities to grow their and systems integration support o Online Application Service
Global Market Power(TM) through a worldwide network Provider ("ASP") tools to generate
of affiliates operating as transaction revenue
o B2BXchange(TM)brand development Regional Services Providers o Strategic alliance partnering and
programs (RSPs) e-commerce tool integration
o Development of proprietary VFND
o RSPNetwork(TM)brand technologies which can drive
development programs recurring monthly revenues
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Digital Graphics Business Unit (DGBU)
-------------------------------------
VFND sold the assets of the DGBU to MacDermid in June 2000 for $50 million in
cash (less certain post-closing adjustments as agreed on by both companies). The
transaction provided for MacDermid to assume working capital assets (DGBU
inventory and receivables) and working capital liabilities (DGBU accounts
payable and accrued expenses). A post closing update on activity now reflects a
final settlement amount between $46 million and $48 million. As a result, the
DGBU operations are disclosed in our financial statements as discontinued
operations. The divestiture decision was based on our desire to focus on
developing and investing exclusively in the Internet space, including Internet,
Intranet and Extranet-based software solutions and related Internet
technologies.
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Internet Services Business Unit (ISBU)
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The development stage programs of the ISBU are comprised of ongoing projects
which require project management, software development and product marketing
management, but are not yet ready for product launch or full-scale
organizational development. In some cases, these are early-stage research and
development projects which require few, if any, senior management resources.
These projects take advantage of the efficiencies gained by having an
organization that provides a development environment and corporate resources
that can be shared by the entire ISBU. We may initially release some or all of
these projects to the market in the form of applications or products made
available for use within B2BXchange.net. We expect that these projects will
directly benefit from the growth that is anticipated from the B2BXchange
branding initiatives. Ultimately, some of these projects may progress to include
their own specific market distribution channels and a growing "market awareness"
requiring organizational operations independent of our other brands while other
of these projects may be sold or abandoned.
Many of these technology development projects are making their way into our
Commerce Environment Operating System(TM), described below. Active projects
currently include, but are not limited to XcomTOOLS(TM), XchangeERP(TM),
XchangeEDI(TM), XchangeXML(TM), StorageVault(TM), and DataQuarry(TM).
Commerce Environment Operating System(TM) (CEOS(TM)). Beginning in fiscal 1996,
we started building early components of an Internet-based platform of enabling
technologies and operating capabilities. This platform, now known as the
Commerce Environment Operating System, is intended to allow us to realize
economies of scale while rapidly developing 1,600+ vertical marketplaces. The
CEOS is a comprehensive, and yet evolving, suite of tools and services that
provides everything a company needs to electronically enable its business.
The Application Service Provider ("ASP") Opportunity. Internet technology can
help solve many businesses problems while offering advantages over installed
packaged business software. For many SME companies, these advantages often
include lower license fees ("per seat" licensing costs), lower support and
infrastructure costs, increased ease of updating, and enhanced connectivity.
Because of this, the ASP model has become an extremely effective and popular way
to provide these software applications. In the ASP model, software to be used
resides on central computers, and users access the software applications via an
industry-standard Web browser.
Although the ASP market has grown rapidly in the last two years, we believe that
the present ASP market providers are not organized for the way typical SME
companies are organized. Most current ASP market providers concentrate on a
single type of business software solution (for example, procurement, intranet or
electronic auctions), thus requiring SME companies to establish relationships
with multiple (vertical or niche tool) ASPs in an attempt to solve their diverse
software application needs. Most ASPs are typically serving only a single
"vertical market" by offering only a single type of software application.
Rather than targeting a narrow business need and providing a single tool such as
an Intranet or electronic auction, we are structuring an ASP model which
simultaneously embraces both broad horizontal market reach and vertical market
depth. We provide the first comprehensive suite of tools and services that aims
to provide everything an SME company needs to electronically enable its business
(our Commerce Environment Operating System). Our CEOS concept is an evolution of
the ASP model, and, like an ASP, the Company hosts applications for users to
access via a Web browser. However, our software applications are designed for
integration within our CEOS, making our solution more attractive and requiring
lower maintenance than buying a la carte software applications and services from
multiple ASP market providers.
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Venture Resource Group subset of the ISBU
-----------------------------------------
Our Venture Resource Group, formed in fiscal 2001, is currently part of our
ISBU. This group's activities include two wholly owned VFND subsidiaries: (i)
B2BXchange, Inc. ("B2BXchange") and (ii) RSPNetwork, Inc. ("RSPNetwork").
B2BXchange provides online business-to-business tools and services that enable
SME companies to become e-commerce enabled. B2BXchange provides:
o Tools for building private, partner and public Web sites and Web
stores
o Vertical business-to-business e-commerce marketplace communities known
as VerticalXchanges(TM)
o Industry-specific eBusiness tools operating in an online integrated
environment.
B2BXchange, through our CEOS, offers subscribing companies and their employees
an evolving business operating environment, or Intranet-based platform,
including access to software tools and applications that is intended to help
them conduct B2B electronic commerce with their suppliers or "trading partners,"
collaborate with each other, and create and manage the content on their Web
sites. Our goal is to make B2BXchange a leading provider of Internet-based
business-to-business electronic commerce and communications between suppliers,
distributors, customers and employees.
RSPNetwork provides an expanding array of services, including but not limited
to, Internet hosting, systems management, security, technical support, systems
integration, and business consulting. We intend to continue to add capabilities
which create a comprehensive suite of secure and robust hosted Internet services
that meet the needs of businesses of most every size. Our RSPNetwork gives our
customers around-the-clock access to mission-critical business software
applications and data at lower costs than maintaining in-house technical staff,
systems and networks. RSPNetwork also uses the online tools and services of
B2BXchange to develop complete Extranet solutions, which may be tailored to
allow customers to communicate and transact business with their global trading
partners.
B2BXchange, Inc. - Market Maker for the B2B Economy(TM)
-------------------------------------------------------
B2BXchange, Inc. is a growth-stage online software ASP that leverages the
Internet infrastructure and planned global integration capabilities of its
sister company, RSPNetwork, Inc., and solutions integration affiliates. The
B2BXchange solution located at http://www.b2bxchange.net first debuted in
October 1999. The product is based on a B2BXchange branded implementation of the
ISBU's CEOS platform that allows businesses to easily develop web sites and to
set up electronic "stores" in what are designed to be vertically integrated
trading communities on the Internet. These VerticalXchanges(TM) facilitate
secure online transactions with customers, suppliers and distributors. The
platform of vertical trading communities is intended to act as comprehensive
source of information, interaction and electronic commerce for the buying and
selling of particular categories of goods and services over the Internet. Each
of these vertical trading communities is descriptively branded (for example,
myPrintingXchange.com, myRestaurantXchange.com, myManufacturingXchange.com, and
mySportAviationXchange.com), and focuses on one business sector, catering to
individuals with similar business and professional interests. Each vertical
trading community will continually evolve in an effort to attract professionals
responsible for selecting and purchasing industry-related products and services.
We believe that smaller suppliers will join one or more VerticalXchanges in
order to have access to new business opportunities in areas they previously
would not be able to reach and that this may generate even more suppliers as
overall market acceptance grows.
The B2BXchange business portal provides online access to electronic commerce
applications that enable businesses to optimize their business processes via the
Internet. Our goal is to become a leading provider of B2B e-commerce. We intend
to accomplish this by leveraging the Company's more than 16 years of internal
software-development and direct marketing experience (the Discontinued
Operations) to incorporate our proprietary business solutions and applications
and by integrating best of breed third party solutions. We do not develop all of
the applications we host, but rather we intend to weave a seamless fabric of
alliance partnerships with third party technology companies to integrate their
value-added application solutions into our CEOS, while creating
cross-functionality with our own proprietary applications.
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The Company first previewed B2BXchange.net functionality in October 1999. A
second release occurred in April 2000. Release 2.35 was launched in August and
Release 2.4 is currently scheduled for the December 2000 quarter. We anticipate
Releases 2.45, 2.5, 2.55 and 2.6 will continue to expand the functionality of
B2BXchange.net over the next several quarters.
Companies that subscribe to B2BXchange.net receive:
o a limited scope "free" company Intranet Web site (a private portion of
the Internet available to people within a specific company or area)
for employees;
o a secure, limited scope "free" Extranet (a private portion of the
Internet available to authorized individuals or businesses who must
have a password for access) for transacting business with their supply
chain and distribution channel trading partners; and
o a public, limited scope "free" Internet presence (the portion of the
Internet that is available to anyone who has a computer, an Internet
connection and "web browser" software or interface to the Internet)
within one of B2BXchange's more than 1,600 highly descriptive
VerticalXchange domains.
All of these "limited scope" and "free" services may be expanded to increased
access and utility at the option of the customer by entering the "fee-based"
levels of B2BXchange through a variety of Service Level Agreements.
The objective of these commerce-enabled business-to-business Web sites is to
create online trading communities within a targeted vertical market and to
provide information and access to individuals who share a common interest and
thus can benefit from subscribing to B2BXchange.net.
Ease of Use and Brand Identity. The software tools and applications have been
designed to empower non-technical users to create and maintain their own Web
sites and establish, update and administer their own e-commerce stores. Once a
B2BXchange e-commerce site has been created, customers may selectively upgrade
service by having their content linked to more than one of the 1,600+
brand-identified Internet domains, thus creating customer activity in multiple
trading communities. Each branded domain focuses on one industry-specific market
segment of goods and services. Our goal is that these branded domains will
result in industry-specific vertical communities (VerticalXchanges) that will
eventually create a large and cohesive global online trading community for those
who share common interests. Sellers can build a community of interested buyers;
buyers can have a source for competitive products (as well as their own
established suppliers); and all companies may share industry-specific
information, and collaborate with vendors to increase productivity and
streamline the process of buying and selling.
Adopting a ski trail metaphor, we have specified two user interface paths for
subscribers (depending on their experience): (1) Green Path for novice users and
(2) Black Diamond for experienced or expert users. Each path provides
progressive benefits to subscribers. As the Green Path user becomes more
familiar with B2BXchange.net and begins using additional applications and
services within their selected VerticalXchange, they will progressively gain
access to expert functions. We believe that this will enable us to capture
subscribers with our ease-of-use and hopefully to generate more revenue as the
subscribers' experience level and needs increase.
SME companies provide the opportunity for tremendous content diversity. Smaller
suppliers and businesses represent depth and breadth which is most accessible
when organized in the hierarchical structure such as that provided by our
industry-specific VerticalXchanges. In spite of the growth in computer
ownership, a large percentage of the computer users within these SME companies
either do not have the technical inclination or the time to engage in putting
intricate content online themselves, at least not until they see the financial
results of such effort from a progressive, one-step-at-a-time approach.
Recognizing this, we have recently embraced a "Green Path/Novice User"
configuration within the requirements specification for Release 2.5 of
B2BXchange.net. We intend to continually simplify the user interface in order to
capture the novice Internet user and allow him or her to effectively use and
stay within the B2BXchange.net portal.
While the plan for Release 2.5 includes specific updates for XchangeBUILDER(TM)
(the online toolset for subscriber creation of Public, Partner and Private
sites), we feel that the potential for rapid "viral" growth (word-of-mouth) for
B2BXchange.net depends on ease of use. Accordingly, we focus extensively on the
user interface to make it as intuitive as possible and to maximize ease of use
for the end user. The functionality of the "ASP tools" and "framed
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applications" available within an industry-specific VerticalXchange ("VX(TM)")
enable even the novice Internet user to create an operating commerce-enabled Web
site. In short, we believe that customer Web site creation needs to be very
simple ("Green Path" for novice users) in order for prospective B2BXchange.net
subscribers to take the plunge to establish a Web presence, act as community
members, and post content in their own public, private and partner Web sites.
We believe the easier the tools are to use, the higher percentage of upgrades we
will have to higher service levels. If the toolset is powerful but too complex
for the novice user to operate, prospective subscribers are likely to fail to
contribute to the customer content of B2BXchange.net. We believe that our
business model becomes much more effective when we simplify the use of these
powerful Internet tools for subscribers to easily become active customer content
participants.
The tools and services designed to capture and retain users include daily news
feeds, industry-specific discussion groups, access to publications and targeted
industry information, opportunities for online education as well as a growing
list of other services. In addition, B2BXchange.net provides business tools that
are intended to help customers transact business and at the same time generate
recurring monthly revenue for B2BXchange. The tools to drive transaction revenue
are specified to include professional buying and selling tools, supply
chain-management systems, distribution management tools or Extranets, auction
capabilities and software for developing online stores. In conjunction with the
deployment of these tools, B2BXchange plans to include an advertising revenue
model that is intended to focus on recurring monthly revenues that can be
generated at various levels within B2BXchange.net. The following information
outlines each user path and describes the tools specified to capture users or
drive transactions within each sector.
Green Path Novice Users
o Easy Site Creation - Users can develop their own Internet, Intranet or
Extranet sites without needing to know programming languages such as HTML.
o Focus on Participation and Adoption - Navigation at this level is planned
to be intuitive to encourage the subscriber to spend more time within the
VerticalXchange.
o Facilitate Viral Growth - By making it easy for subscribers to register for
participation in a VerticalXchange, members have an "Efficiency
Incentive(TM)" to tell other people about the advantages of B2BXchange.net
and thus to encourage participation by their employees, customers, and
trading partners.
o Huge Specialized Content Potential - Content can be provided from news
organizations, trade publications, associations, member companies and
others interested in the specific industry. Contributions can be both large
and small businesses.
o Prospect Database for Paying Customers - Within each VerticalXchange, our
sales department has access to a participating audience of
industry-specific users who are the best prospects for additional services.
o Broadcast in English worldwide and work to add local language content -
While today's Internet is primarily composed of English language content,
this trend is rapidly changing. Through B2BXchange.net, we plan to continue
to distribute English language content worldwide but also to engage
alliance partners and RSPNetwork affiliates to develop both translations
and original local language content.
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Black Diamond Expert Users
o Deep & Specific - VX Content and applications available for expert users
will allow access to more sophisticated tools and supply chain
relationships.
o Multiple recurring revenue opportunities exist as we implement
industry-specific applications, content, transactions and services. These
include:
o ASP Transactions Revenue
o Commerce Enablement Revenue
o Solutions Integration Revenue
o Customization Revenue
o Web Design Revenue
o Hosting and Access Revenue
B2BXchange.net embraces two types of tools: (1) tools to drive site "stickiness"
and (2) tools to drive transaction revenue.
Tools to Drive Site "Stickiness"
These tools focus on providing information and resources that encourage users to
stay longer within the VerticalXchange once they have entered. Whether for news
and information, participation in discussion groups about industry trends,
asking questions of industry experts, or just gathering data from associations
and publications, subscribers should find these tools a valuable enhancement to
their online market experience.
Tools to Drive Transaction Revenue
These tools are designed to help users conduct business - with their employees,
customers, suppliers and trading partners. Whether they are buying products from
their suppliers, providing information to their distribution channel or trading
partners, or developing a storefront to promote e-commerce to their customers,
B2BXchange.net is specified to offer transaction tools including: auctions,
distribution management tools, buying/selling tools, supply-chain management
capabilities and more.
VerticalXchanges and Advertising Revenue
At each level within B2BXchange.net and within each VerticalXchange(TM), there
are multiple opportunities for developing recurring advertising revenue. We plan
to implement advanced advertising programs for subscribers, customers, and
alliance partners. Ultimately, we expect to be able to generate monthly
recurring revenue through data-mining-based advertising placed at various points
throughout the VerticalXchange sites which is targeted at specific types of
participants or specific user profiles.
Revenue Model. Casual users may browse the content without signing up until they
decide to participate. To access the tools of B2BXchange.net, participants must
"register" for the service by supplying information such as their name, company
name, market, and e-mail address. B2BXchange.net provides registered subscribers
with free basic versions of its software tools and applications, along with
specific allotted amounts of network disk space and Internet bandwidth (access
speed). Our intent is that free subscribers will find enough value in
B2BXchange.net that they will convert into paying customers and will pay monthly
fees. We charge monthly for enhanced software tools, upgraded application
features, more disk storage space for customer data, and more bandwidth
providing faster system access for users and their supply chain and distribution
channel trading partners. Monthly fees that are expected to be charged to these
customers range from $30 to $3,000 and up, depending on the level of service
required by the customer.
The following summary diagram reflects the flow of content and activity between
the specified components of the B2BXchange.net platform.
There are four boxes within the chart, each representing an area discussed on
the previous page. The upper left box refers to Black Diamond Expert Users and
lists specific opportunities for revenue from these customers. The lower left
box describes the benefits for Green Path Novice Users. Both types of users are
connected to the VerticalXchange and thus to each other. This is represented on
the diagram by arrows pointing from VerticalXchange to each box.
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The upper right box details the Tools to Drive Site "Stickiness" as outlined on
the previous page and the lower right box summarizes Tools to Drive Transaction
Revenue. These tools are used for both Black Diamond and Green Path users and
thus are connected via arrows through VerticalXchanges. The Advertising Revenue
which appears in the middle of the diagram indicates that we plan to offer
advertising at each level within B2BXchange.net. A better representation of this
chart is available within the HTML version of this Form 8-K.
B2BXchange.net
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Black Diamond Expert Users Tools to Drive Site "Stickiness"
-------------------------------------------------- -------------------------------------------------
o Deep & Specific o Experts, FAQ Database
o Repeat Customer Revenue o Discussion Groups
o ASP Transactions Revenue o Education
o Commerce Enablement Revenue o Publications
o Solutions Integration Revenue o Associations
o Customization Revenue o Daily News Feeds
o Web Design Revenue o Powerful Search Tools
o Hosting and Access Revenue o Global Content
-------------------------------------------------- -------------------------------------------------
/|\ /|\
| |
| |
| |
VerticalXchange / VerticalXchange / VerticalXchange / VerticalXchange / VerticalXchange / VerticalXchange
| |
| / \ |
| -------------------- ADVERTISING REVENUE -------------------- |
| \ / |
\|/ \|/
-------------------------------------------------- -------------------------------------------------
Green Path Novice Users Tools to Drive Transaction Revenue
-------------------------------------------------- -------------------------------------------------
o Easy Site Creation, Focus on Participation o VX Communities of Suppliers & Customers
o Facilitate Viral Growth o Professional Buying Tools
o Huge Specialized Content Potential o Professional Selling Tools
o Prospect Database for Paying Customers o Supply Chain XchangeEDI/XchangeXML
o Broadcast in English worldwide and work o Distribution Management Tools, Extranet
to add local language content o Storefront, XcomTOOLS
o Global Market Power(TM) o Auction Site, Green Path Content
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Subscriber Growth. By offering free, easy-to-use basic versions of electronic
commerce applications within B2BXchange.net and by allowing subscribers to
create their business web presence in one of over 1,600 industry-specific
branded domains, we believe that the increased productivity and cost savings
associated with doing business online will encourage both free registrations and
paying subscriptions within B2BXchange.net. As the free subscriber base grows
and as a percentage of companies are converted into paying customers, we believe
that B2BXchange.net will develop into a virtual business community whose members
can conduct electronic transactions with other registered businesses as well as
communicate and trade with outside business concerns. We also expect that
smaller suppliers will join one or more VerticalXchanges in order to have access
to new business opportunities in areas they previously would not have been able
to reach cost-effectively, and that this may generate even more suppliers as
overall market acceptance grows.
We also intend that subscriber growth should also be driven by VX Specialists
and Business Development Managers (BDMs). We currently employ a limited number
of VX Specialists, commission-based or salaried individuals who are experienced
in and have established contact within an industry-specific vertical market
segment. They are chartered to focus on building the industry-specific content
and subscriber base of particular vertical markets. BDMs are primarily
commission-based salespeople who are chartered with building a variety of
VerticalXchanges within a specific, but non-exclusive, geographic territory.
Their focus will be on turning "free" subscribers into paying customers by
building participation in one or more of the available VerticalXchanges.
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B2BXchange.net software and services are expected to drive this cycle by
including buying and selling tools, supply chain XchangeEDI/XchangeXML software,
Extranet distribution management tools and XcomTOOLS commerce enabling software.
The commission-based BDMs are expected to be deployed in a decentralized fashion
with personnel stationed in numerous locations domestically and abroad.
RSPNetwork, Inc. - The Global Extranet Experts(TM)
--------------------------------------------------
RSPNetwork, which was formed in December 1998 through our acquisition of K&R
Technical Services, Inc. (d/b/a TEAM Technologies), is a hosting, information
technology consulting and systems integrator. Today RSPNetwork is a provider of
a comprehensive suite of hosting and enhanced Internet professional services
designed to enable customers to setup and manage their Web sites more
effectively than with internally developed solutions. Its Web hosting services
provide secure and robust solutions to meet the needs of businesses of all sizes
as customer Web sites develop from low-end marketing "brochure-ware" to
mission-critical e-commerce uses. The tools of B2BXchange.net are available
through an "ASP" environment that is hosted and maintained within RSPNetwork's
data centers and co-location facilities. The ASP model, combined with the tools
and applications within B2BXchange, enable solutions that can give customers
around-the-clock access to mission-critical applications and data at lower costs
than maintaining in-house technical staff, systems and networks. In addition,
RSPNetwork has a number of long-term client relationships (including several
Fortune 500 companies) for which it provides systems and network integration
services and professional support services such as onsite training and staffing.
RSPNetwork provides the infrastructure that allows companies to create business
solutions on the Internet. In addition to providing business technology system
design, implementation and support, RSPNetwork provides hosting services that we
believe offer a high-quality, reliable blend of technological expertise,
partnering ability and an in-depth understanding of business process modeling.
We believe RSPNetwork is developing the infrastructure, resources, application
management expertise and industry relationships required to capitalize on this
emerging global market opportunity.
In addition to hosting B2BXchange.net and other mission-critical customized
applications, global affiliates of RSPNetwork can provide professional
Information Technology ("IT") services. These include design, development,
implementation, support and maintenance of Internet and other information
technology solutions on both a "fixed fee" and "time-and-materials" basis under
short-term and long-term contracts. RSPNetwork is chartered to focus on the
development of a global family of independent third-party systems integrator
affiliates, or Regional Service Providers, who sell tools developed by the
Company or who customize applications for customers using tools and services
provided by the Company. These online tools and services include, but are not
limited to, B2BXchange.net.
The RSPNetwork affiliate program is designed to recruit and train a global
network of third party solutions integrators who can, among other objectives,
assist with both the English and local language buildout of the more than 1,600
VerticalXchanges of B2BXchange.net. We believe that prospective affiliates of
RSPNetwork have a myriad of opportunities with which to generate incremental
revenue for their independent operations.
By recruiting and training affiliated RSPs worldwide, RSPNetwork intends to
develop a scalable source of integration resources and authorized resellers to
assist with the local language content of the VerticalXchange trading
communities. While the primary trading environment is designed to rebroadcast in
English from RSPNetwork co-location data centers worldwide, the addition of
local language B2BXchange.net content from many nations is a part of the
long-term RSPNetwork plan.
We believe RSPNetwork provides these advantages to its customers:
Performance and Reliability. RSPNetwork's hosting solutions help to ensure that
customer web sites, applications, and data are continuously online. RSPNetwork
operates a state-of-the-art Network Operating Center in Cedar Falls, Iowa, and
is expanding to include multiple co-location facilities which access the
capabilities of delivery partnerships with AboveNet Communications, and Onvoy
Communications. Together, these data and co-location centers provide
high-quality performance and reliability through features such as a redundant,
high-speed, secure network architecture, direct connections through the world's
largest Internet backbone providers, continuous system monitoring, alternate
power sources, environmental controls, regular data back-ups and fault-tolerant
hosting platforms. The network operations center monitors the RSPNetwork hosting
operations 24 hours a day, 7 days a
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week and allows its staff to minimize service interruptions. Our data center
features system administration to manage user IDs, passwords, and email
accounts; backup and recovery operations. RSPNetwork uses Secure Sockets Layer
("SSL") encryption and digital certificates from VeriSign to provide secure data
transmission across the Internet. In addition, our data center operations
feature redundancy at multiple points to reduce system downtime. We work 24/7 to
provide the service which allows our customer sites to remain open for business
around-the-clock.
Through Remote Enterprise Management ("REM") for e-business, RSPNetwork offers
the ability for clients to outsource enterprise management. REM allows companies
to utilize our remote data center and expertise and manage LAN/WAN components
and Web/Firewall services. REM monitors the status of servers, networks,
applications and databases, using "agents" that are installed in a customer's
mission-critical servers. If a problem is detected, the agents send an alert.
Prompt action is taken to resolve the problem based on the customer's
requirements.
Cost Savings. RSPNetwork's customers benefit from its focus on hosting and the
capital resources and labor investments that have been made to support its
hosting and enhanced Internet professional services. Customers attempting to
replicate RSPNetwork's performance and reliability would need to make
significant expenditures for equipment, personnel and dedicated Internet
bandwidth. RSPNetwork's solutions are significantly more cost-effective and
potentially more reliable than most in-house solutions deployed by SME
companies. Businesses with low-end application requirements and businesses whose
Internet operations require sophisticated mission-critical integration and
support can benefit through a step-by-step implementation approach. The online
business-to-business investment can be proven to provide immediate return on
investment with each incremental level of participation. Users no longer have to
commit to a huge IT budget in advance.
Customer Service. RSPNetwork is dedicated to providing the highest quality
customer service and seeks to provide rapid and accurate responses through
customer service personnel who can answer questions over the telephone or via
e-mail. RSPNetwork has invested in advanced customer service software and call
routing technology to streamline the customer service process. In addition,
RSPNetwork's customer service organization can address technical problems and
infrastructure support requirements of global customers 365 days a year.
For even more sophisticated users, RSPNetwork intends to provide traditional
customization and "Legacy" systems integration services using RSPNetwork
personnel and affiliates. Legacy systems are applications and data that have
been inherited from platforms and techniques earlier than current technology;
and yet, continue to serve a critical need within the customer's business. Many
companies who are migrating to new technology require customization services of
a vendor like RSPNetwork to enable the new technology to coexist and interact
with their existing systems. RSPNetwork bills customers based on the amount of
time and resources needed to complete individual customization and integration
projects. This customized approach can result in significantly higher fees than
the more automated B2BXchange.net revenue model.
Strategy / ISBU
Our strategy is to continue to internally develop or invest in promising
Internet opportunities and technologies worldwide which we believe offer high
growth and increased gross margin potential. As these opportunities and
technologies are developed, we intend to consider packaging them together into
branded Internet ventures and to consider seeking supplemental financing by
offering minority equity interests in such ventures. We believe that this
strategy may provide the ability to significantly increase overall shareholder
value as well as provide capital to support long-term growth of our subsidiaries
and our investments in emerging technologies.
The key elements of this strategy are:
Continue Our Acquisition Program. We intend to continue our acquisition program,
which began with our acquisition of K&R Technologies in fiscal 1999, to
capitalize on consolidation opportunities in the Internet professional services
market worldwide and to build our ISBU technical resources, systems and
infrastructure. Our goal is that these acquisitions will also result in
substantial operating synergies, greater internal growth and cost savings due to
economies of scale. We also hope to capitalize on certain "best practices" that
we may identify within our acquisitions to maintain our competitive advantage
and to ensure ongoing delivery of high quality Internet professional services to
our customers.
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Build the B2BXchange Brand. Building a strong B2BXchange brand identity within
many market segments with a broad array of VerticalXchanges conducting
many-to-many e-commerce transactions is a key element of our strategy. We
believe that this brand, which currently includes more than 1,600
industry-specific descriptive Internet domain names, should be enhanced as
B2BXchange.net rapidly expands our current FastStart program. The FastStart
program is a marketing approach which uses dedicated internal resources for the
rapid and simultaneous build-out of dozens of VerticalXchanges. We intend to
continue to build our brand and strengthen recognition by marketing our full
range of services through an integrated communications program using public
relations, online advertising campaigns, targeted tradeshows, print ads,
sponsorships, direct mail, and cooperative promotions with key Internet hardware
and services vendors.
We also believe that B2BXchange.net provides an opportunity for Internet
start-ups seeking a broader Internet audience than they are capable of
implementing or achieving themselves. By syndicating their technology, product,
service or content across the VerticalXchange trading communities,
B2BXchange.net alliance partners should be able to expand their market reach,
increase their selling opportunities and, perhaps, complete or even extend their
business offering. Many of these companies have unique application solutions or
value-added content but lack the resources and distribution system to maximize
their product's potential. B2BXchange.net offers many companies, which may not
be able to achieve critical mass in the marketplace on their own, a "soft
landing" for their efforts. We intend to solicit alliance partners on the basis
that, with the ".com" market fallout rate increasing, the syndication
opportunities available through B2BXchange.net could be more attractive to
technology company management and investors than many of the alternatives. Based
on revenue sharing syndication opportunities, there is no longer a compelling
reason to insist on "going it alone" in an effort to build a "dotcom" brand.
Build the RSPNetwork Brand. We intend to focus the activities for brand building
for RSPNetwork around the global RSPNetwork affiliate program. This focus is
intended to allow us to provide solutions for customers worldwide based on
regional expertise and support as we capitalize on acquisition or partnerships
with strong IT consulting companies or RSPs on a global basis. Such entities'
local presence combined with the capabilities of RSPNetwork, and the alliance
partnership between RSPNetwork and VFND's other companies, should help create
market awareness and word-of-mouth reputation for our IT services. We also
intend to create a value-added system for handling RFP (requests for proposal),
RFQ (requests for quotation), and bidding on IT services and contracts. This
program is planned to include matching RFPs to affiliates in the relevant
geographic or subject area who have the expertise to handle customer requests.
This program, to be based at www.RSPNetwork.com, is also intended to become part
of B2BXchange.net's "mySystemsIntegratorXchange.com." We are also planning to
offer other value-added services such as staff augmentation and REM services;
however, these are at an earlier stage of development.
Expand Subscriber Growth. B2BXchange.net reaches subscribers through multiple
methods including Internet-based marketing, direct mail, direct contact at
tradeshows, indirect contact through referrals, and inbound and outbound
telephone contact. B2BXchange intends to continue expanding these methods to
further enhance its ability to attract customers. The planned efforts include
the deployment of a worldwide commission-based Business Development Manager and
Business Development Partner ("BDM") program as discussed earlier.
Leverage the B2BXchange and RSPNetwork Customer Bases. B2BXchange and RSPNetwork
both intend to capitalize on the enhanced revenue potential of their respective
customer bases and of any future acquisitions by leveraging the numerous
cross-selling opportunities of the expanded line of branded service offerings.
B2BXchange and RSPNetwork intend to use multiple sales methods, including a
direct sales force, BDMs and RSPNetwork affiliates to target specific customer
segments within the diverse customer base for deployment of new technologies.
These activities allow us to cross-sell and upsell IT services and access to
software applications, as we build recurring monthly revenues. We also plan to
coordinate the efforts of both the B2BXchange and RSPNetwork sales forces to
increase customer leads and referrals globally.
Develop Strategic Relationships. We have established and continue to seek
strategic relationships that enhance our infrastructure and distribution
capabilities and broaden our product offerings. We believe that our alliance
partner and supplier arrangements with companies such as Microsoft Corporation,
UUNET Technologies, Computer Associates, AboveNet Communications, Check Point,
Sun Microsystems, and Oracle Corporation, among others, enable us to provide
complete, scalable and reliable ASP/hosting solutions to our customers. Some of
these relationships are with companies who have divisions or operations that may
compete with us in certain markets. We believe that this will not hinder our
business relationship with these companies.
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The Global Market / ISBU
Many of the estimated 25 million SME companies operating globally are
intimidated by the Internet. They know they need to use it to run their
businesses to stay competitive. Their customers and trading partners are
starting to demand it, yet they are slow to adopt new methods due to the
technical challenges and are reluctant to risk changing their business
practices. We are developing a number of solutions that can facilitate their
implementation of new business-to-business technologies.
The U.S. Small Business Administration ("SBA") estimates that
business-to-business electronic commerce transactions accounted for between $17
billion and $24.1 billion in 1998. However, less than 30 percent of the nation's
small businesses accept orders on the Web, and far fewer can process credit card
transactions. SME companies represent a significant economic force: more than
half the Gross Domestic Product of the U.S.A. according to the SBA.
These companies are very sensitive to the cost of growing their businesses
online. And with good reason: Gartner Group estimates that the average
commerce-enabled corporate web site costs $1 million to get up and running
effectively. Even packaged software becomes prohibitive once the typical three
to five dollars in implementation costs for every dollar of software license
fees are accounted for.
Growth of the Internet. The Internet is experiencing significant growth and is
emerging as a global medium for communications and commerce. International Data
Corporation ("IDC") estimates that the number of global World Wide Web users
will increase from about 97 million at the end of 1998 to about 320 million by
the end of 2002, a 34.6% compounded annual growth rate. IDC also estimates that
the number of Web users in the United States will increase from approximately 53
million at the end of 1998 to about 136 million by the end of 2002, a 27.4%
compounded annual growth rate. During this same period, the number of business
web sites in the United States is projected by Forrester Research, Inc. to
increase from approximately 650,000 in 1998 to approximately 2.6 million in
2002, a 41.1% compounded annual growth rate. This growth in the number of Web
users and number of web sites is being driven by a number of factors including:
o the large and growing installed base of personal computers;
o easier and less expensive alternatives for Internet access;
o improvements in the speed, reliability and security of the Internet;
o electronic commerce-enabling technologies;
o higher quality and more diverse content on Web sites;
o an increase in the number of networked applications; and
o the proliferation of broadband technologies that promise faster, more
convenient access to the Internet.
Growth in Business-to-Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet an
increasingly attractive medium for businesses to:
o disseminate information;
o engage in e-commerce;
o build customer relationships;
o streamline and automate data-intensive processes; and
o communicate more efficiently with dispersed employees.
A September 1999 Goldman Sachs Investment Research Report estimates that total
business-to-business revenue will grow from $114 billion in 1999 to $1.5
trillion in 2004, a 67.5% compounded annual growth rate.
In the last several years, a large number of businesses have emerged with
operating models that are exclusively dependent on the Internet. More
importantly, traditional businesses of all sizes are working quickly to
establish a Web presence and to learn to conduct business-to-business e-commerce
on the Internet. Many of these businesses established their initial Web-based
presence with a simple, static electronic "brochure" for marketing purposes. As
they become more familiar with the Internet as a communications platform, an
increasing number of businesses are implementing a more complex,
mission-critical B2B-centered presence on the Internet that encompasses sales,
customer service, customer acquisition and retention, employee communications
and e-commerce between suppliers and business partners.
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Trend Toward Broadband Communications. We believe that existing trends toward
increase network bandwidth for wired, wireless, and satelite-based information
networks bodes well for our business strategies. As an example, the network
infrastructure is growing geometrically. According to EMC Corporation,:
"A huge buildout of the fiber optic networks will make it seem as
though bandwidth is free. The Web infrastructure will bulk up
tremendously in the next five years with effective use of fiber-optic
cable miles expected to jump from 20 million to 20 billion worldwide.
The capacity of each fiber can be boosted a thousandfold by dense
Wavelength Division Multiplexing (WDM) which uses multiple lasers and
transmits several wavelengths of light (lamdas) simultaneously over a
single optical fiber. Each signal travels within its unique color band,
which is modulated by the data (text, voice, video, etc.). WDM enables
the existing fiber infrastructure of the telephone companies and other
carriers to be dramatically increased. Vendors have announced WDM
system, or DWDM (dense WDM) systems, as they are also called, that can
support more than 150 wavelengths, each carrying up to 10 Gbps
(gigabits per second) Such systems provide more than a terabit per
second of data transmission on one optical strand thinner than a human
hair."
The net effect of all of this technology focus on the buildout of these
superfast broadband delivery infrastructures by global communications companies:
the future global availability of what we call "massively interactive content."
VFND is now building the tools and refining the service offering of
B2BXchange.net and our CEOS to become a syndicated provider of our own brand of
Massively Interactive Content(TM).
Trend Toward Outsourcing. According to Forrester Research, Inc., U.S. firms
(including SME companies) are now spending approximately 25% of their overall
information technology ("IT") budgets on outsourcing services. These services
include packaged application software implementation and support, customer
support and network development and maintenance. We believe that the reasons for
the growth in outsourcing include:
o the desire of companies to focus on their core competencies;
o the increased costs that businesses experience in developing,
maintaining and upgrading their networks and software applications;
o the fast pace of technological change that shortens time to
obsolescence and increases capital expenditures as companies attempt
to capitalize on leading-edge technologies;
o the challenges faced by companies in hiring, motivating and retaining
qualified software development specialists, network engineers and
other IT employees; and
o the desire of companies to reduce business deployment times and risk.
Trend Toward Web Hosting Outsourcing. Many SME companies lack the resources and
expertise to cost-effectively develop and to continually enhance and host their
own Web sites with evolving technologies while maintaining a fault-tolerant and
scalable network infrastructure. SME companies typically lack the skilled
technical resources and capital to design their own commerce-enabled Web sites
and install, maintain and globally monitor their own Web servers and Internet
connectivity. Large businesses typically require state-of-the-art facilities and
networks that are monitored and managed around the clock by experts in Internet
technology and that can be upgraded and scaled to meet the needs of
mission-critical Internet applications. As a result, enterprises of all sizes
are seeking outsourcing arrangements to help build effective Web sites, extend
the global use of current sites and to improve site reliability and performance,
while enjoying continuous monitoring of their worldwide Internet operations with
reduced costs.
Trend Toward Application Hosting Outsourcing. Many SME companies and other
businesses increasingly face competitive demands to automate key business
processes. In the last several years, this problem has been exacerbated by a
shortage of skilled technical and IT professionals worldwide. Until recently,
implementation of Internet applications required development of customized
in-house software applications or the customization of existing prepackaged
software, making such customized implementations very costly and complex. This
also made implementation time frames and costs unpredictable. Because of this,
businesses of all sizes are expected to continue to outsource the hosting of
these and other software applications to improve core business processes, reduce
costs and enhance global reach.
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B2BXchange combines the power of the ASP model with the electronic commerce
market model. The Delphi Group found, in a survey of Fortune 1000 companies:
"Nearly 40% of all respondents are already participating in a trading
community, and fully two thirds participation is anticipated by year
end 2000. This is telling in the perception of the importance and
inevitability of the role of trading communities to facilitate the
business process outside the brick and mortar walls of the average
organization. Just short of 90% are expected to be participating by the
end of 2001."
We believe that where the Fortune 1000 leads, the rest of the market should
follow, and the SME companies who supply the big companies will be encouraged,
if not forced, to participate in Internet-based online markets.
The e-market opportunity is growing dramatically. Morgan Stanley Dean Witter
projects that corporate goods obtained through auction will grow from one
percent in 1999 to five percent by 2003. A survey by Purchasing Magazine found
that eight percent of purchasing managers had joined an online marketplace, and
71% said they planned to. Goldman Sachs found that 54% of enterprises are now
doing some purchasing on the Web. Further, 43% expect to spend more than
$500,000 on B2B software in 2000, concentrating mostly on e-markets, supply
chain, and distribution capabilities. Most respondents indicated they expect to
spend up to 25% of their e-commerce budgets on Internet-based solutions.
With the 1,600+ VerticalXchange Platform providing a broad infrastructure for
e-marketplaces, we plan to position B2BXchange.net as a familiar destination
where companies of all sizes can transact business securely as well as
collaborate with peers and find pertinent industry-focused information. Zona
Research said, "We feel that vertical industry sites offer unique advantages
that come from building online communities, including working with like minded
buyers and suppliers, and enabling the exchange of industry-specific news and
information." eMarketer believes that 34% of business-to-business e-commerce
will be transacted through public exchanges by 2004. Estimates by other
researchers range from 30.5% by the Yankee Group to 63.4% by Keenan Vision.
The Global Opportunity. The B2BXchange opportunity is even larger when
international markets are considered. As an example, Access Media found that the
market for Internet, IT, and communications-related products and services among
SME companies in France, Germany, and the United Kingdom is $40 billion, with
online services rising from $5 billion in 2000 to $9 billion in 2002. IDC says
ASP spending will grow to $7.8 billion for a 92 percent compound annual growth
rate from 1999 to 2004.
Through the programs of B2BXchange, Inc. and RSPNetwork, Inc., we intend to gain
first a foothold (and eventually a meaningful position) within in the following
highgrowth markets. Our hosting, access, data storage, and regulated bandwidth
revenue streams are expected to come from a market that Forrester Research
estimates will grow to $16.8 billion in 2002. Our advertising revenue stream
partakes in the online business-to-business ad revenue market, which Forrester
predicts will grow to $720 million in 2000. Our application rental revenue
streams should benefit from the tenfold growth Dataquest projects for ASP
revenue, which is expected to grow to $22.7 billion in 2003. Our transaction
revenue stream takes advantage of the nearly $850 billion in e-marketplace
transactions by 2004 predicted by the Yankee Group.
Our strategy is to prove our core business and revenue models domestically and
then aggressively market internationally. In preparation for international
expansion, we are actively seeking global marketing partners to build the
B2BXchange and RSPNetwork brands overseas. The B2BXchange platform is readily
modifiable to support multilingual content and can empower these regional
alliance partners to leverage our investment in Internet technology by providing
global e-market content in English while adding localized content in the native
language(s) of each region. Bringing overseas subscribers into the B2BXchange
network and enabling them to find new trading partners and transact business
online should enhance the network effect and Global Market Power(TM) for all
B2BXchange.net and RSPnetwork customers.
Products / ISBU / B2BXchange / RSPNetwork
ISBU's Commerce Environment Operating System. The CEOS, as described in Internet
Services Business Unit (ISBU) section earlier in this Form 8-K provides the
infrastructure for our business-to-business Internet solutions under license.
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CEOS platform-based tools and applications are currently specified to include,
but are not limited to:
XchangeBUILDER(TM) - Easy-to-use template-based system for Web design. This
completely automated system allows untrained users to create, edit, monitor and
manage professional-looking Web sites without knowing complicated developer
languages or file-transfer processes. XchangeBUILDER allows users to create and
modify content using professional templates, and enables real-time modifications
to personal, private and partner Web sites. No HTML (hypertext markup language)
experience is required. The continued simplification of the user interface of
B2BXchange.net is a high priority for our entire team.
XchangeEXPERT(TM) - Dynamic knowledge database. This dynamic knowledge database
allows companies to capture, collect and disseminate information and knowledge
using a topical online database. Information associated with projects, processes
and best practices can be collected and retained in a set of tightly organized,
and linked databases that support key corporate initiatives and this information
can be made available to anyone in the company. "Experts" provide the input
through question and answer exchanges. Users seeking answers to questions can
query existing knowledge bases or submit a question to one or more designated
experts. Experts edit and respond to questions in a secure area. Once the answer
is complete, an e-mail notification is sent to the questioner and the database
category or topic is automatically updated. Answers in the knowledge base can
contain attached documents, links to additional resources on the company
Intranet, or links to public sites on the Internet.
XchangeSEARCH(TM) - Tools for finding information on the Internet quickly. This
easy-to-use search engine enables users to perform complex searches more quickly
and easily within B2BXchange.net. There are many kinds of searches which we
believe customers will want to perform on the data within the "Public,""Private"
and "Partner" portions of the Web sites contained in our fault-tolerant data
centers. As we add significant subscriber content, we plan to add a more
powerful set of features to our VXsearch(TM) software within B2BXchange.net. The
VX software allows the user to search not only for keywords, but also to search
by pre-set "context variables," allowing the keyword search to be conducted only
within one or more specified VerticalXchanges. For example, a user might search
for the keyword "Cobra" only within the "myMuscleCarXchange.com" versus
"myGolfXchange.com" or "myAnimalBreederXchange.com." Ultimately, we plan to have
the ability to exclude variables as well as to incorporate various types of
delimiters for VXsearch functions. Since we control both the content location
and the data structure, we can create a search tool with tighter coupling to the
data and thus let the system do the sorting and elimination instead of the
searcher.
We plan to add numerous search features to the VXsearch tool that empower a user
when they run an alphabetical list of all VerticalXchange subscribers to
B2BXchange.net. As we grow, we will need to have this "List All Sites" procedure
allow us to specify one letter through another letter in case the user wants to
just pull up all Web sites that begin with the letter "M" through the letter
"P", whether within an industry-specific VerticalXchange or as a subset of the
entire alpha-sorted database. Additional functionality should offer vendors a
simple, plain English, keyword feature for increasing the yield of VXsearch
results. We will endeavor to continue to increase the effectiveness available
when searching VerticalXchange "Description" fields by specifying fields such as
city, county, state, country, zip code, area code, and other context delimiters
which may become more useful as the content database becomes truly massive. As
the scope of our managed Internet content grows, these types of features can
save valuable time for the user suffering from information overload.
XcomTOOLS(TM) - Comprehensive Tools for commerce-enabling businesses via the
Web. XcomTOOLS is a powerful suite of electronic commerce software developed by
VFND which incorporates integrated sales management tools, supports multiple
languages for global web site sales, allows multiple warehouses and shipping
locations, and accepts instant credit card transactions and open accounts.
Modules include an electronic showroom and catalog where customers can browse
and order products and a site management tool to create specific targeted
promotions to allow individual personalized and customized marketing. Store,
product, and customer-specific sales promotions allow individual targeted
selling based on customer history or buying habits. Site administrators can
create tailored sales and product line reports, which can be saved and run
automatically. An inventory management tool provides inventory visibility for
multiple warehouses and multiple shipping locations. An integrated sales
management tool provides account information for sales representatives.
B2BXchange licenses the proprietary XcomTOOLS application, as well as several
other tools listed here, from VFND as part of the CEOS, platform-based
VerticalXchange solution.
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XchangeERP(TM) - Comprehensive tools for purchasing goods and services.
Enterprise resources are the goods and services required to operate a company,
ranging from items such as information technology, telecommunications equipment
and professional services, to recurring items, such as office equipment,
supplies, travel expenses, maintenance and repairs. Today, most SME companies
and other businesses use paper-based methods to acquire and manage operating
resources. Much of the process is costly and time consuming and often requires a
clerk to re-enter data. It can become an administrative logjam as various
individuals and departments are involved in the approval cycle.
Enterprise Resource Planning ("ERP") software, which is usually installed in a
company's Information Technology department and is accessed through the
company's internal network, addresses the issues of procuring goods and services
and tracking them through a system. ERP software, which provides a modern,
electronic infrastructure that allows corporations to manage resources
strategically, is generally a very costly expenditure for SME companies to
justify. XchangeERP, which is currently in the concept development and
partnering stage, is expected to offer not only traditional ERP functions but
also to leverage Internet technologies to make it affordable through a secure
connection to the Internet. When released, we expect that participating SME
companies will pay a monthly subscription fee to use XchangeERP and lower
overall transaction costs. XchangeERP is intended to be more than just another
electronic procurement solution because we expect it to help streamline the
management of most operating resources, including capital equipment, services,
and other items requiring approvals through the internal business requisition
processes. XchangeERP is intended to provide a comprehensive system for managing
most items requiring approval within one integrated and secure system accessible
via the Internet.
XchangeEDI(TM) and XchangeXML(TM) - Protocols and formats for exchanging
business data. With the fast pace of business today, we believe that the more
rapidly SME companies and other businesses get a handle on supply chain
management by exchanging Electronic Data Interchange ("EDI") and eXtensible
Markup Language ("XML") formatted information with their vendors and suppliers,
the more streamlined their businesses will become. Protocols and formats provide
the capabilities to let businesses work in a global marketplace at a reasonable
cost that even small businesses can afford. The cost savings and productivity
increases that come with automated supply chain management systems such as
XchangeEDI and XchangeXML can offset the monthly fees and the reasonable upfront
costs involved in embracing a system of standardized data communications.
Using XchangeEDI and XchangeXML through B2BXchange.net provides timely access to
key business information at every point in the supply chain. Trading partners
could take control of their inventory, receive purchase orders directly into
their accounting and back office systems, and generate and transmit automated
order confirmations, shipping notices and invoices. This automated and
streamlined transaction system could allow "just-in-time" inventory control and
make invoicing faster and more accurate. Document tracking reports can become a
part of the total system so that information is available online in real-time.
Once businesses become electronically enabled with XchangeEDI or XchangeXML,
they can share information with other similarly enabled companies, transact
online business efficiently through B2BXchange.net, and take advantage of the
global reach of the Internet. The ISBU has numerous programs underway which
should intersect these emerging online technologies of the future.
StorageVault(TM) - Online data storage and delivery solution. Our development of
a data storage and data delivery solution, StorageVault, is anticipated to
provide a secure and cost-effective Internet-based alternative to physical
document storage, delivery and faxing. The StorageVault solution is currently
being designed to provide reliable and secure storage, delivery and tracking of
digital files using encrypted file transport/storage and digital certificates
for identity verification purposes. The StorageVault solution is intended to
allow companies to create a secure storage area on the Internet to deposit and
retrieve documents. This solution also provides automatic backup and restore
capabilities to allow users to perform automated backups to StorageVault.
DataQuarry(TM) - Web-based data mining. DataQuarry is planned as an
Internet-based data mining system to help businesses understand customer buying
patterns that can lead to strong strategic and tactical product and sales
decisions. The system is specified to help companies gather, store, sort and
analyze large quantities of product and sales data with the goal of
understanding their customers' purchasing habits. DataQuarry is expected to keep
track of multiple customer purchases by utilizing MarketBasket(TM) technology to
determine which products are typically purchased together, which are rarely
purchased, and which are purchased more often in a particular geographical area.
When paired with customer demographic information, companies could use
DataQuarry's MasterProfile(TM) feature to quickly determine which types of
customers purchase particular items based on psychographic marketing
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profiles -- the sum total of the psychological, economic, educational and
socioeconomic background of an individual customer.
netIntersection(TM) - Communities based on geographical area or common
interests. netIntersection is intended to allow Internet users to create their
own online "hubs" populated by people and organizations with similar interests.
These virtual communities can be based on unlimited themes, from geographic
areas to vertical industries to specific popular themes such as music, education
or politics. These communities are expected to be global, supporting
multilingual character sets and hosted at high-bandwidth facilities with fast
international data connections. Internet users of like minds come together on a
community site to share ideas, interests, and expertise, and to publish content,
files and software accessible to other users with common interests.
netIntersection plans to offer members free disk space to set up the new
community, along with free e-mail accounts, web site design tools, content
management tools, customized threaded discussion groups, live real-time chat
boards, personal planners, and more. After creating an initial community of
interest, a "subscriber" could upgrade to "customer" status and receive
fee-based premium features and enhancements. These upgrades are expected to
include a unique domain name, increased disk space, electronic commerce
capabilities, automatic submission of the site to search engines, aggregation of
topically-focused third-party content, enhanced content management tools, secure
digital file delivery, and collaborative workgroup software. netIntersection
expects to allow subscribers and customers to create and maintain their own
targeted and focused virtual space where they can interact with others of
similar interests and create their own growing community on the Internet.
Components of this project have been repurposed and incorporated into
B2BXchange.net. We expect to revitalize and redirect the netIntersection project
with components of the CEOS at the appropriate time.
netAppliances(TM) - Data assimilation and communication. We are working on
innovative new user interfaces for accessing and utilizing large amounts of
Internet data. While the focus of the software is to facilitate ease of use for
novice and non-technical users, our systems approach leverages some level of
highly specialized hardware. Whether in the emerging world of the wireless web
or the realm of home or office netAppliances, we believe our software efforts
will eventually be embedded in the Internet access habits of a large
cross-section of users of the Internet worldwide. We currently plan to move into
limited beta test with an initial product offering in this sector late in the
December 2000 quarter.
B2BXchange, Inc.. B2BXchange.net is an Internet portal which allows SME
companies and other businesses to easily create and operate e-commerce Web sites
to facilitate secure online transactions with their customers and trading
partners. While we expect some SME companies to use B2BXchange.net as their sole
Web presence, other businesses are expected to use our VX Platform to supplement
their existing Web site(s) by linking to them from their site at B2BXchange.net.
By aggregating these commerce-enabled, SME companies' Web sites within
industry-specific vertical market segments we intend to create virtual trading
communities that can enhance a subscribing company's chances of business success
on the Internet. B2BXchange.net provides free basic versions of software tools
and applications, along with specific allotted amounts of network disk space
usage and Internet bandwidth to subscribers. Subscribers who exceed those
allotted amounts become paying Customers who are charged a monthly fee for
upgraded tool and application features, more disk storage space for their data,
and more network bandwidth for faster system access by their employees and
trading partners. Monthly fees range from $30 to $3,000 and up, depending on the
Service Level Agreement ("SLA") selected.
Future Releases of B2BXchange.net. Planned releases will focus on tools of
simplification for the user including implementation of a solutions-oriented
approach that provides step-by-step instructions for creating and using the
environments based on the skill level of the user. The "Green Path" is
designated for the novice or uninitiated user who wants to get listed in a
VerticalXchange and quickly set up a site. This level is planned to be intuitive
enough that people can get into the VerticalXchange quickly. The "Black Diamond
Path" is for advanced or expert users who have more experience with the Internet
and want to delve into more features of XchangeBUILDER and, perhaps, create an
Intranet or a global Extranet.
Release numbers 2.5 and 2.6 are specified to offer tools and applications
targeted at empowering the supply side, including expanded VXauction(TM)
capabilities and the implementation of buying/selling functionality including
the e-Purchasing tools of an alliance partner. The planned tool enhancements
enable electronic inter-networking of buyers and suppliers by allowing
purchasers to order goods and services online directly from suppliers'
electronic catalogs. This solution should provide the foundation for electronic
marketplaces where buyers and sellers of all sizes and levels of technological
sophistication can trade. Buyers can search, compare and purchase goods and
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services from a vast array of suppliers, create purchase orders, choose a
payment method, and track and control their purchasing.
RSPNetwork, Inc. - Professional Services. Complete IT services for SME companies
and other businesses. RSPNetwork provides professional services on both a fixed
fee and time-and-materials basis under short-term and long-term contracts.
Services include design, development, implementation, support and maintenance of
information technology solutions with an emphasis on Internet solutions.
RSPNetwork provides Web hosting from $100 to $2,000 per month and up. RSPNetwork
offers remote enterprise management ("REM") that uses its centralized employees
to monitor customer systems from its Network Operations Center in Cedar Falls,
Iowa. Fees for this service start at $1,125 per month and increase with the size
and complexity of the assignment. RSPNetwork also provides staff augmentation
services that supply its technical resources to customers on a contract basis.
Billing rates for professional services vary with the degree of complexity of
the assignment and the experience of the required professionals. Standard
billing rates range from $50 per hour to $200 per hour.
Product Development / ISBU
Our success depends on making ongoing investments in product development to
ensure the timely introduction of leading edge Internet-based application
services in response to changes in technology, market demands and customer
requirements. VFND is committed to acquiring, designing, commercializing and
upgrading new and existing Internet-based services that generate recurring
monthly revenue, attract new customers, and gain more revenue from existing
customers by allowing the sales department to cross-sell and upsell.
As of June 30, 2000, we employed approximately 45 people in Internet services
product development and product/project management activities. Our Internet
services development organization consists of multiple project teams of software
developers and product marketing specialists focused on both development stage
Internet services and services currently being marketed and sold.
The Company has spent $3.7 million in the past three years in software
development and plans to increase spending in this area in the next several
years.
Critical factors in the delivery of our services include: staying competitive
technologically, recruitment and retention of consulting and development
professionals, and the continued development of the perception of the Internet
as an appropriate place to transact mission-critical business. We have a proven
track record for meeting technology challenges and in attracting and retaining
talented people.
Sales and Marketing / ISBU
We sell our products through in-house sales professionals, both wholly owned and
affiliated RSPs and through commission-based contractors who sell to subscriber
prospects and other sources. As of June 30, 2000, we had 22 in-house sales and
marketing professionals operating in Cedar Falls, Iowa; Eden Prairie, Minnesota;
Chicago, Illinois, and San Francisco and San Jose, California. These sales and
marketing professionals are highly trained in technology solutions and are
available for travel to other locations throughout the world offering our
solutions to prospective partners, affiliates and customers.
B2BXchange also expects sales of monthly fee-based subscriptions to
B2BXchange.net to grow virally via word-of-mouth referrals from customers, in
particular as our Extranet customers invite their suppliers and distribution
partners to participate. B2BXchange products are also supported by Web
advertising efforts, targeted tradeshows, direct mail marketing efforts,
low-cost sponsorships providing high visibility for our brands in venues with
large numbers of participating enthusiasts.
Our marketing and sales efforts are designed to position B2BXchange.net as the
new archetype for conducting and managing business relationships in a global
marketplace. We explain to potential customers that our new model utilizes a
comprehensive Internet tool set that provides everything SME companies need to
continue their migration to embrace Internet e-commerce. We attempt to
differentiate ourselves by explaining that, in our view, this enterprise-wide
focus is not currently being addressed by our competition. Most competitors are
highly fragmented software tool vendors, consulting firms, electronic community
builders, marketing firms, and materials and services exchanges. By encompassing
most of these products and services within B2BXchange and offering the existing
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backend or "Legacy" system integration services and data center support of
RSPNetwork, we can distinguish ourselves as the one-stop shop for SME companies
to implement business-to-business e-commerce.
Our sales and marketing plan is based on the following fundamentals:
1. Create brand awareness of B2BXchange through sponsorships so that
businesses appreciate the value of subscribing and try the tools and
services of B2BXchange.net. We believe that we can establish a strong brand
identity for both the B2BXchange and many of the industry-specific
VerticalXchange brand names. Market segments represented by potentially
large and affluent audiences like mySailingXchange.com,
myRacingXchange.com, myGolfXchange.com and mySportAviationXchange.com are
typical of e-market segments where we intend to use high profile
sponsorships to drive brand awareness. Participating enthusiasts in these
and other niche areas include decision-makers in a variety of industries.
Sponsorships offer a low-cost way to increase exposure of the B2BXchange
brand. These sponsorships use logo-emblazoned products or banners in
high-visibility locations, such as sails for mySailingXchange.com and
decals on aerobatic planes during high-profile events. Each of these
sponsorships is designed to stimulate activity and cause SME growth
companies to become content participants in one or more of our
industry-specific VerticalXchanges.
2. Enhance offerings by partnering with recognized leaders in many vertical
industries. We have established and intend to continue to establish
strategic relationships with hardware and software manufacturers as well as
service and content providers in various industries. We believe that our
strategic alliances will continue to provide increasing access to
value-added applications and services for our customers. In addition, these
alliance partners are expected to help develop the B2BXchange and
RSPNetwork brands.
3. Market new services to free subscribers to encourage upgrade to Service
Level Agreements as a paying customer. By offering free, easy-to-use basic
versions of electronic commerce applications within B2BXchange.net, we
believe that the increased productivity and cost savings associated with
doing business online will further decrease any existing barriers to usage.
By offering comprehensive, high-value applications and services, we plan to
entice free subscribers into becoming recurring revenue customers through
monthly Service Level Agreements.
4. Provide expanded services, including hosting, Web site development, and
24/7 management, monitoring and maintenance services as part of the overall
business-to-business solution. Through our in-house web development group,
XchangeSTUDIO(TM), we are able to provide Web site customization and
development services. Through RSPNetwork and our state-of-the-art Network
Operating Center in Cedar Falls, Iowa, we offer hosting and access, systems
integration, customization, IT consulting and many other professional
services.
To accomplish our objectives, we began in May 2000 to pursue a broad spectrum of
sales and marketing programs, some of which are targeted at the broad
business-to-business market and some of which are targeted to specific vertical
industries. In each case, we used and will continue to use the medium that
market feedback indicates is best suited for reaching industry-specific
VerticalXchange targeted audiences.
We currently intend to take advantage of the following marketing
venues/mechanisms to promote our brand names:
Target: General computer and Internet trade audience, industry-specific
VerticalXchange audiences
o Direct marketing through print advertising & direct mail
o Web banner advertising
o Press releases through wire services, e-mail and other online venues,
and general PR distribution
o Tradeshow exhibition
o Large venues of enthusiasts - sponsorships
o Speaking opportunities at trade exhibits, association conferences and
selected industry events
o Participation in associations as a member organization and active
committee member, where appropriate
o Co-branded marketing with strategic partners through their marketing
programs, both to their distribution channel(s) and to business
customers
o Online seminar programs, as a participant, sponsor or speaker
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o Active participation with industry research companies such as Zona
Research, Yankee Group, Delphi and others for development and
distribution of technology papers and as a participant on their
conference programs
Target: B2BXchange subscriber and customer base and RSPNetwork customer
base
o Web advertising
o Online newsletters
o E-mail re: new products and services to subscriber and customer base
through "opt out" and "opt in" mail programs
Target: Alliance partners' customer base
o Web advertising
o Online newsletters
o E-mail re: new products and services to subscriber and customer base
through "opt out" and "opt in" mail programs
o Co-op advertising with select partners using specific prospect
qualifications
Revenue Model / ISBU / B2BXchange / RSPNetwork
ISBU's CEOS. The Commerce Environment Operating System is made up of a complex
series of online applications which offers capabilities that can be extended
continuously over time. The CEOS also offers content creation tools and
third-party content feeds to provide stickiness and transaction tools intended
to drive buy/sell transaction fees in multiple vertical market segments. The
ISBU has agreed to provide exclusive worldwide end user licensing rights for
B2BXchange to implement the components of the CEOS under the B2BXchange brand.
The ISBU has likewise agreed to provide exclusive worldwide reseller licensing
rights for RSPNetwork to implement the components of the CEOS under the
B2BXchange brand. The ISBU may license some or all of the components of future
versions of the CEOS under other brands in the future.
B2BXchange. The B2BXchange revenue model is similar to the ASP revenue model in
that it intends to generate revenues from system usage, application rental,
transaction fees and advertising. We intend to generate recurring monthly
revenues from end users of B2BXchange.net with needs in the following areas:
<TABLE>
<CAPTION>
Needs Sources of Revenue
<S> <C>
o Hosting & Access VerticalXchange customer sites
o Regulated Bandwidth More user visits = higher charges to subscribers
o Data Storage Private site document center, large Web sites
o Application Rental Our own tools and third party tools
o E-commerce transactions No transaction charge for limited storefronts;
upscale transaction sites are chargeable
o Advertising Ads available at all three tiers of the architecture:
Toolkit, VerticalXchanges, Subscriber sites
o Intranets XchangeSTUDIO Custom Development
o Extranets XchangeSTUDIO Custom Development
o Buying Tools Scheduled for Release 2.5 to 2.6
o Selling Tools Scheduled for Release 2.5 to 2.6
o VX Auction Site Operating now, major upgrades planned for Releases
2.45 through 2.6
</TABLE>
As we obtain a critical mass of business-to-business transactions, we intend to
offer marketing research on purchasing behavior to manufacturers, advertisers,
and trade publications, augmenting a growing advertising revenue stream.
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<PAGE>
RSPNetwork. The RSPNetwork revenue model generates revenues from professional
services, customization and integration of backend systems. Through wholly owned
operations and international RSP affiliates, we intend to generate recurring
monthly revenues from customers with more sophisticated needs in the such areas
as the following:
<TABLE>
<CAPTION>
Needs Sources of Revenue
<S> <C>
o Hosting & Access VerticalXchange customer sites
o Regulated Bandwidth More user visits = higher charges to subscribers
o Data Storage Private site document center, large Web sites
o Application Rental B2BXchange and third party tools
o System Integration Customization and backend systems integration through
IT professional service consulting staff and
RSPNetwork affiliates
o E-commerce transactions No transaction charge for limited storefronts;
upscale transaction sites are chargeable
o Intranets Custom Development by RSPNetwork affiliates using
B2BXchange toolkit
o Extranets Custom Development by RSPNetwork affiliates using
B2BXchange toolkit
o Buying Tools Custom Development by RSPNetwork affiliates using
B2BXchange toolkit
o Selling Tools Custom Development by RSPNetwork affiliates using
B2BXchange toolkit
o VX Auction Site Operating now, major upgrades planned for Releases
2.45 through 2.6
o Staff Augmentation Providing on-site support and service on a 24/7 basis
o Remote Support Providing management, monitoring and maintenance of
customer systems on a 24/7 basis
</TABLE>
Pricing / B2BXchange / RSPNetwork
B2BXchange. The Company provides basic usage of B2BXchange.net for free. Once a
subscriber exceeds predetermined disk space, network bandwidth, and other
limits, a multi-tiered schedule of monthly charges go into effect. We arrive at
our pricing for B2BXchange based on both our internal gross margin objectives
and customer perceived value. We review our pricing regularly to ensure that
potential gross margin contributions are not overlooked. We believe customers
will pay these prices based on the value they receive. B2BXchange.net is
designed to allow our customers to achieve a significant return on investment
through both operating cost reductions and extending the reach of their
marketing message as it is syndicated with those of other VerticalXchange
participants and rebroadcast to worldwide markets through the Global Market
Power(TM) of B2BXchange.
There are currently seven pre-packaged Service Level Agreements for "Green Path"
for novice users. Each SLA includes:
o Access to over our 1,600+ VerticalXchange Platform supplying
industry-specific content and software tools
o E-mail address and departmental tools for every employee in the
subscriber's organization
o Expert answers to subscriber's industry-specific questions
o Availability of global Intranet & Extranet tools and capabilities
o Unlimited discussion groups
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Service levels currently differ by the amount of space and bandwidth required,
the size of the company's Web site, e-store, and size of company's Expert
database. These service levels currently include, but are not limited to:
<TABLE>
<CAPTION>
------------------------- -------------------- --------------------------------------------------------------------------
Service Level Cost Includes these features in addition to those listed above
------------------------- -------------------- --------------------------------------------------------------------------
<S> <C> <C>
Free Basic FREE 5 MB Disk space, 1/2 GB Bandwidth, 5 web page, 10 product store for
partners and customers, 10 product store for employees
------------------------- -------------------- --------------------------------------------------------------------------
Associate $ 29.95 / month 20 MB disk space, 1 GB bandwidth, 128 bit SSL security, 100 product
store for partners and customers, 100 product store for employees
------------------------- -------------------- --------------------------------------------------------------------------
Merchant $ 199.00 / month 40 MB disk space, 3 GB bandwidth, 128 bit SSL security, 300 product
store for partners and customers, 300 product store for employees
------------------------- -------------------- --------------------------------------------------------------------------
Growth Company $ 349.00 / month 100 MB disk space, 10 GB bandwidth, 128 bit SSL security, 500 product
store for partners and customers, 500 product store for employees
------------------------- -------------------- --------------------------------------------------------------------------
Corporate $ 599.00 / month 200 MB disk space, 15 GB bandwidth, 128 bit SSL security, 2000 product
store for partners and customers, 2000 product store for employees
------------------------- -------------------- --------------------------------------------------------------------------
Enterprise $1,299.00 / month 1 GB disk space, 30 GB bandwidth, 128 bit SSL security, 10,000 product
store for partners and customers, 10,000 product store for employees
------------------------- -------------------- --------------------------------------------------------------------------
Fully Customized $2,999.00 / month Specifications are negotiable
------------------------- -------------------- --------------------------------------------------------------------------
</TABLE>
RSPNetwork. For RSPNetwork consulting clients with more advanced, or "Expert
Path," needs, we provide Web site hosting for monthly charges ranging from $200
and up, along with Remote Enterprise Management for monthly charges starting at
$1,125 per month. Costs increase with the size and complexity of the assignment.
We also intend to provide staff augmentation and other professional services
through our RSPNetwork affiliates. Currently, pricing for professional services
ranges from $50 per hour to $200 per hour in most markets. Ultimately,
RSPNetwork intends to collect a portion of professional services revenues
generated by RSPNetwork affiliates.
RSPNetwork affiliates may generate revenues from their participation in the
development of B2BXchange.net both directly from their local customization
customers and as resellers of certain online tools offered to their customers
from within the ASP model of B2BXchange.net. RSPNetwork earns a portion of its
revenues from what is effectively an exclusive worldwide license to offer the
tools of B2BXchange.net to affiliated third party resellers who meet the
training and support requirements set out by RSPNetwork. In addition, RSPNetwork
maintains its own consulting and professional services resources as a part of
its wholly owned solutions integration operations. RSPNetwork intends to
increase the scope and size of these wholly owned operations through selective
acquisitions activity with the "best of the best" from within the diverse
solutions integration businesses operating in one or more of the 64 targeted
marketplace hubs which RSPNetwork has identified worldwide. Within these
geographically dispersed spheres of economic influence, RSPNetwork intends to
embark on an aggressive program for recruiting system integration affiliates as
RSPs in the following areas:
o North America 16
o Asia 24
o Europe 16
o Latin America 8
---
o Total Worldwide 64
In short, the expansion and brand recognition of B2BXchange.net as a destination
portal should assist RSPNetwork in the recruitment of solutions integrator
affiliates. Controlling a large network of technically competent and
geographically dispersed RSPs should improve customer satisfaction and speed the
rate of technology adoption by the customers of B2BXchange.net.
Manufacturing / ISBU
The ISBU does not currently manufacture any traditional "hardware" products. Our
products are Internet-based software and professional services based on the
principle of "write once and sell many times." We are focused on products which
enable recurring monthly revenues.
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Service and Support / ISBU
As of June 30, 2000, the ISBU had 66 professional services and support staff
offering custom development, legacy intregration, maintenance, installation, and
support services on a fee basis. Customers retain the services of these
professionals on a fixed-fee or time-and-materials basis under short-term and
long-term contracts. Support for B2BXchange.net and related tools and
applications is performed via online help, via telephone or through
B2BXchange.net's e-mail support. Support staff are located in Cedar Falls, Iowa,
and Eden Prairie, Minnesota, and are available to help customers around the
clock. We expect to expand our commitment to provide first-rate support through
a growing network of affiliated support professionals.
Competition / ISBU
We compete in the electronic technology and Internet service arenas that are
comprised of numerous companies providing a variety of new technologies. This
market is highly competitive. We believe the principal competitive factors in
this market are ease of use, adoption rates, brand recognition, system
performance, providing a variety of value-added services, functionality and
features, completeness of solution, quality of support. and, most importantly,
our ability to convert "free subscribers" into paying customers.
Given the scope of the B2BXchange platform, we presently believe that we have no
immediate and direct competition, but we recognize that there are numerous
alternatives to our services in the marketplace. Our consulting business
competes directly and indirectly with many consulting firms, including the "Big
5", as well as numerous Internet and application hosting companies.
Since we offer a large range of products and services, our competitors include a
wide variety of companies and organizations, including Internet software,
content, service and technology companies, telecommunication companies, cable
companies, and equipment suppliers. In the future, we may encounter competition
from providers of Web browser software and other Internet products and services
that incorporate competing features into their offerings.
The current and potential competitors of B2BXchange include:
o ASPs and electronic commerce tool providers such as Ariba, CommerceOne, and
VerticalNet
o Portals targeting SME companies such as those by BigStep, Unibex,
Microsoft, Oracle, and IBM
o Web hosting and Internet services companies such as AboveNet
Communications, Exodus Communications, and other local and regional Web
hosting and Internet services providers
o National and regional Internet service providers such as Verio Inc.,
Concentric Network, UUNet Technologies, and PSINet.
o Global telecommunications companies including AT&T Corp., British
Telecommunications, Telecom Italia, and Nippon Telegraph and Telephone.
o Regional and local telecommunications companies, such as Qwest
Communications, and including the regional Bell operating companies such as
Bell Atlantic and Pacific Bell.
o Companies that focus on hosting applications within their data centers such
as USinternetworking, and IBM Global Services
o Audio and video content hosting companies such as Yahoo's Broadcast.com.
Both Ariba and VerticalNet could become more directly competitive due to their
recent acquisitions of complementary technologies that indicate that they aim to
provide comprehensive marketplaces similar to our strategy. While each has
historically concentrated on a narrowly-focused area, it is likely that many
competitors will enter industry-specific segments within the Internet and the
related B2B space.
We believe B2BXchange.net is set apart from the competition because of the
comprehensiveness of our product offerings, the years of software development
and brand marketing experience our personnel possess, our access to
state-of-the-art tools, and our large branding opportunity enabled by our
investment in the 1,600+ VerticalXchange Platform, or domain "real estate" with
descriptive names. Our horizontal breadth is designed to differentiate us from
competitors who focus on a particular vertical market or vertical software
application solution, like procurement or auctions. We plan to provide
everything an SME company needs to transform into a global eBusiness.
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<PAGE>
Of business-to-business services, Ariba (hosted B2B procurement) and VerticalNet
(brochureware content sites) both now seem to be targeting integrated
marketplaces with content as well as e-commerce tools. Based upon what we know,
neither currently shows signs of developing the hierarchical structure and
breadth that we intend for B2BXchange.net. We believe Ariba is likely to remain
focused on procurement, and VerticalNet is likely to remain focused on providing
broad-based content delivery through a mixture of proprietary and third-party
exchanges. It remains to be seen whether either competitor will adopt a clear
focus on SME companies or whether they could be successful with that type of
strategy.
The competitors who most closely resemble our business plan are BigStep and
Unibex, both of which are startups targeting SME companies. BigStep offers
public Web page building tools and e-commerce stores. To our knowledge, they do
not, however, offer Private or Partner Web sites, nor do they provide or serve
multiple vertical marketplaces. Their emphasis appears to be on enabling small
businesses to sell to the public, rather than true business-to-business
e-commerce. Unibex offers auctions, catalogs, and a virtual tradeshow. Companies
can build a presence within Unibex, but they are generally limited to
directory-style listings. To our knowledge, Unibex does not offer site
"stickiness" tools like knowledge management, email, or discussion groups.
Although they do offer vertical marketplaces, they are narrowly focused on
procurement. They appear to be partnered with a single association, the National
Association of Manufacturers (admittedly a significant organization), rather
than the hundreds of associations B2BXchange is targeting as alliance partners.
While competitors such as Microsoft, Oracle, and IBM have announced they are
targeting small businesses, we believe our experience in our target market
sectors and our partnerships with leading edge Internet companies will afford us
a substantial basis to compete even with such large, well-known,
well-capitalized competitors. In addition, we believe our direct marketing and
brand development experience will enable us to take a mass marketing approach to
e-business services.
Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
As a result, some of these competitors may be able to develop and expand their
network infrastructures and service offerings more efficiently and/or rapidly
than we can. They may be able to adapt to new or emerging technologies and
changes in customer requirements more quickly than we can. They may be able to
take advantage of acquisition and other opportunities more readily, devote
greater resources to the marketing and sale of their services and adopt more
aggressive pricing policies than we can. In addition, these competitors have
entered and will likely continue to enter into joint ventures or other
partnering programs to provide additional services that compete with those
provided by us and, additional services which, although not competing with us,
may give them an edge in the areas in which we do compete.
RSPNetwork consulting and systems integration services compete for projects and
staff with many competitors who have more experience and resources than
RSPNetwork. Substantially all of the Big 5 Accounting firms, Cambridge
Technology Partners, Diamond Technology Partners, USWeb/CKS, Whitman-Hart and a
large number of smaller firms compete to locate, hire or purchase resources in
this area.
Intellectual Property and Proprietary Rights / ISBU
We currently have not yet patented technology that would preclude or
significantly inhibit competitors from entering the market. Important features
of our products are incorporated in proprietary applications, some of which are
licensed from others and some of which we own. We plan to protect our
proprietary applications with a combination of patents, copyrights, trademarks
and trade secrets, employee and third party nondisclosure agreements and other
methods of statutory and contractual protection measures.
Despite these precautions, unauthorized third parties may be able to copy
certain portions of our products or to reverse-engineer or obtain and use
information that we regard as proprietary. Further, our 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 we take will be
adequate to protect the intellectual property or that others will not
independently develop or patent products similar or superior to those we have
developed, patented or planned, or that others will not be able to design
products which circumvent any patents we rely upon. The steps we have taken to
protect our intellectual property may not prove sufficient to prevent
misappropriation of our technology or to
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<PAGE>
deter independent third-party development of similar technologies. We also rely
on certain technologies that we license from third parties. These third-party
technology licenses may not continue to be available to us on commercially
reasonable terms. The loss of the ability to use such technology could require
us to obtain the rights to use substitute technology, which could be more
expensive or offer lower quality or performance and which may force us to incur
costs to modify or adapt our business model.
To date, we have not been notified that any of our products or services infringe
on the proprietary rights of third parties, but third parties could claim
infringement with respect to current or future services. From time to time, we
may be notified that the content of one of our hosted Web sites infringes on
third party intellectual property rights. In response, we intend to inform the
affected customer of such claim and, in our our markets will be increasingly
subject to infringement claims as the number of services and competitors in our
industry segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service installation delays
or require us to enter into royalty or other licensing agreements. Such royalty
or other licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have an adverse effect upon our
business.
Licenses and Strategic Relationships / ISBU
Our strategic relationships and partnerships with a number of technology
companies allow us to provide a wide range of services to meet our customers'
needs. We have established and continue to seek strategic hardware and software
manufacturer relationships that enhance our infrastructure and distribution
capabilities and broaden our product offerings. Currently, we have relationships
with companies such as Microsoft Corporation, UUNET Technologies, Computer
Associates, AboveNet Communiations, Onvoy Communications, Sun Microsystems, and
Oracle Corporation, pursuant to which we are providing a wide variety of these
companies' products and services to our customers.
Employees / ISBU
As of June 30, 2000 we had a total of 177 employees. As of August 31, 2000 we
had a total of 186 employees. None of our employees is represented by a labor
organization, and we have never experienced a work stoppage or interruption due
to a labor dispute. We believe our relationship with our employees is good.
Environmental Matters / ISBU / DGBU
We believe that we are in compliance with all material aspects of applicable
federal, state and local laws regarding the discharge of materials into the
environment with respect to both the ISBU and the DGBU. We do not believe that
we will be required to spend any material amount in compliance with these laws.
Item 5. Other Events
---------------------
This Form 8-K contains a description of our business similar to what we expect
to include in our Form 10-K, which will be filed shortly.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 27, 2000
VIRTUALFUND.COM, INC.
(Registrant)
By /s/ TIMOTHY N. THURN
-------------------------------
TIMOTHY N. THURN
Chief Financial Officer
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