10-K

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

    For the fiscal year ended June 30, 1999

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the transition period from _________________ to __________________

    Commission file number 0-18114
                           -------------------

                             VIRTUALFUND.COM, INC.
                             ---------------------
            (Exact name of registrant as specified in its charter)

               MINNESOTA                                       41-1612861
- ----------------------------------------                -----------------------
    (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                        Identification No.)

           7090 Shady Oak Road
         Eden Prairie, Minnesota                        55344
- ------------------------------------------------------------------------
(Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code  (612) 941-8687
                                                   ---------------------

Securities registered pursuant to Section 12(b) of the Act:

       Title of each class             Name of each exchange on which registered

                None
- ------------------------------------   _________________________________________

____________________________________   _________________________________________

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
- -------------------------------------------------------------------------
                               (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  [X] Yes  [ ] No

                              [COVER PAGE 1 OF 2]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 1999 was $32,925,000 based on the last sale price
for the common stock as recorded by the National Association of Securities
Dealers on that date.

As of September 30, 1999, there were 15,810,116 shares of the registrant's
common stock outstanding.


DOCUMENTS INCORPORATED BY REFERENCE:

None.

                              [COVER PAGE 2 OF 2]

                                       2


Cautionary Statement

The statements in this Form 10-K that are forward looking involve numerous risks
and uncertainties and are based on current expectations.  Actual results may
differ materially.  Refer to Exhibit 99 of this Form 10-K for certain important
cautionary factors, risks and uncertainties related to "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act").


                                    PART I
                                    ------

Item 1.  BUSINESS.
- ------   --------

General Business

VirtualFund.com, Inc. (formerly known as LaserMaster Technologies, Inc.) is a
diversified technology holding company currently operating in two business
segments:

The Digital Graphics Business Unit (DGBU) and its operating companies comprised
of ColorSpan Corporation, its subsidiaries and Kilborn Photo Products, Inc.
design, manufacture, market and sell wide-format digital color printers, print
servers, color management software, inks and specialty-coated media for graphic
arts professionals.

On October 21, 1999 we announced our intention to sell the DGBU operations and
focus our future efforts on further developing the Internet Services Business
Unit (see Strategy). As a result of this decision, the DGBU operations are
disclosed in the financial data as discontinued operations.

The Internet Services Business Unit (ISBU), started in fiscal 1999, will be
comprised of two primary subsidiaries going forward.  These two subsidiaries are
(i) the investment stage entity B2BX Corporation and its subsidiaries
B2BXchange, Inc. and B2BXnetwork, Inc. and (ii) the development stage entity,
VFND@Ventures II, Inc.  These entities will co-design, develop, market and sell
Internet-based business-to-business (B2B) electronic commerce software and Web
hosting, and provide information systems consulting, design, implementation and
support services.

For fiscal 1999, DGBU sales represented 95% of consolidated sales and ISBU sales
represented 5% of consolidated sales.  As a result of our decision to sell the
DGBU, future revenue will be based on the ISBU activities and its products and
services.


Segment Information

Digital Graphics Business Unit (DGBU)
- -------------------------------------

The DGBU's primary operating company, ColorSpan Corporation (CSC), and its
subsidiary, ColorSpan Europe, LTD (CSE), design, manufacture and market wide-
format (up to 72" wide prints), high-resolution color inkjet printers, related
image processing equipment and high-end color management software for
professional printing applications. In addition, CSC sells related consumable
products for its installed base of printers. These consumables consist of
aqueous inks and a variety of specialty-coated media such as paper, vinyl, film,
and canvas. (CSC also sells thermal imaging film to customers who have purchased
its PressMate(R) line of high-resolution chemical-free desktop imagesetters, as
well as toner and process units for its LaserMaster(R) line of high-resolution
laser printer products.) In addition, CSC uses a commerce-enabled Internet Web
site called Supplies.By.Air to sell wide-format inkjet media for use in its
competitors' wide-format color inkjet printer products.

CSC's current wide-format inkjet products combine advanced computer technology
with CSC's own sophisticated software, hardware and proprietary print engines to
produce professional-quality, photo-realistic printed output such as posters,
signs and banners at an affordable cost.

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In 1996, we created a commerce-enabled Internet Web site called Media.By.Air(TM)
to sell wide-format inkjet media to customers who own printers manufactured by
CSC's competitors. The name of the site was subsequently changed to
Supplies.By.Air in 1997. In fiscal 1999, Supplies.By.Air sales increased by 130%
over the prior year.

In 1998, we acquired Kilborn Photo Products, Inc. in a business combination
accounted for as a pooling of interests. Kilborn, one of the oldest photographic
paper coaters in the United States (founded in 1895), was integrated into the
DGBU and performs the coating process for a variety of wide-format inkjet media
used by our customers. With this acquisition we anticipated being able to
integrate media manufacturing into our product development processes in order to
create higher-quality media for CSC printers, to lower CSC's media supply costs
and to increase CSC's market share.

The primary users of DGBU products are commercial printers, reprographic service
bureaus, photo labs, quick printers, exhibit builders, in-house print shops,
printers, publishers, government and educational facilities, and corporate
marketing departments. Applications include point-of-purchase signs, trade show
exhibit graphics, banners, billboards, courtroom graphics, proofs or other quick
output to demonstrate concepts for advertising or graphics layouts, digital
photo imaging and backlit signage.


Internet Services Business Unit (ISBU)
- --------------------------------------

After the sale of the DGBU, the ISBU will consist of a primary operating
company, B2BX Corporation, and a development stage company for Internet
software, VFND@Ventures II, Inc.

B2BX Corporation (B2BX)(formerly known as RSPnet.com, Inc.), the ISBU's primary
subsidiary, is an Internet services company that operates two wholly owned
subsidiaries:

     .    B2BXchange, Inc., which designs, develops, markets and sells
          proprietary hosted Internet-based business-to-business software tools
          and applications, and

     .    B2BXnetwork, Inc., which provides Internet hosting, systems
          management, security, technical support, and business consulting.

The software tools and applications offered by B2BXchange, Inc. are hosted
within the secure data centers  of B2BXnetwork, Inc., which provides the
underlying network infrastructure and security for the customer's information.
Together, these two subsidiaries offer a system called B2BXchange, which is a
complete business operating environment on the Internet that gives subscribing
companies and their employees access to software tools and applications that
will help them conduct electronic commerce with their suppliers or "trading
partners", collaborate with each other, and create and manage the content on
their Web sites.

Using B2BXchange, B2BX intends to become a leading provider of Internet-based
business-to-business electronic commerce and communications between suppliers,
vendors, customers and employees.

B2BXchange, Inc.
- ---------------

B2BXchange, Inc. is an  investment stage software and data services company that
leverages the capabilities of B2BXnetwork, Inc. to provide electronic tools and
online software through a business-to-business (B2B) trading hub for vertical
communities. B2BXchange launched in October 1999. The product is an Internet
operating environment that allows businesses to easily develop Web sites and to
set up electronic "stores" in what will be vertically integrated trade
communities on the World Wide Web to conduct secure online transactions with
their customers, suppliers and distributors.  These vertical trade communities
will act as comprehensive sources of information, interaction and electronic
commerce - the buying and selling of goods and services over the Internet. Each
of these communities, which will be individually branded, focuses on one
business sector and caters to individuals with similar professional interests.
Each vertical trade community will be designed to attract professionals
responsible for selecting and purchasing industry-related products and services.

Companies that subscribe to B2BXchange will be able to receive:

     .    a free company Intranet (a private portion of the World Wide Web
          available to people within a specific company or area) for employees;

                                                                               4


     .    a secure Extranet (a private portion of the World Wide Web available
          to selected individuals or businesses who must have a password for
          access) for transacting business with trading partners; and

     .    a public Internet presence (the portion of the World Wide Web that is
          available to anyone who has a computer, an Internet connection and a
          software "web browser" or interface to the Web) in one of B2BXchange's
          more than 8,000 descriptive Internet domain names that are registered
          and maintained by B2BXchange.

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.

Revenue Model. To use B2BXchange, individuals must "register" or sign-up for the
service by supplying information such as their name, company name, market, and
e-mail address. B2BXchange provides its 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). The intent
is for free subscribers to find enough value in the system that they convert
into paying customers who are charged a monthly fee for enhanced software tools
and upgraded application features, more disk storage space for their data, and
more bandwidth for faster system access for them and their trading partners.
Monthly fees that are expected to be charged to these customers range from $75
to $2,995, depending on the selected level of services. (For even more
sophisticated uses, B2BXnetwork, Inc. will provide traditional customization and
systems integration services using its personnel.  B2BXnetwork, Inc. bases its
fees on the amount of time and resources needed to complete individual projects
and can result in significantly higher fees.)

Ease of Use and Brand Identity. The software tools and applications have been
designed to allow non-technical users to create and maintain their own Web sites
and create, update and administer their own electronic stores or "e-commerce
stores". Once a B2BXchange e-commerce site has been created, customers can
choose to have it placed within one of more than 8,000 brand-identified Internet
domains belonging to B2BXchange. Each branded domain focuses on one business
product or service. Each branded domain has been designed and named to attract
professionals responsible for selecting and purchasing industry-related products
and services within a specific vertical market segment. It is anticipated that
these domain names will result in specific vertical communities within
B2BXchange that will eventually create a large and cohesive virtual online
trading community for those who share a common interest. 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 can
transact business for less cost than traditional paper- phone- and fax-based
methods, share industry-specific information, and collaborate with vendors to
increase productivity and streamline the process of buying and selling.

Subscriber Growth. By offering free, easy-to-use basic versions of electronic
commerce applications within B2BXchange and by allowing subscribers to create
their business web presence in one of over 8,000 specific branded domains, B2BX
believes that the increased productivity and cost savings associated with doing
business online will encourage registration and subscriptions to B2BXchange. As
the free subscriber base grows and a percentage of companies are converted into
paying customers, B2BXchange is expected to develop into a virtual business
community whose members can conduct electronic transactions with other
registered businesses and communicate and trade with outside business concerns.
B2BX also expects that smaller suppliers will join B2BXchange in order to have
access to new business opportunities in areas they previously would not have
been able to reach, and that this may generate even more suppliers as overall
market acceptance grows.


B2BXnetwork, Inc.
- ----------------

B2BXnetwork, Inc. (B2BXnetwork) is a provider of a comprehensive suite of
hosting and enhanced Internet services designed to enable customers to setup and
manage their Web sites more effectively than internally developed solutions. Its
Web hosting services provide secure and robust solutions to meet the needs of
businesses of all sizes as their Web sites develop from low-end marketing
"brochure-ware" to mission-critical e-commerce uses. B2BXchange is available
through an Application Service Provider (ASP) environment that offers tools and
applications that are hosted and maintained within B2BXnetwork's data centers
and are available to customers using a standard Internet browser on a 24 hour a
day, 7 day a week basis. The ASP model, combined with the tools and

                                                                               5


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.

B2BXnetwork, Inc., was formed in December 1998 through VirtualFund.com, Inc.'s
acquisition of K&R Technical Services, Inc. (d/b/a TEAM Technologies) in a
business combination accounted for as a purchase. B2BXnetwork is a Web hosting,
information technology consulting and systems integration company that has been
in business since 1955. B2BXnetwork is a provider of Internet solutions for
businesses including Internet content development, management, security, Web
hosting and site management. In addition, it 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.

B2BXnetwork provides the infrastructure that allows companies to create business
solutions on the Internet. In addition to providing business technology system
design, implementation and support, B2BXnetwork provides Web hosting services
that are believed to offer a unique blend of technological expertise, partnering
ability and an in-depth understanding of business process modeling. We believe
B2BXnetwork has developed the infrastructure, resources, application management
expertise and industry relationships required to capitalize on this emerging
market opportunity.

B2BXnetwork provides the following advantages to its customers:

Performance and Reliability. B2BXnetwork's hosting solutions help to ensure that
customer Web sites, applications, and data are continuously online.
B2BXnetwork's state-of-the-art data centers in Cedar Falls and Waterloo, Iowa,
provide high-quality performance and reliability through features such as a
redundant, high-speed, secure network architecture, direct connections to one of
the world's largest Internet backbone providers, continuous system monitoring,
alternate power sources, environmental controls, regular data back-ups and a
fault-tolerant hosting platform. The Network Operations Center in Cedar Falls
monitors the B2BXnetwork hosting operations 24 hours a day, 7 days a week and
allows its staff to minimize service interruptions.

Cost Savings. B2BXnetwork's customers benefit from its focus on hosting and the
capital and labor investments that have been made to support its hosting and
enhanced Internet services.  Customers attempting to replicate B2BXnetwork's
performance and reliability would need to make significant expenditures for
equipment, personnel and dedicated Internet bandwidth. B2BXnetwork's hosting
solutions are significantly more cost-effective and reliable than in-house
solutions, both for businesses with low-end application requirements as well as
for businesses whose Internet operations are mission-critical and require
sophisticated integration and support. The uses of the B2BXchange business-to-
business e-commerce operating environment offer an even more cost-effective
solution for customers.

Customer Service. B2BXnetwork 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. B2BXnetwork has invested in advanced customer service software and call
routing technology to streamline the customer service process. In addition,
B2BXnetwork's customer service organization in Cedar Falls can address technical
problems around the clock.


VFND@Ventures II, Inc.
- ----------------------

The ISBU's other subsidiary, VFND@Ventures II, Inc., is comprised of development
stage projects that require project management, software developers and product
marketing managers, but are not yet ready for product launch. These are early-
stage research and development products that require few 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.  It is expected that these ventures will
be initially released to the market in the form of applications made available
for use within B2BXchange and will benefit from the growth that is anticipated
from that product.

Examples of some of the ventures in various stages of development are:

XcomTOOLS(TM)
Complete tools for e-commerce enabling business via the Web. XcomTOOLS is a
powerful suite of electronic commerce management tools which incorporates
integrated sales management, supports multiple languages for

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global web site sales, allows multiple warehouses and shipping locations, and
accepts instant credit card transactions and accounts with terms. 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 customized "one-to-one" marketing. Store-, product- and
customer-specific sales promotions allow individual targeted selling based on
customer orders or buying habits. Administrators can create tailored sales and
product line reports, which can be saved and run automatically. An inventory
management tool provides stock level and inventory visibility for multiple
warehouses and multiple shipping locations. An integrated sales management tool
provides account information for sales representatives. B2BXchange uses
XcomTOOLS application as part of its operating environment.

XchangeERP(TM)
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 and entertainment expenses, maintenance and repairs. Today,
most businesses use paper-based methods to acquire and manage operating
resources, although some of these processes are semi-automated. Much of the
process is costly and time consuming and often requires someone 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 Systems 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 very costly and is a difficult expenditure for
small- to mid-sized companies to justify. XchangeERP, which is currently in
development, is expected to offer traditional ERP functions but to leverage
Internet technology, to make the software available inexpensively through a
secure connection to the World Wide Web. When released, companies would pay a
monthly subscription fee to use XchangeERP and lower transaction costs through
electronic commerce, automation, and use of decision support techniques to
identify opportunities to rationalize the supply chain. XchangeERP is intended
to be more than just e-procurement because we expect it to help streamline the
management of all operating resources, including capital equipment, services,
and travel and entertainment expenses, and other items requiring approvals
through internal business processes. XchangeERP is intended to provide a
comprehensive system for managing all items requiring approval within one
integrated and secure system accessible via the Internet.

XchangeEDI(TM)
EDI (Electronic Data Interchange) is a standard format for exchanging business
data. With today's fast-growing pace of business, the quicker businesses get a
handle on their supply chain management by exchanging EDI information with their
vendors and suppliers, the more streamlined their businesses will become.
XchangeEDI provides the tools and capabilities to let businesses work in a
global marketplace at a reasonable price that even small businesses can afford.
The cost savings and productivity increases that come with automated supply
chain management systems such as XchangeEDI more than offset the monthly fees
and the small upfront costs involved in setting the system up.

Using XchangeEDI through B2BXchange means having access to timely information at
every point in the supply chain. Trading partners can take control of their
inventory and incoming goods, receive purchase orders directly into their
accounting and back office systems, and generate and transmit EDI order
confirmations, shipping notices and invoices. This truly automated streamlined
transaction system allows "just-in-time" inventory control and makes 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, they can share
information with other EDI-enabled companies, transact online business
efficiently through B2BXchange, and take advantage of the global reach of the
Internet.

Cybernetic Express(TM)
Secure digital file and document delivery. Cybernetic Express is intended to be
a secure and cost-effective Internet-based alternative to physical document
delivery or faxing. The system is expected to provide reliable and secure
delivery and tracking of digital files using encrypted file transport/storage
and digital certificates for identity verification. The system is intended to
allow companies to create a secure trusted "space" on the Internet to deposit
and retrieve documents.

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DataQuarry.com(TM)
Web-based data mining. DataQuarry.com is intended to be an Internet-based data
mining system that helps businesses understand customer buying patterns that can
lead to strong strategic and tactical product and sales decisions. The system is
designed 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.com is expected to keep track of multiple customer
purchases and uses MarketBasket 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 can use DataQuarry.com's
MasterProfile feature to quickly determine which types of customers purchase
particular items based on psychographic marketing profiles -- the sum total of
the psychological, economic, educational and socioeconomic background of an
individual.

CompareData.com(TM)
Web-based comparison buying. CompareData.com is intended to act as an online
system to help customers quickly find and compare the value of mortgage loans,
insurance rates, travel packages, and other goods and services available for
sale on the Internet. Consumers can use CompareData.com to perform true one-stop
shopping from among thousands of sites on the Internet, whose catalogs are
constantly "data mined" or "searched" for the best values. Search rankings are
expected to be based on value as identified by the customer, not price.
Customers would initially specify what is important to them in the search (i.e.
low monthly mortgage payment vs. low interest rate) and the system is expected
to adjust itself to rank the products based upon the customer's specific
requirements. Once a search is completed and a selection is made,
CompareData.com automatically transmits customer data -- e-mail address, item,
quoted price and terms -- to the selected company letting them know there is an
interested customer waiting to hear from them. CompareData.com is designed to
follow up with customers within 24 hours to see if they have been contacted.

CareerHits.com(TM)
Web-based human resources and recruiting tools. CareerHits.com intends to offer
a turnkey solution to give job seekers and employers complete control over the
recruiting and hiring process. Job seekers could use CareerHits.com's tools to
enhance their careers, while employers and recruiters could search
CareerHits.com's databases for job candidates who meet specific hiring criteria.
For job seekers, resumes will be built online, e-mailed and submitted to the
CareerHits.com database allowing them to be searched by potential employers. For
employers and recruiters, CareerHits.com's planned integrated suite of tools
will help create an effective and highly-targeted recruiting campaign, including
a complete company profile on CareerHits.com's site, real-time job postings,
links to company web sites, internal routing of resumes, and an integrated
company calendar for scheduling interviews with applicants and HR personnel.

netIntersection(TM)
Communities based on geographical area or common interests. netIntersection is
intended to allow Internet users to create their own online "communities of
interest" 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, expertise, and to publish content, files and software
accessible to other users with common interests. netIntersection will 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" can 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 members and subscribers 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. An example of netIntersection software in use on the Internet is at
http://cv.commonline.net  This geographically-defined community of interest has
more than 5,000 users who regularly visit the site to learn about and discuss
local issues.

PosterShops.com(TM)
Commerce-enabled Web sites for wide-format printing. PosterShops.com intends to
be the web's premier site for the design, creation, and printing of large format
color printing projects. It is designed to bring together a customer

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looking to get work done and a print shop that can do the job for them. It is
intended to serve as a community for digital graphics users to learn more about
wide-format digital color printing and provide access for them to associations
and other sites of interest about wide-format color inkjet printing. End users
would request services from a printing center near them, use templates to
generate the type of poster or banner they want, and to find out about the
latest in wide-format color products on the market. Digital print providers will
be able to sign up as a PosterShops.com Authorized Print Center (APC) and
generate revenue from end users they might not otherwise reach who submit
requests for quotations.

ServiceBureaus.com(TM)
Community of interest for service bureau owners and customers.
ServiceBureaus.com is intended to be an online community of interest for desktop
publishing service bureaus who provide printing, pre-press and digital imaging
services for creating and printing of marketing collateral materials, press
releases, and other business-to-business communications. At this site, customers
could browse the latest news, link to organizations based on their area of
interest in printing and publishing, or check out the latest software available
from leading manufacturers. ServiceBureaus.com is expected to provide a
comprehensive list of service bureaus along with links to upcoming industry
events to help customers keep up to date on the latest technologies. It also
would provide vendor links to help customers find equipment and supplies and
software upgrades. Customers can also check message boards for equipment sales
and ask or respond to questions about desktop printing and publishing. Service
bureaus can easily add or edit their listing online and customers can quickly
search for a service bureau in their area and go to their site.

DavesCoolArt.com(TM)
DavesCoolArt.com is expected to be the ultimate web site for learning about
digital fine art; sharing information, tips, and ideas; and linking to pertinent
resources including associations, publications, manufacturers, and more. Readers
are intended to be able to find the detailed background information needed to
understand the digital fine art market. They could learn answers to the
questions such as what is a giclee print, what types of printers can produce a
giclee print, and  what kinds of inks and media are available for producing fine
art images. DavesCoolArt.com is intended to allow users to find printmakers and
artists who are producing giclees and to provide the latest information on news
and trends in the market. Especially useful to owners of the ColorSpan Giclee
PrintMakerFA should be a support center that is expected to provide technical
support, helpful tips and tricks for working with the printer, and announcements
of new software releases. This comprehensive site is intended to allow users to
link to key contacts in the market, including the International Association of
Fine Art Digital Printers (IAFADP) and Digital Fine Art Magazine.


Strategy

Digital Graphics Business Unit
- ------------------------------

We have recently announced our intention to sell the DGBU. During the time that
we are negotiating with prospective buyers, our strategy within the DGBU is to
continue to provide high-quality printing solutions to the market, partner with
companies that can provide access to niche markets for our technology, and
leverage our worldwide printer sales by providing our proprietary printers on an
Original Equipment Manufacturer (OEM) basis to large companies where they can be
branded with that company's name, marketed and sold. The revenue strategy is to
increase high-margin aftermarket ink and media consumables sales through
increased sales due to OEM activity and the opening of new market segment niches
with targeted technology advances.

The key elements of our strategy for the DGBU are:

To maintain and enhance ColorSpan's (CSC) position as a leading provider of
affordable, high quality, proprietary, customer focused products to the
professional printing market. In March 1999, CSC began shipping its latest wide-
format color printer, the DisplayMaker Series XII. This industry-leading printer
incorporates 12 new thermal inkjet printheads supplied by its technology
partner, Hewlett-Packard Corporation, and produces photo quality prints in as
little as two minutes offering its customers increased productivity.

To develop and produce value-added software which distinguishes its printer
solutions. CSC has been committed to continually enhancing its products by
adding features and options to its current family of devices through software
enhancements. These enhancements continually evolve with products over their
lives through increasing print speeds, allowing use of additional media and inks
for various applications, improving color matching and print

                                                                               9


quality and continuing compatibility with other vendors' software and operating
systems. In July 1999, CSC introduced ColorMark+ Advanced Color Management
System Software to extend color management capabilities and increase user
productivity.

To develop additional media, ink and film for use with CSC's proprietary print
engines to enhance printing applications and market expansion. In July 1998, we
purchased Kilborn Photo Products, Inc., a media coater and research center that
is expected to provide us additional inkjet media offerings and brought it into
the DGBU to create specialty media that are fine-tuned for CSC's printers. In
October 1998, CSC introduced Gamut+, the ability of its printers to use six
process colors and up to two spot colors. The addition of support for spot
colors expands the capabilities of these printing systems by allowing users to
print high-quality, apparent 800 dpi images with a choice of attention getting
Hi-Brite colors outside the traditional CMYK (cyan, magenta, yellow, black)
gamut.

To develop original equipment manufacturer (OEM) customers and partners for the
Company's proprietary products. During fiscal 1999, CSC signed an agreement with
Xerox Corporation to supply them with its printer products. In addition, in July
1999, Image Technologies Developments released Wisp-PS software, its PostScript
interpreter, for the DisplayMaker Series XII printers. In Fiscal 2000, CSC
expects to implement a strategic partnership in the textile printing market.
Augmenting CSC's existing distribution channels with high-quality OEMs should
help gain market acceptance of CSC products and expand the customer base for
after-market consumables sales.

To expand consumable sales by offering a line of consumables (primarily media)
to users of printers manufactured by others and to increase consumable usage by
CSC's customers by providing them additional market opportunities. In August
1997, we announced the opening of our Internet sales division, Supplies.By.Air
(SBA). This division markets a line of inexpensive, high-quality, commodity
media and relies on electronic commerce for marketing, order acceptance and
shipment. In fiscal 1999, SBA sales increased by 130% over the prior year.

Internet Services Business Unit
- -------------------------------

Our strategy within the ISBU is to continue to invest in promising Internet
companies and ideas believed to offer high growth potential. As these companies
and ideas are developed, we expect to package them together into branded
Internet Venture Companies and seek outside financing by offering minority
equity interests. We believe that this strategy provides the ability to
significantly increase shareholder value as well as provide capital to support
the growth in all of  our subsidiaries and investments.

The key elements of the strategy for ISBU are:

Build the B2BXchange Brand. B2BX believes that it can establish a strong brand
identity within the application hosting industry with B2BXchange and
B2BXnetwork. Its brand, including the more than 8,000 descriptive branded
Internet domain names that we have registered, will be enhanced as B2BX begins
marketing products under the B2BXchange brand. B2BX believes that brand will be
further enhanced as acquired infrastructure and Internet services companies are
assimilated under B2BX. B2BX intends to continue to build on the equity of the
B2BXchange brand and strengthen brand recognition by marketing its full range of
services through an integrated communications program using public relations,
online advertising campaigns, targeted tradeshows, print ads, and cooperative
promotions with key Internet hardware and services vendors.

Continue Our Acquisition Program. We intend to continue our acquisition program
to capitalize on consolidation opportunities in the hosting and Internet
services market in the United States and overseas and build our ISBU resources,
systems and infrastructure. We expect that these acquisitions will also result
in substantial operating synergies, greater internal growth and cost savings due
to economies of scale. We also plan to capitalize on certain "best practices"
that we may identify within acquired companies to maintain our competitive
advantage and to ensure ongoing delivery of high quality Internet services to
our customers.

Expand Subscriber Growth. B2BXchange reaches subscribers through multiple
methods including Web-based marketing, 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 of all sizes. As an example, B2BXchange recently
launched a strategic program to partner with Digital Subscriber Line (DSL)
providers and Competitive Local Exchange Carriers (CLECs) so that they may offer
its free basic B2BXchange products to their current and potential customers as a
way to increase sales of broadband Internet connections and to increase
bandwidth usage.

                                                                              10


Leverage the B2BXchange and B2BXnetwork Customer Base. B2BX intends to
capitalize on the enhanced revenue potential of the customer bases of its
acquired companies by leveraging the numerous cross-selling opportunities of its
expanded line of branded service offerings. B2BX will use its multiple sales
methods, including its direct sales force, to target specific customer segments
within the diverse customer base with relevant new offerings to realize
increased revenues. For example, B2BX believes that it can grow its revenues by
cross-selling existing B2BXchange customers with customization, systems
integration, and consulting services. B2BX also believes that by coordinating
the efforts of its combined B2BXchange hosting and consulting sales forces, it
can increase customer leads and referrals. In addition, it intends to assimilate
the customer bases of acquired companies into a unified customer information
management system to facilitate sophisticated analysis and segmentation of its
total customer base to enable B2BX to maximize marketing and sales
opportunities.

Develop Strategic Relationships. B2BX has established and continues to seek
strategic hardware and software manufacturer relationships that enhance its
infrastructure and distribution capabilities and broaden its product offerings.
B2BX believes that its strategic alliances and supplier arrangements with
companies such as Microsoft Corporation, UUNET Technologies, Computer
Associates, AboveNet, Sun Microsystems, and Oracle Corporation enable it to
provide complete, scalable and reliable hosting solutions to its customers.


Market

Digital Graphics Business Unit
- ------------------------------

There are a number of digital printing technologies, including inkjet
(piezoelectric and thermal), pen, electrostatic, and photographic that allow
users to produce wide-format output. Each of these technologies has specific
qualities that can be critical to any given application, including resolution,
speed, accuracy, color fill capability, fade resistance, reliability and cost.

A combination of desirable characteristics has made inkjet printing one of the
fastest growing technologies in the wide-format color printer market. The
characteristics of wide-format inkjet printers include relatively low cost, high
resolution, faster speed and the ability to print high-quality color. Inkjet
printers using either thermal or piezoelectric printhead technology, typically
form images, lines and other characters by placing very small dots of ink as the
printhead moves horizontally while the media is typically scrolled vertically.
Because inkjet printheads move above the media and do not actually make contact
with the media, there is less mechanical wear and tear than experienced with
other types of printing devices. Most inkjet printers can print on a variety of
media or other materials used for signage or display.

Electrostatic printers generally are more expensive to purchase than inkjet
printers or thermal printers and require the use of special media. They offer
certain advantages to users requiring low cost per square foot and high speed
printing characteristics. Thermal printer/plotters are similar to electrostatic
printers in that they require special paper, but also require ink ribbons to
take advantage of the thermal printhead. Thermal printers are typically more
costly than comparable-size inkjet printers.

Other technologies that can be adapted to wide-format use include photographic
output, electrophotographic output and dot matrix printers. These printers have
disadvantages, including low speed, high cost or the required use of harsh
chemicals, when compared to inkjet technology.

Internet Services Business Unit
- -------------------------------

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:

                                                                              11


     .    the large and growing installed base of personal computers;

     .    easier and less expensive alternatives for Internet access;

     .    improvements in the speed, reliability and security of the Internet;

     .    electronic commerce-enabling technologies;

     .    higher quality and more diverse content on Web sites;

     .    an increase in the number of networked applications; and

     .    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:

     .    disseminate information;

     .    engage in e-commerce;

     .    build customer relationships;

     .    streamline and automate data-intensive processes; and

     .    communicate more efficiently with dispersed employees.

A September 1999 Goldman Sachs Investment Research Report estimates that total
business-to-business (B2B) 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, while
traditional businesses of all sizes are working quickly to establish a Web
presence and conduct B2B 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 Web
that encompass sales, customer service, customer acquisition and retention,
employee communications and e-commerce between suppliers and business partners.

Trend Toward Outsourcing. According to Forrester Research, Inc., U.S. firms are
now spending approximately 25% of their overall information technology budgets
on outsourcing services. These services include packaged application software
implementation and support, customer support and network development and
maintenance. Reasons for the growth in outsourcing include:

     .    the desire of companies to focus on their core competencies;

     .    the increased costs that businesses experience in developing,
          maintaining and upgrading their networks and software applications;

     .    the fast pace of technological change that shortens time to
          obsolescence and increases capital expenditures as companies attempt
          to capitalize on leading-edge technologies;

     .    the challenges faced by companies in hiring, motivating and retaining
          qualified software development specialists, network engineers and
          other information technology employees; and

     .    the desire of companies to reduce business deployment times and risk.

Trend Toward Web Hosting Outsourcing. Many businesses, both small and large,
lack the resources and expertise to cost-effectively develop and continually
enhance their Web sites with evolving technologies while maintaining a

                                                                              12


fault-tolerant and scalable network infrastructure. Small- to medium-sized
businesses typically lack the skilled technical resources and capital to design
their own Web sites and install, maintain and 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,
improve the sites' reliability and performance, provide continuous monitoring of
their Internet operations and reduce costs.

Trend Toward Application Hosting Outsourcing. Businesses increasingly face
competitive demands to automate business processes. This problem has been
exacerbated by a shortage of skilled technical professionals. Until recently,
implementation of Internet applications required development of customized
in-house software applications or the customization of existing prepackaged
software. This made each implementation unique and costly. It 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 their global competitive position.


Products

Digital Graphics Business Unit
- ------------------------------

CSC's current wide-format inkjet printer lines, DisplayMaker HiRes 8-Color
printer series (DMX) (which began shipping in September 1997), Giclee
PrintMakerFA(TM) (which began shipping in September 1998) and DisplayMaker
Series XII (which began shipping in March 1999), provide photo-realistic color
output. These products are designed to be cost-effective solutions for short-run
digital printing of wide-format color output. The printers work with most
commercially available desktop digital color manipulation and composition
software applications. Using third-party graphics and page-layout software
applications that allow printed pages to be "tiled," the DisplayMaker products
can be used to create virtually unlimited image sizes. CSC's Big Color products
incorporate a number of proprietary software advances, including ColorMark(R)
color management and SmoothTone(TM) image enhancement technologies. CSC's
printers also have features like AutoSet(TM) calibration which automatically
adjusts cartridge positions; AutoJet(TM) mapping which makes adjustments for
misfiring jets; AutoTune(TM) which allows users to calibrate in an unattended
mode; and AutoInk which allows users to load two separate ink types and switch
between two dye-based ink products and one pigmented ink product through
software. These features utilize a charge-coupled device (CCD) camera to make
calibrating the printer, changing ink cartridges and unattended printing easier
and more reliable. ColorMark is CSC's color management system that ensures
accurate and consistent colors from print to print. This technology allows the
user to print multiple copies of the same file and achieve near perfect matching
of colors, even after changing ink and media. SmoothTone is an image-enhancement
technology that significantly boosts the apparent resolution of the printing
engine to provide output with near continuous-tone quality. This product is the
subject of one OEM agreement and three technology support agreements in which
third-party RIP vendors have agreed to support the DMX and Series XII products
as printing solutions with their customers. Suggested list prices for CSC's
printer products range from $15,995 to $29,995. The RIP Print Server prices
range from $4,495 to $10,995.

Giclee PrintMakerFA. This product combines the outstanding color attributes of
eight color printing with the accuracy of drum-based architecture to produce
output up to 35.5 inches by 47.25 inches in size with an apparent resolution of
1800 dpi. The high-precision, spinning, drum-based design provides superior dot
placement accuracy and repeatability. The product targets a portion of the Fine
Art reproduction market which, according to market research presented by the
International Association of Fine Art Digital Printers (IAFADP), is estimated to
be a $160 million market currently and growing at a rate of 60% per year.

ColorMark Pro 4000. The DisplayMaker printers, DesignWinder, Giclee PrintMakerFA
and PressMate are all driven by CSC's ColorMark Pro 4000 print server, a raster
image processor that is based on a 400 MHz, 32-bit microprocessor. The ColorMark
Pro 4000 features advanced file spooling (a queue method) for multiple users,
"RIP Saver(R) (which stores processed files to avoid redundant processing) and
job management and logging features that track ink and paper consumption for
job-costing and workflow planning, among other things. This device has
connectivity capacity to handle several ColorSpan devices simultaneously.

                                                                              13


RIPStation. The RIPStation is an entry-level raster image processor color
server. It is based on a 400 MHz, 32-bit microprocessor. It functions similarly
to the ColorMark Pro 4000 without the added advanced and multiple engine
connectivity features offered by the ColorMark Pro 4000.

Consumables. Color printing consumes significant quantities of inks and media.
CSC's products include a range of consumables, such as specialized dye-based
inks for indoor use and pigmented inks for outdoor use. CSC performs
qualification testing on these consumables before releasing them for customer
shipment. The specialized inks are created specifically for CSC products to
optimize image quality and printer performance. CSC sells more than 100
different media options and has almost 200 different ink products. During fiscal
1999, CSC released seven HiBrite Spot Color inks to increase the variety of
printing solutions available from our products. CSC sells the consumables (inks,
media and film) required for optimum use of the printing products it sells. CSC
offers various ColorMark consumables for its Big Color printers, including a
dye-based version and a waterfast, lightfast pigment-based version in 500 ml Big
Ink packs. CSC sells uniquely configured 150 ml ColorMark solid ink pucks
required for the discontinued DisplayMaker Express printer. CSC offers a variety
of print media in various widths and lengths such as Coated Gloss paper,
PolyGloss(R), FineArt(TM) Canvas, matte, ClearFilm(TM), and TransWhite(R)
translucent backlit film (used on back-lighted signs) under the ColorMark brand
for use with its printers and non-ColorMark branded media for use with printers
manufactured by competitors.

As part of the ColorMark system, the 500 ml Big Ink packs and the 150 ml
ColorMark ink pucks ship with ColorMark profilers (recyclable circuit boards)
that plug into the printer, and provide information to ensure accurate,
consistent color output from print to print. The domestic price per dye-based
Big Ink pack is $199 per color. The price for Perma-Chrome(TM) pigment-based Big
Ink packs is $299 per color. CSC's Ultra Wide-Gamut dye-based and Endura-
Chrome(TM) lightfast dye-based Big Ink packs sell for $229 each. Hi-Brite Spot
Colors sell for $179 each. The domestic price per ColorMark ink puck is $175.
The domestic prices of the ColorMark paper and other media range from $80 to
$335 per 100- to 150-foot, 36-inch wide rolls and from $330 to $765 per 100- to
175-foot, 72-inch wide rolls.

CSC's discontinued PressMate-FS Personal FilmSetter(TM) requires specially
developed ThermalRes(R) film rolls that it also sells. This unique specialty
film is manufactured to CSC's specifications. The domestic price is $295 for a
90-foot roll of ThermalRes film.

CSC's discontinued Unity(TM) line of plain-paper typesetters requires toner and
process units for operation. The domestic price for toner is $69 per unit, and
process units list for $699 per unit.

Internet Services Business Unit
- -------------------------------

B2BXchange. B2BXchange is an Internet operating environment that allows
businesses to easily commerce-enable their Web sites to facilitate secure online
transactions with their customers and trading partners. Companies that subscribe
to B2BXchange receive a free private company Intranet for employees, a secure
Extranet for transacting business with trading partners, and a public Internet
presence in one of over 8,000 descriptive branded Internet domain names. The
gathering of these commerce-enabled, business Web sites within vertical market
segments is intended to create virtual trading communities that can enhance a
subscribing company's chances of business success on the Internet. B2BXchange
provides free basic versions of software tools and applications, along with
specific allotted amounts of network disk space usage and Internet bandwidth to
subscribers. Free subscribers who exceed those specified 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 bandwidth for faster
system access by them and their trading partners. Monthly fees range from $75 to
$2,995, depending on the selected level of services.

B2BXchange software tools and applications include:

 .    XcomTOOLS(TM) -- Provides the ability for subscribers to establish an
     online store, including the ability to set up their own catalog, to
     offer site promotions, and to manage their call center, warehouse, and
     shipping.

 .    XchangeBUILDER(TM) -- Assists subscribers in the design, layout and content
     of a company's web site with no HTML (hypertext markup language) experience
     required.

 .    myXchange -- "Wizard-style" set-up that allows subscribers to customize
     services, content and the "look and feel" of their B2BXchange operating
     environment. Also allows the automatic upgrading of tool and application
     features, disk space, and bandwidth.

                                                                              14


 .    XchangeNOTES(TM) -- Provides users with a e-mail accounts and access to
     public and private discussion groups.

 .    XchangeCONTENT(TM) -- Offers the latest news and events, market and
     industry news, corporate profiles and industry-specific tradeshow news.

 .    XchangeEXPERT(TM) -- Provides access to public and private "dynamic
     knowledge" databases where questions can be answered once by designated
     experts and the supplied answers can be accessed many times.

 .    XchangeSUPPLIERS(TM) -- Offers the ability to purchase supplies online from
     various vendors including Barnes and Noble, Staples Office Supplies, and
     Dell Computers; to purchase services such as translation and online
     learning; and to track packages shipped via major carriers such as United
     Parcel Service (UPS) and Federal Express.

 .    XchangeSEARCH(TM) -- Provides search capabilities through B2BXchange member
     sites or the entire Internet.

 .    XchangeHELP(TM) -- Access to help online, via telephone or B2BXchange's
     e-mail support.

B2BXNetwork Professional Services. B2BXnetwork 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. B2BXnetwork provides Web hosting for $95 to $1,990 per month.
B2BXnetwork offers Remote Enterprise Management that uses its employees to
monitor customer systems from its Network Operations Center. Fees for this
service start at $1,125 per month and increase with the size and complexity of
the assignment. B2BXnetwork also provides staff augmentation services that
supply its employees 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
$21 per hour to $150 per hour.


Product Development

Digital Graphics Business Unit
- ------------------------------

Our continued success in the DGBU depends upon making ongoing investments in
products to ensure the timely introduction of high-performance printer and
consumables products in response to changes in technology, market demands and
customer requirements. Accordingly, the DGBU is committed to creating specialty
printing products that yield performance superior to standard marking engines,
designing new print engines and enhancing existing products to achieve higher
levels of performance in order to increase our after-market consumables business
and attract potential OEM customers for CSC products.

As of June 30, 1999, the DGBU employed approximately 58 people in its product
development activities.  The DGBU's product development organization consists of
multiple project teams based in two main product areas: printer products and
consumables development and testing.  The DGBU's software development group
creates and enhances software technologies that improve the usefulness, cost-
effectiveness and productivity of the printers offered by CSC, and the quality
of the printers' output. DGBU's hardware group works to enhance existing
hardware components and products and works with DGBU's software group to develop
new printer products for specialized applications and markets. The DGBU's
consumables group creates and tests new product offerings for the installed base
of CSC printers as well as for printers manufactured and sold by CSC's
competitors.

Internet Services Business Unit
- -------------------------------

The success of the ISBU depends upon making ongoing investments in product
development to ensure the timely introduction of leading edge Internet-based
tools and applications in response to changes in technology, market demands and
customer requirements. The ISBU is committed to acquiring, designing,
commercializing and upgrading new and existing Internet-based products that
offer the potential for generating continuing monthly fees to attract new
customers and also to gain more revenue from existing customers, as well as
upgrading and enhancing products to increase the total amount of revenue per
customer.

                                                                              15


As of September 30, 1999, the ISBU employed approximately 37 people in its
product development and product marketing activities.  The ISBU Internet product
development organization consists of multiple project teams of software
developers and product marketing specialists focused on both development stage
Internet products and products currently being marketed and sold. The ISBU
software development group creates and enhances software technologies that allow
ISBU customers to operate on the Internet in an effective and efficient manner.


Sales and Marketing

Digital Graphics Business Unit
- ------------------------------

CSC sells its products primarily through its factory sales professionals,
partnered with resellers in the U.S. and Canada, and value-added distributors
(VAD) internationally. As of June 30, 1999, CSC employed a 51 person
telemarketing sales force including sales professionals focused in part on
developing relationships with major national printing accounts and new
resellers. CSC sells its color hardware products only through its reseller, VAD
and OEM networks.

The DGBU's Supplies.By.Air e-commerce Web site sells certain consumables
products in addition to its telemarketing staff. These products are targeted at
customers that are not currently using CSC's printers.

All sales efforts of the DGBU are supported by a direct mail marketing program
designed to achieve frequent contact with potential customers, including
reprographic service bureaus, photo labs, quick printers, sign shops, exhibit
houses and corporate marketing departments. The DGBU complements its direct mail
efforts by advertising in trade journals and by exhibiting regularly at industry
trade shows.

The DGBU invests significant resources in developing and training its sales
professionals and has implemented computerized sales management and sales
communications systems. Sales representatives participate in continuous training
programs so that they understand product features and benefits as well as
customer applications and business requirements. Sales professionals are
compensated on a salary plus bonus and commission basis.

Domestic and Canadian Sales. Domestic and Canadian DGBU sales and marketing
operations are based in Eden Prairie, Minnesota. The CSC products are sold
through a network of domestic resellers and international value added
distributors (VADs). In the U.S./Canada, CSC uses a factory sales team to assist
the resellers in the sales process.

CSC has also established relationships with independent print shops and local
service printers that have purchased CSC products. These Big Color Digital
Printing Centers (DPCs) are offered cooperative marketing support to promote
printing services using CSC products in their area. CSC sales professionals
refer potential customers to these local DPCs or resellers to observe the use of
its products. From time to time, CSC pays a fee to the showcasing DPC or
reseller following a sale. CSC believes that this marketing approach permits it
to price its products at competitive levels.

OEM Sales. CSC has OEM contracts for its printers with Agfa-Gevaert, Ilford
Imaging and Xerox Corporation and is currently exploring other relationships
that would result in OEM customers for its various printer engines. CSC desires
to expand the market acceptance of its proprietary products and widen its
distribution network for both hardware and after-market consumables.
Relationships with quality OEM partners are a method of attaining this goal. CSC
also allows its proprietary print engines to be accessed by third-party print
servers and color management systems and has signed four agreements to allow
third-party vendors to support its products. Expanding the installed base of its
hardware products is expected to allow CSC an opportunity to sell more
consumables products.

International Sales. CSC currently sells its products in all of the Western
European nations and in the principal Eastern European, Latin American, Pacific
and Asian markets. CSC's European sales, support and warehouse facility is
located near Amsterdam, The Netherlands. CSC conducts sales operations for
Europe, the Middle East and Africa from its European headquarters. Pacific and
Asian markets are managed from its technical support and sales offices in San
Jose, California, while Latin America is served from the sales offices located
in Miami, Florida. All other international sales are managed from CSC's
headquarters in the United States.

                                                                              16


In international markets, CSC sells its products through a network of non-
exclusive VADs. VADs are granted the right to purchase CSC products at
discounted prices from list price and distribute those products within a
specified territory outside the United States. VAD agreements require the VAD to
promote, market and support CSC products and are typically for a one-year period
with automatic one-year renewals. Either party may terminate the agreement with
or without cause, with a 30-day written notice. CSC may appoint other VADs and
may sell directly to customers inside these territories. For the year ended June
30, 1999, sales to customers outside of the United States accounted for
approximately 37% of CSC's total revenues.

Internet Services Business Unit
- -------------------------------

B2BX sells its products through in-house sales professionals and referrals from
existing customers. As of September 30, 1999, B2BX had 14 in-house sales and
marketing professionals based in Cedar Falls, Iowa; Eden Prairie, Minnesota; and
Chicago, Illinois. The B2BX sales professionals are highly trained in technology
solutions and frequently travel to other locations throughout the United States
offering our solutions to potential customers.

B2BX expects sales of monthly fee-based subscriptions to B2BXchange to grow via
word-of-mouth marketing. B2BX products are also supported by Web advertising
efforts, targeted tradeshows, and specific direct mail marketing efforts.


Manufacturing

Digital Graphics Business Unit
- ------------------------------

CSC performs final assembly of parts and components purchased from outside
suppliers, functional testing and quality assurance for essentially all of its
products at its facilities in Eden Prairie, Minnesota. For some of its products,
CSC purchases certain subassemblies from outside sources. CSC designs controller
boards and software for use with these print engines and components. CSC
utilizes a computerized material requirements planning (MRP) and monitoring
system to integrate its purchasing, materials handling and inventory control
functions.

Certain components used in CSC's products, including printheads and custom
fabricated components, are currently available from sole sources. Certain other
components are available only from a limited number of sources. CSC has
experienced delays in the past as a result of the failure of certain suppliers
to meet requested delivery schedules. CSC sources ink cartridges from Hewlett-
Packard Corporation (HP), a company that also competes in the wide-format
digital printing market. These cartridges are used in essentially all of CSC's
current products. During fiscal 1999, revenues from products based on these ink
cartridges accounted for approximately 85% of CSC's consolidated revenue.
Although CSC has a supply agreement with HP that should provide it with
sufficient cartridges, an inability to obtain cartridges for any reason would
have a significant adverse impact to CSC's operations. CSC's potential inability
to obtain sufficient sole or limited source components, or to develop
alternative sources, could result in delays in product introductions,
interruptions in product shipments or the need to redesign products to
accommodate substitute components, any of which could have a material adverse
effect on CSC's operating results.

Because CSC normally fills orders within a few days of receipt, it usually
carries less than one month's backlog. In addition, customers may generally
cancel or reschedule orders without significant penalty. For these reasons, CSC
believes that a backlog is not a meaningful indicator of future sales.
Manufacturing plans and expenditure levels are based primarily on sales
forecasts and historical trends where applicable. The absence of a material
backlog could contribute to unexpected fluctuations in CSC's operating results.

Internet Services Business Unit
- -------------------------------

The ISBU does not currently manufacture any products. All of its products are
Internet-based software and services hosted in its own data centers.

                                                                              17


Service and Support

Digital Graphics Business Unit
- ------------------------------

As of June 30, 1999, CSC had 38 technical and customer support representatives
responding to telephone inquiries from its customers and resellers. CSC offers a
limited warranty for all of the products it manufactures. Under its limited
warranty, CSC will repair or replace any defective product on a factory return
or central depot basis for a period ranging from 90 days to one year following
purchase. In addition to its factory warranty, CSC offers its customers the
option of on-site installation and maintenance services in most markets, through
third-party support organizations.

Internet Services Business Unit
- -------------------------------

As of June 30, 1999, B2BXnetwork had 74 professionals and support staff offering
technology solution customization, development, maintenance, installation, and
support services on a fee basis. The B2BXnetwork 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 and related tools and applications is performed via
online help, via telephone or through B2BXchange'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. With the launch of B2BXchange in October
1999, B2BX expects to hire more support staff to allow B2BXnetwork to meet
customer demands.


Competition

Digital Graphics Business Unit
- ------------------------------

The computer printer industry is intensely competitive and rapidly changing.
Some of CSC's existing competitors, as well as a number of potential
competitors, have larger technical staffs, more established and larger marketing
and sales organizations and significantly greater financial resources than CSC.

CSC's inkjet printing products compete in the short-run, wide-format, photo-
realistic color printing market with photographic methods, electrostatic and
inkjet digital printers. Some of the competing manufacturers and vendors in this
market include Hewlett-Packard Co., ENCAD, Inc., Gretag Imaging, Xerox Corp.,
Electronics for Imaging, Inc., Iris Graphics, Inc., Roland, Mutoh, Epson, and a
variety of competitors who purchase ENCAD's printer engines on an OEM or systems
integration basis.

Competition in this market is generally based on equipment cost, printing
quality, production and printing speed, operating costs and the costs of
maintenance and upkeep. The traditional photographic approach, employed to
produce photo-realistic output one page at a time, is expensive, time-consuming
and labor-intensive, especially when an image includes text. This approach also
requires skilled personnel and special production facilities and creates
chemical wastes. Digital printers, used with software that permits manipulation
of images and text, can create photo-realistic output without the use of the
photographic process, eliminating the need for chemical production facilities.

The electrostatic printers that compete with CSC's printer products are
expensive, costing from $50,000 to more than $200,000, and can involve
significant maintenance and operating costs. They can also require controlled
environments and sophisticated front-end processing systems. Although
electrostatic printers provide significantly faster printing speeds and lower
per-square-foot consumables costs than those of our products, CSC believes that
it competes favorably with such devices on the basis of lower initial purchase
price, easier operation, higher quality output and lower ongoing maintenance and
environmental requirements.

While competitors have introduced wide-format printers at prices comparable to
or below those of some of CSC's products, CSC believes that its software and
hardware technologies, including SmoothTone image enhancement, ColorMark color
management, AutoSet calibration, AutoJet mapping, AutoTune unattended printing
and AutoInk swapping, offer it a competitive advantage in terms of higher
printing quality, easier operation and lower ongoing operating costs. In
particular, with issued United States patents on its Big Ink Delivery System and
other patents

                                                                              18


pending in the US and elsewhere, CSC believes that it has a competitive
advantage in high-capacity, wide-format, closed-loop color graphics printing
using a unitary system.

Internet Services Business Unit
- -------------------------------

The ISBU competes in the electronic technology and Internet service arenas that
are comprised of numerous small and large companies providing different new
technologies, all with varying applications. The market for Internet products
and services is highly competitive. Although we believe that the diverse
segments of the Internet market will provide opportunities for more than one
supplier of products and services similar to ours, it is possible that a single
supplier may dominate one or more market segments.

B2BX products and services are being developed for business-to-business
transactions on the Internet. B2BX believes the principal competitive factors in
this market are brand recognition, performance, ease of use, variety of value-
added services, functionality and features, and quality of support. 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, B2BX may
encounter competition from providers of Web browser software, Web Server
software and other Internet products and services that incorporate competing
features into their offerings. The current and potential competitors of B2BX
include:

 .    Web hosting and Internet services companies such as AboveNet
     Communications, Inc., Exodus Communications, Inc., and other local and
     regional Web hosting and Internet services providers;

 .    national and regional Internet service providers such as Verio Inc.,
     Concentric Network Corporation, UUNet Technologies, Inc., and PSINet Inc.;

 .    global telecommunications companies including AT&T Corp., British
     Telecommunications plc, Telecom Italia SpA and Nippon Telegraph and
     Telephone Corp.;

 .    regional and local telecommunications companies, such as Qwest
     Communications, and including the regional Bell operating companies such as
     Bell Atlantic Corporation and Pacific Bell.;

 .    companies that focus on hosting applications within their data centers such
     as USinternetworking, Inc. and IBM Global Services; and

 .    audio and video content hosting companies such as Broadcast.com.

Many of B2BX's 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 B2BX
does. As a result, some of these competitors may be able to develop and expand
their network infrastructures and service offerings more rapidly than B2BX can.
They may be able to adapt to new or emerging technologies and changes in
customer requirements more quickly than B2BX 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 B2BX 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 B2BX.

B2BXnetwork consulting and systems integration services compete for projects and
staff with many competitors who have more experience and resources than
B2BXnetwork. 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.


Proprietary Rights

Digital Graphics Business Unit
- ------------------------------

CSC's ability to compete effectively depends, in part, on its ability to
maintain the proprietary nature of its technologies through patents, trademarks,
copyrights and trade secrets. Important features of its products are represented
by proprietary software, some of which is licensed from others and some of which
it owns. CSC

                                                                              19


attempts to protect its proprietary software with a combination of copyrights,
trademarks and trade secrets, employee and third-party non-disclosure agreements
and other methods of protection. Despite these precautions, it may be possible
for unauthorized third parties to copy certain portions of its products or to
reverse-engineer or obtain and use information that CSC considers proprietary.
In addition, there can be no assurance that others will not independently
develop software products similar or superior to those CSC develops or plans to
develop. In addition, CSC's products compete in markets in which much
intellectual property has been developed and patented by its competitors.
Although CSC performs patent searches and employs outside patent counsel, there
can be no assurance a competitor will not dispute the uses or methods employed
by CSC's products.

CSC has been granted five United States patents relating to its Big Ink Delivery
System. It has also been granted one patent for VideoNet(R) packet-based data
transfer protocol that is a high-speed communications method for connecting
print engines to print servers. Additional patent applications are pending
relating to its FastPort, Big Ink Delivery System, and other imaging and image
enhancement and wide-format print engine technologies and techniques. There can
be no assurance that patents will issue from any of these pending applications.
In addition, with regard to current patents or patents that may issue, there can
be no assurance that the claims allowed will be sufficiently broad to protect
CSC's technology or that issued patents will not be challenged or invalidated.
Applications to patent the Big Ink Delivery System and related technologies have
been filed in selected foreign countries. Patent applications filed in foreign
countries are subject to laws, rules and procedures which differ from those of
the United States and thus there can be no assurance that any foreign patents
will issue as a result of these applications. Furthermore, even if these patent
applications result in the issuance of foreign patents, some foreign countries
provide significantly less patent protection than the United States.

Internet Services Business Unit
- -------------------------------

We currently have no patented technology in the ISBU that would preclude or
inhibit competitors from entering the market. The steps we have taken to protect
the ISBU's intellectual property may not prove sufficient to prevent
misappropriation of the ISBU's technology or to 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 the ISBU to obtain the rights to
use substitute technology, which could be more expensive or offer lower quality
or performance, and therefore have an adverse effect on its business.

To date, we have not been notified that B2BX 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, B2BX
may be notified that the content of one of its customer's Web sites infringes on
a third party's trademark. In response, B2BX intends to inform the customer of
such claim and, if necessary, intends to terminate a customer's service. B2BX
expects that participants in its markets will be increasingly subject to
infringement claims as the number of services and competitors in its industry
segment grows. Any such claim, whether meritorious or not, could be time-
consuming, result in costly litigation, cause service installation delays or
require B2BX to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to B2BX or at
all. As a result, any such claim could have an adverse effect upon B2BX's
business.


Licenses and Strategic Relationships

Digital Graphics Business Unit
- ------------------------------

CSC licenses Pipeline Associates, Inc.'s PowerPage(R) printer-language
software for enhancement and use in all of its wide format color inkjet printer
products to provide support for and compatibility with the PostScript page
description language. The license agreement provides for a per unit royalty on
printers that CSC ships.

CSC has a license to remanufacture inkjet cartridges used in its printer
products and pay a related royalty based on the number of inkjet cartridges
purchased from Hewlett-Packard for resale.

CSC has licensed operating software from Novell, Inc. and Microsoft Corporation
for use in its printer products. These license agreements provide for a per unit
royalty on printers we ship.

                                                                              20


Internet Services Business Unit
- -------------------------------

Our ISBU's strategic relationships and partnerships with leading technology
companies allow us to provide a wide range of services to meet our customers'
needs. The ISBU has established and continues to seek strategic hardware and
software manufacturer relationships that enhance its infrastructure and
distribution capabilities and broaden its product offerings. Currently, the ISBU
supplier has relationships with companies such as Microsoft Corporation, UUNET
Technologies, Computer Associates, AboveNet, Sun Microsystems, and Oracle
Corporation and is providing a wide variety of these products and services to
its customers.

Employees

Digital Graphics Business Unit
- ------------------------------

As of June 30, 1999 the DGBU had a total of 299 employees. None of the DGBU's
employees are represented by a labor organization and the DGBU has never
experienced a work stoppage or interruption due to a labor dispute. We believe
our relationship with our DGBU employees is good.

Internet Services Business Unit
- -------------------------------

As of June 30, 1999 the ISBU had a total 141 employees. None of the ISBU's
employees are represented by a labor organization and the ISBU has never
experienced a work stoppage or interruption due to a labor dispute. We believe
our relationship with our ISBU employees is good.

Environmental Matters

Internet Services Business Unit and Digital Graphics Business Unit
- ------------------------------------------------------------------

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.

Other Matters

Internet Services Business Unit and Digital Graphics Business Unit
- ------------------------------------------------------------------

For important additional cautionary factors, risks and uncertainties, refer to
Exhibit 99 of this Form 10-K. Although not currently affecting or reasonably
expected to affect our business, operations or financial results, these
additional cautionary factors, risks and uncertainties would be expected to
affect our business, operations or financial results if they were to
materialize.


Item 2.  PROPERTIES.
- ------   ----------

As of August 31, 1999 we lease an aggregate of 297,313 square feet of office and
warehouse space in Eden Prairie, Minnesota of which 174,647 square feet is from
a related party (see item 13), pursuant to leases expiring at various times
through December 2010.  The leases require payments of property taxes, insurance
and maintenance costs in addition to basic rent. The leases contain renewal
options for periods ranging from one to three years.

We lease 16,800 square feet of office space in Cedar Falls, Iowa for our RSPN
headquarters. The lease is with TEAM Property Management Company, which is
controlled by the three former owners of K&R Technical Services, Inc. who are
now shareholders of VirtualFund.com, Inc. (see item 13).

We lease approximately 5,289 square feet of office and warehouse for our
European headquarters in Hoofddorp, outside of Amsterdam, The Netherlands. We
lease 10,958 square feet of office space in San Jose, California for our Asian
sales and technical support staff and an advanced research and technology
center.  We lease 1,713 square feet of office space in Miami, Florida for our
Latin American sales staff.  We also lease 2,023 square feet in Chicago,
Illinois and 265 square feet in Newton, Massachusetts for RSPN operations. We
own approximately 25,000 square feet of office and production space in Cedar
Rapids, Iowa for our media coating operations.

                                                                              21


We expect to acquire additional facilities, most likely through leasing, in
fiscal 2000 to accommodate the anticipated growth in the Internet Services
Business Unit.


Item 3.  LEGAL PROCEEDINGS.
- ------   -----------------

In October 1995, we filed suit against Sentinel Imaging, a division of Sentinel
Business System, Inc. ("Sentinel") and Brian Haberstroh, an employee of Sentinel
("Haberstroh").  The complaint alleged, among other things, misappropriation of
trade secrets, and interference with contractual relationships.  In October 1997
the case was tried before a jury which found in our favor and awarded us damages
and interest totaling $2.363 million dollars. In February 1998, we filed another
suit against Sentinel alleging tortious interference with contract, contributory
copyright infringement,  copyright infringement and  unfair competition  related
to our software license for the ColorMark color management software.  Sentinel
counterclaimed alleging copyright misuse and unfair competition.  In March 1998,
Sentinel filed for protection under chapter 11 of the federal bankruptcy code.
In July 1998, we acquired Kilborn Photo Products, Inc., a media coating facility
that was a supplier to Sentinel and also had a claim in the approximate amount
of $575,000 against Sentinel for product supplied.  In February 1999, Sentinel
was acquired by Charrette Corporation.  In April 1999, we settled all claims
with Sentinel and Charrette and as a result, received $1.15 million in cash and
a note receivable of $350,000 due June 2000.  Our results of operations in
fiscal 1999 include a $1.5 million gain from this settlement.

We are involved in legal proceedings related to DGBU customers' credit and
product warranty issues in the normal course of business. In certain
proceedings, the claimants have alleged claims for exemplary or punitive damages
which may not bear a direct relationship to the alleged actual incurred damages,
and therefore could have a material adverse effect on our business.  At this
time none of the proceedings are expected to have a material effect on our
operations or financial condition.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------   ---------------------------------------------------

The Annual Meeting of the shareholders of VirtualFund.com, Inc. was held on June
24, 1999, pursuant to notice to all shareholders of record at the close of
business on April 30, 1999.  As of the notice of the meeting there were
15,778,866 common shares outstanding and 1,499,998 preferred shares outstanding.

The following matters were presented for a vote of the security holders:

1.   Election of director Melvin Masters to a three year term, election of
     director Stephen Fisher to a two year term, and ratification of appointment
     of director Roger Wikner to a term ending in the year 2000. The votes were
     as follows:



                              For             Against        Abstained
                              ---             -------        --------
                                                    
          Masters          6,309,235            11,300        606,765
          Fisher           6,579,559           344,391          3,350
          Wikner           5,822,695         1,098,905          5,700


     There were no Broker non-votes.

2.   A proposal to increase the number of authorized shares of common stock from
     30 million to 50 million.  Shareholders passed the resolution with
     8,425,267 votes in favor and 679,661 votes against the proposal.  There
     were 3,950 abstentions.

3.   A proposal to change the name of the LaserMaster Technologies, Inc. 1996
     Stock Incentive Plan to the  VirtualFund.com, Inc. 1996 Stock Incentive
     Plan, to extend the Plan termination date to June 24, 2009, and to increase
     the number of shares available for awards under the Plan from 1.5 million
     to 5 million. Shareholders passed the resolution with 7,719,303 votes in
     favor and 1,382,875 votes against the proposal.  There were 6,700
     abstentions.

                                                                              22


                                    PART II
                                    -------

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------   ---------------------------------------------------------------------

Dividends

We have never paid cash dividends on our Common Stock.  We currently intend to
retain any earnings for use in our business and, accordingly, do not anticipate
paying any cash dividends in the foreseeable future.  Any payment of dividends
in the future will depend upon our capital requirements, earnings, and general
business and financial condition, as well as other factors that the Board of
Directors may deem relevant.

Market Information

Since July 17, 1990, the Company's Common Stock has traded on the Nasdaq
National Market System (Nasdaq symbol: VFND formerly LMTS).  The following table
sets forth the high and low sale prices reported in the Nasdaq National Market
System:



                                             Common Stock
                                            --------------
                                             High    Low
                                            ------  ------
                                              
Fiscal Year 1998
  First Quarter............................  $3.63   $1.69
  Second Quarter...........................   5.00    2.63
  Third Quarter............................   5.25    3.50
  Fourth Quarter...........................   5.25    3.75

Fiscal Year 1999
  First Quarter............................  $5.25   $3.00
  Second Quarter...........................   4.25    1.31
  Third Quarter............................   2.72    1.19
  Fourth Quarter...........................   3.75    1.38

Fiscal Year 2000
  First Quarter (September 30, 1999).......   4.13    1.25


As of September 30, 1999, the last reported sale price of our Common Stock was
$2.53 per share.  As of such date, there were approximately 216 record holders
and 2,926 beneficial holders of our Common Stock.

                                                                              23


Item 6.  SELECTED FINANCIAL DATA.
- ------   -----------------------



                                                                                Fiscal Years Ended June 30,
                                                            ------------------------------------------------------------------
(In thousands, except per share amounts)                      1999           1998  (a)     1997 (a)     1996          1995
                                                            ---------     ---------     ---------     ---------     ----------
                                                                                                     
Statement of Operations Data
Continuing Operations
   Net Sales.............................................   $   4,138
   Cost of goods sold....................................       3,058
                                                            ---------     ---------     ---------     ---------     ----------
         Gross profit....................................       1,080
   Operating expenses:
     Sales and marketing.................................       1,275
     Research and development............................         939           203
     General and administrative..........................       4,523         2,475         2,359         3,212          3,176
     Goodwill amortization...............................       1,338
                                                            ---------     ---------     ---------     ---------     ----------
         Operating loss..................................      (6,995)       (2,678)       (2,359)       (3,212)        (3,176)
   Other income (expense) (primarily interest)...........         (41)
                                                            ---------     ---------     ---------     ---------     ----------
   Loss from continuing operations before taxes..........      (7,036)       (2,678)       (2,359)       (3,212)        (3,176)
   Income tax (provision) benefit........................      (3,342)          920        (1,289)          964          1,070
                                                            ---------     ---------     ---------     ---------     ----------
   (Loss) earnings from continuing operations............     (10,378)       (1,758)       (3,648)       (2,248)        (2,106)
Earnings (loss) from discontinued operations
     net of income taxes.................................       2,555(b)      3,599(a)    (12,836)(c)    (8,214)(d)      2,312
                                                            ---------     ---------     ---------     ---------     ----------
Net (loss) earnings......................................   $  (7,823)    $   1,841     $ (16,484)    $ (10,462)    $      206
                                                            =========     =========     =========     =========     ==========

 Basic and dilutive net (loss) earnings per common share:                        (a)           (a)
      Loss from continuing operations....................   $    (.66)    $    (.11)    $    (.25)    $    (.20)    $     (.19)
      (Loss) earnings from discontinued operations.......         .16           .23          (.90)         (.73)           .21
                                                            ---------     ---------     ---------     ---------     ----------
      Net (loss) earnings per common share...............   $    (.50)    $     .12     $   (1.15)    $   (0.93)    $     0.02
                                                            =========     =========     =========     =========     ==========

Weighted average common shares outstanding...............      15,783        15,316        14,306        11,305         11,097



/(a)/Includes the results of Kilborn Photo Products, Inc. as of July 1, 1996 and
K&R Technical Services, Inc. as of December 1, 1998.  Information for Kilborn
Photo Products, Inc. is not available prior to July 1, 1996.  See Note 2 to the
Consolidated Financial Statements for additional information on business
combinations.

/(b)/In September 1998, we reversed $600,000 of special charges incurred in the
fourth quarter of fiscal 1996 related to intellectual property licenses.  These
charges, which we previously accrued and expensed, were not incurred due to a
negotiated settlement.

/(c)/In June 1997, we incurred special pre-tax charges of $8.4 million.  The
charges were related to the phase out of two proprietary printer products and
settlement of litigation; $3.5 million was charged to cost of goods sold and
$4.9 million to operating expenses.  In addition, we recorded a special income
tax charge of $6.5 million related to the revaluation of deferred tax assets.

/(d)/In May 1996, we incurred special pre-tax charges of $9.9 million,
consisting of restructuring and other special charges of $4.4 million and a
special charge to cost of goods sold of $5.5 million related to a revised
business plan and technical problems in one of our products.

                                                                              24




                                                                    June 30,
                                             -----------------------------------------------------
                                               1999       1998 (a)    1997 (a)    1996      1995
                                             --------   --------    --------    --------  --------
                                                             (In thousands)
                                                                           
Balance Sheet Data(a):
  Working capital                            $     70   $  7,154    $  7,621    $  2,580  $ 13,708
  Total assets                                 39,201     34,559      34,066      46,545    59,161
  Current liabilities                          25,143     20,631      21,754      30,087    30,933
  Long-term debt, less current maturities         614         67         185         820     1,599
  Stockholders' equity
      Preferred                                 7,500
      Common                                    5,944     13,860       9,894      15,638    25,293


Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------   ----------------------------------------------------------------
RESULTS OF OPERATIONS.
- ---------------------

(Tabular information: dollars in thousands, except per share and percentage
amounts)


Liquidity and Capital Resources

Liquidity needs during the years ended June 30, 1999 and 1998 were satisfied by
cash flows from operating activities.  Liquidity needs during the year ended
June 30, 1997 were satisfied primarily by the issuance of common stock and
warrants.

Operating activities consumed cash of $134,000 in 1999, provided cash of $7.5
million in 1998 and consumed cash of $3.6 million in 1997. The decrease in cash
provided from operations in 1999 compared to 1998 is the result of our $3.1
million pre-tax loss.  Cash used in operating activities in 1999 also includes
payment of a $776,000 liability assumed in our acquisition of Kilborn Photo
Products, Inc.  The increase in cash provided from operations in 1998 is due
primarily to profitable operations and lower levels of inventory resulting from
increased efficiencies in forecasting and planning.

Cash used in investing activities was $3.5 million, $1.4 million and $3.1
million in fiscal 1999, 1998 and 1997, respectively.  The increase in cash used
in investing activities in 1999 compared to 1998 is due to $1.4 million in
payments for the acquisition of K&R Technical Services, Inc.  At June 30, 1999,
we had a remaining cash commitment of $1.9 million, net of offsetting
receivables, due to the former shareholders of K&R for this acquisition.  The
remaining commitment is due in June and September 2000. The decrease in cash
used in investing activities in 1998 compared to 1997 is the result of lower
expenditures for capitalized software development costs and other intellectual
property.   We expect to increase expenditures for property and equipment in
fiscal 2000 by about 50% compared to fiscal 1999 as we continue to enhance our
infrastructure for our ISBU activities.  Although we have not currently
identified any acquisition candidates, we expect to pursue other business
acquisitions that may require cash to complete.  These plans may increase or
decrease as new opportunities are identified.

Financing activities used cash of $1.5 million in 1999 and $1.3 million in 1998
and provided cash of $7.2 million in 1997.  Cash used in financing activities in
1999 included a $1.8 million payment to a former shareholder of Kilborn Photo
Products, Inc.  This payment was for a liability we assumed when we acquired
Kilborn.

In order to meet the cash shortfall in September 1996, we privately placed
2,285,715 shares of our common stock for a purchase price of $4.375 per share,
together with warrants to purchase an additional 2,285,715 shares with an
exercise price of $7.00 per share, for an aggregate consideration of $10
million.  Of such shares, 1,371,429 shares were sold to Sihl-Zurich Paper Mill
on Sihl AG, a Swiss corporation ("Sihl"), for $6 million.  Sihl conditioned its
investment on an investment of $4 million by our Chief Executive Officer or an
entity with which he is affiliated.  In satisfaction of such condition,
TimeMasters, Inc. and affiliates ("TMI") purchased 914,286 shares for $4 million
and received warrants to purchase an additional 914,286 shares at $7.00 per
share.  A portion of the proceeds from the private placement of common stock to
TMI was offset against our indebtedness to TMI for a demand note in the
principal amount of $1.765 million, as permitted by the subordination and
forbearance agreement.

                                                                              25


In September 1996, we also privately placed 410,256 shares of our common stock
for a purchase price of $4.875 per share, together with warrants to purchase an
additional 471,286 shares with an exercise price of $6.79 per share, for an
aggregate consideration of $2 million. The shares and warrants were issued to
General Electric Capital Corporation ("GE"), our senior lender.

In September 1996, we also entered into a series of agreements with one of our
largest trade creditors and their supplier, converting approximately $1.7
million of trade payables and a promissory note of $859,516 into a $2.5 million
convertible subordinated debenture.  The debenture contained voluntary,
automatic and mandatory conversion provisions. As of June 30, 1999, 630,000
shares of our stock had been issued for these conversions and a final payment of
$376,000 was made to satisfy the remaining obligation.  A related agreement
required the supplier to provide approximately $1.5 million in inventory to us
in resolution of quality issues with the product they previously supplied.

During 1999, we incurred a net loss of $7.8 million, including a special tax
adjustment of $4.8 million. We also incurred net losses and special charges of
$16.5 million and $10.5 million in 1997 and 1996, respectively, and as of June
30, 1999, had an accumulated deficit in stockholders' equity of $27.3 million.
In addition, CSC's revolving credit facility with our senior lender, General
Electric Capital Corporation ("GE"), expired in January 1999 and was extended to
December 1999. GE has indicated that it will not renew this agreement as we no
longer meet the account size objectives of their portfolio. As of October 3,
1999, we owed GE $1,053,600 on this agreement. B2BX's revolving credit facility
has also expired and we were able to negotiate an extension through November 22,
1999. As of October 3, 1999, we owed B2BX's lender $478,000 on this agreement.

As a result of declining revenues during the previous three years, we have taken
steps to pursue opportunities outside our traditional business.  In this regard,
we have developed a new operating segment in the electronic commerce market.
The development of this market has required substantial cash. Further
development is planned and may result in further significant losses during the
start up period. The Company has been developing this new segment based in the
business-to-business electronic commerce market in its Internet Services
Business Unit for the past two years. The first product roll out occurred when
B2BXchange was released in October 1999. Management believes the Company has
significant opportunities in this new market and has been investing in
development activities which have been financed to date by the cash flow and the
working capital provided by the Digital Graphics Business Unit.  In order to
provide the capital to continue to grow this opportunity, management announced
its intention to sell the Digital Graphics Business Unit, which is comprised of
ColorSpan Corporation, its subsidiaries and Kilborn Photo Products, Inc., on
October 21, 1999. Management believes the sale proceeds will fund the Internet
Services Business Unit through the fiscal 2000 year and into the following year.
It is also seeking to replace the B2BX revolving credit facility to provide
further liquidity sources for the business.

Our longer-term financing needs will depend on the results of the roll-out of
our B2BXchange product in October 1999 and the availability of new product
opportunities.  If sales from this product and our other products are not
sufficient to fund operations and our growth plans, we will be required to seek
additional financing and/or alter our plans related to product development and
business acquisitions.


Results of Operations

The following table sets forth certain items from our Consolidated Statements of
Operations expressed as a percentage of net sales. All sales in fiscal 1998 and
1997 were from discontinued operations, therefore, no data has been presented:

                                                                              26




                                                                 Fiscal Year
                                                                    Ended
                                                                   June 30,
                                                                     1999
                                                                 -----------
                                                              
Net sales......................................................     100.0%
Cost of goods sold.............................................      73.9
                                                                   ------
Gross margin...................................................      26.1
Expenses:
  Sales and marketing..........................................      30.8
  Research and development.....................................      22.7
  General and administrative...................................     109.3
  Goodwill amortization........................................      32.3
                                                                   ------
Total operating expenses.......................................     195.1
                                                                   ------
Operating loss.................................................    (169.0)
Other (expense) income:
  Interest expense.............................................      (3.9)
  Other........................................................       2.9
                                                                   ------
Loss from continuing operations before income taxes............    (170.0)
Income tax (provision) benefit.................................     (80.7)
                                                                   ------
Loss from continuing operations................................    (250.7)
Earnings from discontinued operations..........................      61.7
                                                                   ------
Net loss.......................................................    (189.0)%
                                                                   ======


For the period ended June 30, 1999, two customers approximated 50% of the total
revenue.

Net Sales

Net sales were $4.1 million in new ISBU revenues resulting from the December
1998 acquisition of K&R Technical Services, Inc.  Growth in this area is
expected to come from the conversion of subscribers in B2BXchange to customers
using the applications available and storage and bandwidth charges.

The following table sets forth net sales by product line expressed in thousands
and as a percent of net sales:



                                    Fiscal Years Ended June 30,
                                    ---------------------------
Net Sales                                       1999
                                                ----
                                                
Internet Services Business Unit:
    VAR Product Sales.............     $  478          11.6
    Hosting/Access Revenue........        530          12.8
    Remote Support................        236           5.7
    Staff Augmentation............      1,576          38.1
    Internet Services.............      1,070          25.9
    Consulting and Other..........        248           5.9
                                       ------         -----

Total net sales...................     $4,138         100.0%
                                       ======         =====


Sales Outlook

We expect revenue in the DGBU to increase in fiscal 2000 compared to fiscal 1999
as we introduce a new printer in a different market from those served by our
existing products.  We also expect revenue to increase as ink sales continue to
grow with the increasing installed base of 8-color and 12-color printers.  In
addition, much of the revenue decline over the past two years is related to our
older plain-paper typesetting business.  Although we expect sales of these
products to continue to decline, plain-paper typesetting revenue now represents
less than 4% of total DGBU revenues.

We expect revenues in the ISBU to also increase as we will have a full year of
B2BX operations.  B2BX was formed in December 1998 with the acquisition of K&R
Technical Services, Inc.  Accordingly, fiscal 1999 revenue only includes 7
months of activity from this operation. We also expect to generate additional
revenue from the October 1999 introduction of our B2BXchange product.

                                                                              27


Gross Margin

Gross margins in the ISBU were 26.1% in fiscal 1999.

We anticipate gross margins in the ISBU should increase dramatically as our
software and Web-based products gain market share.  Gross margins on software
and Web-based products are much higher than those achieved from professional
services where employee related costs are significant in generating revenue.
Fiscal 1999 revenue in the ISBU is primarily from professional services.


Sales and Marketing

Sales and marketing expenses were $1.3 million in fiscal 1999.  Sales and
marketing expenses are expected to grow in the future as B2BXchange customers
are developed further. Efforts will focus on bringing subscribers to the free
services and then converting subscribers into paying customers.


Research and Development

Research and development ("R&D") expenditures, including amounts expensed and
capitalized, were $939,000 in fiscal 1999. As a percent of overall sales, these
expenditures represented 22.7% in fiscal 1999. Our future success depends on
continually developing new and better products for the markets we serve.  As a
result, we do not anticipate a material change in the rate we invest in this
area.  We intend to continue investing in product development activities and
expect an increase in gross spending but anticipate the expenses as a percent of
revenue will decrease as anticipated revenue growth occurs.


General and Administrative

General and administrative expenses were $4.5 million, $2.5 million and $2.4
million in fiscal 1999, 1998 and 1997, respectively.  The increase in general
and administrative expenses in fiscal 1999 compared to 1998 includes $1.5
million for 7 months of acquired operations of K&R Technical Services, Inc. and
a $350,000 increase in other expenses related to the development of the ISBU.

Goodwill Amortization

In December 1998, we acquired K&R Technical Services, Inc. d/b/a TEAM
Technologies in a business combination accounted for as a purchase. Accordingly,
the aggregate purchase price of approximately $11,278,000, including transaction
costs, was allocated to the assets acquired and liabilities assumed based upon
the fair values at the date of acquisition. The historical carrying amounts of
the assets acquired and liabilities assumed approximated their fair value with
liabilities assumed exceeding assets acquired by $193,000. The purchase price
and the liabilities assumed in excess of tangible assets acquired has been
recorded as goodwill in the amount of $11,471,000 and is being amortized on a
straight-line basis over five years.  In pursuit of our new ISBU strategy, we
believed there was significant value in obtaining experienced management and
staff in the information technology market.  TEAM has been in business since
1955 and has a number of long term client relationships that include Fortune 500
companies.  As part of the transaction, we entered into 5-year employment
contracts with key members of their management.


Interest Expense

Interest expense was $162,000 in fiscal 1999. The decrease in interest expense
in 1998 is attributable to a decrease in average debt levels resulting from
increased cash flow from operating activities and conversion of the debenture to
equity. Interest expense is expected to increase in the future due to higher
anticipated debt levels.

                                                                              28


Income Taxes

In June 1997, we incurred a special charge to income taxes of $6.5 million
related to the revaluation of deferred tax assets.  The revaluation was done as
a result of a change in the estimated net realizable value of deferred tax
assets.  We did not record a provision for income taxes in fiscal 1998 as the
availability of net operating loss carryforwards offset the pre-tax income
generated.  In June 1999, we incurred a charge to income taxes of $4.8 million
to reduce the carrying value of our deferred tax assets to zero.  At June 30,
1999, we had net operating loss carryforwards for federal income tax purposes of
approximately $22.2 million and net operating loss carryforwards for state
income tax purposes of approximately $9.4 million, which are available to offset
future taxable income, if any, through 2019 and 2014 respectively. In the
accompanying financial statements, taxes are allocated between discontinued and
continuing operations based on the guidelines presented in FAS #109. Based on
our recent operating losses and the uncertain future of our current strategy to
develop a new business unit around the Internet, realization of the benefits
from our net operating loss carryforwards cannot be assured.  However, the
decision to sell the DGBU is a change in our business plan and is anticipated to
generate a gain from that sale. Our Deferred Taxes will be evaluated in the
future with the new business plan. We anticipate a recovery of our Deferred
Taxes based on the estimated sales price of the DGBU. In addition, realization
of net operating loss carryforwards may be limited under certain provisions of
the Internal Revenue Code regardless of our ability to generate taxable income.
See Note 13 of Notes to Consolidated Financial Statements for further
disclosures relating to income taxes.

Discontinued Operations

Net sales of the DGBU, which is being treated as discontinued operations, were
$71.6 million, $82.6 million, and $89.4 million in fiscal 1999, 1998 and 1997,
respectively. The decrease in net sales of 13% in fiscal 1999 was the result of
a $5.8 million decrease in hardware sales and a $5.2 million decrease in
consumable sales. The decrease in hardware sales is due to a $2.9 million
decrease and a $6.4 million decrease in PressMate and Plain-Paper Typsetting
equipment in fiscal 1999 and 1998, respectively, along with a $2.3 million
decrease and a $3.5 million decrease in Big Color servers in fiscal 1999 and
1998, respectively.  Consumable sales, consisting primarily of ink, media, film,
maintenance contracts and spare parts, were $44.2 million, $49.5 million, and
$47.4 million in fiscal 1999, 1998, and 1997, respectively. Consumable sales as
a percentage of total DGBU net sales were 62%, 60%, and 53% in fiscal 1999, 1998
and 1997, respectively. The increase in consumable sales as a percentage of
total DGBU sales over the past two years is primarily due to an increased
installed base of 8-Color printers such as DesignWinder and the HiRes
DisplayMaker series and the new 12-Color DisplayMaker series XII printers.

Net income from discontinued operations was $2.6 million and $3.6 million for
the fiscal years ended 1999 and 1998, respectively.  Net loss from discontinued
operations was $12.8 million in fiscal 1997.

Foreign Currencies

In general, our exposure to foreign currency gains and losses is not material.
ColorSpan  Europe, Ltd. ("CSE") extends credit in the normal course of business
in five relatively stable European currencies.  In addition, CSE's financing
agreement allows us to factor those receivables and receive Dutch Guilders in
which we pay our expenses.  The impact of this is to effectively hedge our
exposure to foreign currency risk.  Essentially all other transactions are in
U.S. dollars.

Year 2000

We are currently completing our work to resolve the potential impact of the Year
2000 on the processing of time-sensitive information by our computerized
information systems.  Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the applicable year.  In
such case, programs that have time-sensitive logic may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.  We utilize a number of computer programs
across our entire operation.  Year 2000 issues could impact our information
systems as well as computer hardware and equipment that is part of our telephony
network such as switches, termination devices and SONET rings that contain
embedded software or "firmware."

Our exposure to potential Year 2000 problems exists in two general areas:
technological operations in our sole control, and technological operations
dependent in some way on one or more third parties.  The majority of our
exposure in potential Year 2000 problems is in the latter area where the
situation is much less within our ability to predict or control.  Our business
is heavily dependent on third parties, many of which are themselves heavily
dependent on technology.  We cannot control the Year 2000 readiness of those
parties.  In some cases, our third-party dependence is

                                                                              29


on vendors of technology who are themselves working towards solutions to Year
2000 problems. We have initiated projects to identify and correct the potential
problem in all of our enterprise systems. Most of these projects have been
completed or are in the final testing stage. The costs incurred to date for
projects specifically related to Y2K issues total less than $40,000 and have
been expensed in the financial statements. In some cases, systems have been
upgraded to receive other benefits in which case the Y2K issue was addressed at
the same time. We are using internal resources to test the software
modifications. Funding for this area is expected to, and has come from, cash
flow from operations. We expect additional costs for this issue will be less
than $20,000.

Our Products.  We design and sell products that are heavily reliant on software.
While we have taken appropriate steps to ensure the readiness of this software
and believe it to be compliant, we cannot be certain that the software will
operate error free, or that we will not be subject to litigation, whether the
software operates error free or not.  However, we believe that based on our
efforts to ensure compliance and the fact that the calculations needed in and by
our products are not date dependent, it is not reasonably likely that we will be
subject to such litigation.

Contingency Plans.  We have completed a basic contingency plan for the most
likely failures and have tested it.  We believe the most likely failure under
our control would include an unforeseen system failure of our mainframe
computer. We have remediated and tested the systems involved and continue to
monitor these areas. Should an unforeseen failure occur, we have a contingency
plan that would allow us to continue supporting our customers. We continue to
evaluate possible failures and our exposure to those failures. Our largest
exposure continues to come from areas beyond our control.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------   -------------------------------------------

See Financial Statements and Supplementary Data attached.


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------   ---------------------------------------------------------------
         FINANCIAL DISCLOSURE.
         --------------------

None

                                                                              30


                                   PART III
                                   --------

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------   --------------------------------------------------

The following table sets forth information, as of September 30, 1999, concerning
the directors of the Company:



                                                                                       Year
                                                                                       Became
Name, Age, Positions, Principal Occupations, Directorships                             Director
- ----------------------------------------------------------                             --------
                                                                                    
                     Directors whose terms expire in 2000

Roger Wikner; age 57; In 1968 Mr. Wikner joined the investment firm of Miller &           1999
Schroeder. When the firm sold in 1997, he held positions of Chief Executive
Officer, President and principal Shareholder. At Miller & Schroeder, Mr. Wikner
was responsible for developing innovative healthcare, housing and commercial
financing programs, with cumulative financings of more than $26 billion. He is
one of the nation's recognized authorities on municipal finance and has spoken
on numerous professional panels.



                      Directors whose terms expire in 2001

Stephen Fisher; age 44; Mr. Fisher is President and Chief Operating Officer of            1999
RSPnet.com, Inc., a wholly owned subsidiary of the Company. Mr. Fisher has
held this position since December 1998. RSPnet.com is a regional systems
integrator specializing in Internet hosting, integration and support services.
Prior to this and for a period of 23 years, Mr. Fisher was President and Chief
Executive Officer of TEAM Technologies (an Iowa based systems integrator) and
was actively involved in strategic direction and operations.

                      Directors whose terms expire in 2002

Melvin L. Masters; age 45; Mr. Masters co-founded the Company in February, 1986           1989
and has been Chairman, Chief Executive Officer and President of the Company
since it acquired LMC in May 1989. Mr. Masters is also the sole shareholder,
director and CEO of TimeMasters, Inc. (TMI), a company established for the
purpose of property management which has additional investments in the fields of
wireless voice and data communications, Internet services and personal motor
sports products.


On May 6, 1999 Mr. Jean-Louis Gassee resigned from the board, citing time
commitments related to a public offering of stock of Be, Inc. where he is Chief
Executive Officer. Mr. Rohan Champion resigned from the board on May 17, 1999
due to issues related to a new business for which he is the Chief Executive
Officer. On September 15, 1999, we announced the appointment of Edward S. Adams
and Timothy R. Duoos to our Board of Directors.

Timothy R. Duoos; age 43; Mr. Duoos is President and Chief Executive Officer of
Lyndale Garden Center, Inc. in Minneapolis and has held that position since
October 31, 1986.  Mr. Duoos also held a part-time position as Chairman of the
Board and Chief Executive Officer of Sunbelt Nursery Group, Inc. ("Sunbelt")
based in Fort Worth, Texas, from November 1994 through May 1998, and President
from October 1997 through May 1998.  He served as a part-time consultant to
Sunbelt from May 1998 to December 1998.  Mr. Duoos served as a Director of
Pinnacle Financial, Inc., a privately held company from June 1996 through June
1997.

Edward S. Adams; age 36; Mr. Adams is Associate Dean for Academic Affairs,
Julius E. Davis Chair and Professor of Law and Co-Director for the Center for
Business Law and Entrepreneurial Studies at the University of Minnesota School
of Law. Mr. Adams is also a principal in Jon Adams Financial Company, LLP, in
Wayzata, Minnesota, where he assists e-commerce entities in raising venture
capital.

                                                                              31


The following table sets forth information, as of September 30, 1999, regarding
the executive officers of the  Company:



Name                  Age  Positions
- --------------------  ---  -----------------------------------------------------
                     
Melvin L. Masters      45  Chief Executive Officer, President and Chairman of
                           the Board
Robert J. Wenzel       48  Chief Operating Officer and President ColorSpan
                           Corporation
Stephen Fisher         44  President and Chief Operating Officer of RSPnet.com,
                           Inc.
Thomas D. Ryan         41  Executive Vice President
James H. Horstmann     38  Chief Financial Officer
David Alexander        39  Secretary
Timothy N. Thurn       43  Treasurer


Mr. Wenzel  has been our Chief Operating Officer since October 1991 and
President of ColorSpan Corporation, our principal operating subsidiary, since
October 1989.  He joined ColorSpan as General Manager of the PC Division in May
1989 and became Executive Vice President shortly thereafter.

Mr. Ryan has been Managing Director of ColorSpan Europe, Ltd. since January 1995
and was appointed Executive Vice President in May 1996.  From 1985 to July 1994,
Mr. Ryan worked for Mentor Corporation as Vice President and General Manager of
its Minnesota operations.

Mr. Horstmann has been our Chief Financial Officer since May 1997, and prior to
that was the Vice President of Materials and Administration for ColorSpan
Corporation.  Mr. Horstmann joined ColorSpan Corporation in April 1994.  Prior
to joining us, Mr. Horstmann was with the accounting firm of Boulay Heutmaker
Zibell & Co., PLLP.  Mr. Horstmann is a Certified Public Accountant (CPA).

Mr. Alexander has been our Executive Vice President of Strategic Planning since
1998, and prior to that was Vice President of Information Strategy since
September 1997 and has been Secretary since January 1998.  Mr. Alexander joined
ColorSpan Corporation in 1990 and has held a variety of management positions in
Research and Development, Marketing and Business Development.

Mr. Thurn has been our Treasurer since June 1989 and Treasurer of ColorSpan
Corporation since March 1987.  Mr. Thurn has experience as both a public and
private accountant.  Mr. Thurn is a Certified Public Accountant (CPA) and
Certified Management Accountant (CMA).

Officers of the Company are elected annually by the Board of Directors.  All of
the current officers have been re-elected to serve in the same positions for the
coming year.

Compliance with Section 16(a) of the Securities Exchange Act
Under federal securities laws, the Company's directors and officers, and any
beneficial owner of more than 10 percent of a class of equity securities of the
Company, are required to report their ownership of the Company's equity
securities and any changes in such ownership to the Securities and Exchange
Commission (the "Commission") and the securities exchange on which the equity
securities are registered. Specific due dates for these reports have been
established by the Commission, and the Company is required to disclose in its
Form 10-K any delinquent filing of such reports and any failure to file such
reports.

Based upon its review of forms 3, 4, and 5 and any amendments thereto furnished
to the Company pursuant to Section 16 of the Securities Exchange Act of 1934,
all such forms were filed on a timely basis by reporting persons, except as
follows:  Form 13G, on behalf of Melvin Masters and Form 3 for Mssrs. Stephen
Fisher, Roger Wikner, Tim Duoos and Ed Adams have not been filed.

                                                                              32


Item 11.  EXECUTIVE COMPENSATION.
- -------   -----------------------

Summary Compensation Table

The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by our Chief Executive Officer and
our other four most highly compensated executive officers whose salary and bonus
earned in the fiscal year ended June 30, 1999 exceeded $100,000 for services
rendered.



====================================================================================================================================
                                      Annual compensation                        Long term compensation
                           -----------------------------------------  ------------------------------------------
                                                                                Awards
                                                                      ----------------------------
Name and principal   Year  Salary ($)   Bonus ($)   Other annual      Restricted      Options/       Payouts/      All other
position                                            compensation ($)  stock award(s)   SARs (#) ($)  payouts ($)  compensation ($)
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                          
Melvin Masters       1999  $175,000                                                                                  $9,494/1/
Chief Executive      1998   175,000                                                                                   8,904/1/
 Officer             1997   208,333                                                                                   7,536/1/
- ------------------------------------------------------------------------------------------------------------------------------------
Robert Wenzel        1999  $175,000
Chief Operating      1998   175,000
 Officer             1997   208,333
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas D. Ryan       1999  $175,000
Executive Vice       1998   175,000                                                    120,000
 President           1997   175,000
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Horstmann   1999  $175,000
Chief Financial      1998   158,125                                                    120,000
 Officer             1997    *
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Fisher       1999  $150,000       $155,750                                     240,000
President and        1998    #
Chief Operating      1997    #
 Officer of
 RSPnet.com, Inc.
====================================================================================================================================


*  Became executive officer during fiscal 1998.
#  Became executive officer during fiscal 1999. Fiscal 1999 figures include
   compensation earned at K&R Technical Services, Inc. prior to its
   acquisition by RSPnet.com, Inc.
/1/Premiums for life insurance where the Company is not the beneficiary.


Stock Options

We maintain a Stock Option Plan pursuant to which executive officers, other
employees and certain non-employees providing services to the Company may
receive options to purchase our common stock.

The following table summarizes grants of stock options during fiscal 1999 to the
Chief Executive Officer and the Executive Officers named in the Summary
Compensation Table:

                                                                              33


OPTIONS/SAR GRANTS IN LAST FISCAL YEAR



===============================================================================================================================
                                                                                                      Potential Realizable
                                                                                                  Value at Assumed Annual Rates
Individual Grants                                                                                 of Stock  Price Appreciation
                                                                                                        for Option  Term
===============================================================================================================================
                                         % of Total
                                          Options/
                         Options/     SARs Granted to      Exercise or Base
                           SARs         Employees in       Price ($/Share)    Expiration Date       5% ($)       10% ($)
Name                     Granted        Fiscal Year
                           (#)
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                              
Stephen Fisher          240,000/1/           13.8%               $1.59            June 2009       $239,988      $608,156
- -------------------------------------------------------------------------------------------------------------------------------


/1/120,000 options vest ratably over eight years, and 120,000 options vest nine
years from date of issuance with accelerated vesting available under the
RSPnet.com, Inc. bonus plan.

The following table summarizes exercises of stock options during fiscal 1999 by
the Chief Executive Officer and the Executive Officers named in the Summary
Compensation Table:



                           AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- -------------------------------------------------------------------------------------------------------------------------------
                                                                       Number of unexercised         Value of unexercised
                                                                       options/SARs at FY-end      in-the-money options/SARs at
                           Shares acquired on                            (#) exercisable /           FY-end ($) exercisable/
Name                          exercise (#)        Value realized ($)         unexercisable              unexercisable (1)
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                       
Melvin L. Masters                  -0-                  -0-                      -0-                            -0-
- -------------------------------------------------------------------------------------------------------------------------------
Robert J. Wenzel                   -0-                  -0-                77,500 / 187,500                 3,488 /     -0-
- -------------------------------------------------------------------------------------------------------------------------------
Thomas D. Ryan                     -0-                  -0-                80,000 / 160,000                  -0-    /   -0-
- -------------------------------------------------------------------------------------------------------------------------------
James H. Horstmann                 -0-                  -0-                41,250 / 168,750                  -0-    /   -0-
- -------------------------------------------------------------------------------------------------------------------------------
Stephen Fisher                     -0-                  -0-                -0-    / 240,000                  -0-    /   -0-
===============================================================================================================================


(1) Represents the difference between the closing price of the Company's common
stock on June 30, 1999 and the exercise price of the options.


Long-Term Incentive Plan Awards

Other than the Stock Option Plan reported on above, we do not maintain any long-
term incentive plans.


Director Compensation

For fiscal year 1999, there was no plan for compensation to non-employee
directors.  All directors were reimbursed for their expenses incurred in
attending meetings.  Roger Wikner, Jean-Louis Gassee and Rohan Champion also
acted as consultants to the Company.  Consulting fees of $33,000 were incurred
for services provided by Mr. Wikner during fiscal 1999. Consulting fees of
$10,000 were incurred for services provided by Mr. Gassee during fiscal 1999.
Consulting fees of $41,670 were incurred for services provided by Mr. Champion
during fiscal 1999. The consulting fees paid to Mr. Wikner, Mr. Gassee and Mr.
Champion were determined and set based on anticipated consulting services and
the market cost therefor. We believe that the consulting fees paid to Mr.
Wikner, Mr. Gassee and Mr. Champion represent the approximate market value for
the consulting services performed and that which might be obtained from similar
arrangements with non-affiliates.

                                                                              34


Employment Agreements

At June 30, 1999, we had employment agreements with Messrs. Masters, Wenzel,
Ryan, Horstmann, Fisher and several other members of management.  The agreements
for Messrs. Masters, Wenzel, Ryan, Horstmann and Fisher and certain members of
management renew automatically on an annual basis unless terminated by either
party by written notice prior to the renewal date. The agreements provide for
continuation payments equal to 36 months pay for Mr. Masters and one other non-
officer. The agreement for Mr. Fisher and for two other members of management
provide for continuation payments equal to 60 months pay upon termination of
employment. Agreements are also in place for 12 months pay for Mr. Wenzel, Mr.
Ryan, Mr. Horstmann, and certain other members of management upon termination of
employment in certain circumstances, including change of control.  As of June
30, 1999 minimum salary levels of $250,000 were set for each of Messrs. Masters,
Wenzel, and Ryan.  By agreement, these individuals reduced their compensation to
$175,000 in March 1997, and the compensation has not been adjusted to the levels
previously set.

Compensation Committee Interlocks and Insider Participation

The Chief Executive Officer of the Company, Melvin L. Masters, is a member of
the Compensation Committee.  Mr. Masters' compensation is set by the Board of
Directors as a whole with Mr. Masters abstaining.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------   --------------------------------------------------------------

The following table sets forth, as of September 30, 1999, certain information
with respect to beneficial share ownership by the directors, individually; by
all persons known to management to own more than 5% of the Company's outstanding
Common Stock, individually; and by all executive officers and directors as a
group. Except as otherwise indicated, the shareholders listed below have sole
investment and voting power with respect to their shares.



                                            Number of          Percent
                                           Beneficially       of Shares
Name of Beneficial Owner                   Owned Shares      Outstanding
- ------------------------                   ------------      ------------
                                                       
Sihl-Zurich Paper Mill on Sihl AG (1)         2,742,858             13.3%
Giesshubel Strasse 15
CH 8046
Zurich, Switzerland

Melvin L. Masters (2)                         2,550,525             12.4%
3213 South Duluth Avenue
Sioux Falls, SD  57105

Stephen Fisher (3)                              488,758                *

Robert J. Wenzel (4)                             89,300                *

James H. Horstmann (5)                           45,000                *

Thomas D. Ryan (6)                               87,000                *

All officers and directors
as a group (9 persons) (7)                    3,413,482             16.5%


*  Less than 1%

(1)  Includes warrants to purchase 1,371,429 shares.

(2)  Includes 411,428 shares and warrants to purchase 963,667 shares owned by
     TMI; 274,286 shares owned by GRAMPI; 228,572 shares and warrants to
     purchase 228,572 shares owned by GRAMPI #2.

(3)  Includes 488,758 shares of convertible voting Preferred Stock issued to Mr.
     Fisher in the Company's acquisition of TEAM Technologies, Inc. in December
     1998.

                                                                              35


(4)       Includes 77,500 shares issuable to Mr. Wenzel under options that are
          exercisable or will become exercisable within 60 days. Also includes
          shares held as trustee for four education trusts.

(5)       Includes 45,000 shares issuable to Mr. Horstmann under options that
          are exercisable or will become exercisable within 60 days.

(6)       Includes 80,000 shares issuable to Mr. Ryan under options that are
          exercisable or will become exercisable within 60 days.

(7)       Includes 301,400 shares issuable under options that are exercisable or
          will become exercisable within 60 days and warrants to purchase
          1,192,239 shares.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------   ----------------------------------------------

We have the following arrangements with certain directors, executive officers or
five percent shareholders:

(1)       We lease space we currently occupy in Shady View I & II, from
          Grandchildren's Realty Alternative Management Partnership I (GRAMPI),
          a Minnesota limited partnership. The general partner of GRAMPI is
          TimeMasters, Inc., a Minnesota corporation that is owned by Melvin L.
          Masters. One of the limited partners of GRAMPI is the Masters Trust I,
          of which Ralph Rolen, a former director of the Company, was Trustee at
          the time of the negotiations. We retained the services of an outside
          law firm as well as an independent commercial real estate brokerage
          firm in negotiating the lease. We lease 174,647 square feet of space
          under this agreement which has a term of fifteen years and a monthly
          base rate as of September 30, 1999, of $107,699. The base rate
          escalates periodically over the term of the lease. We are also
          required to pay our pro-rata share of property taxes, utilities and
          essentially all other operating expenses. There is no renewal option.
          Rent expense under this lease was $1,682,000 in fiscal 1999.

(2)       Under a Use Indemnification Agreement and certain related Board of
          Directors' actions, we have the right to sponsor business and
          business-related occasions at facilities owned by Masters Trust I
          and/or Melvin L. Masters and/or TimeMasters, Inc and/or GRAMPI and/or
          GRAMPI #2. In addition, we occasionally use an airplane owned by a
          Company controlled by Mr. Masters, for business-related travel. We
          indemnify the owners against loss or damage, reimburse out-of-pocket
          expenses and pay a usage charge based on what management believes are
          market rates. We also use the services of a travel agency that is
          controlled by Mr. Masters. In the fiscal year ended June 30, 1999
          charges for these items totaled $427,874.

(3)       We have installed a campus-wide TimeMasters, Inc. wireless voice
          system in our Eden Prairie facility. There are no monthly call
          operating charges for unlimited use of that system. The system
          hardware was acquired in fiscal 1995 for $211,000 based on competitive
          proposals for two other comparable systems. Upgrades and maintenance
          to the system amounted to $31,903 in fiscal 1999. TimeMasters, Inc. is
          a Minnesota corporation wholly-owned by Melvin L. Masters.

(4)       During September and October 1995, ColorSpan Corporation's (CSC's)
          cash needs exceeded available cash. To cover short-term cash needs,
          CSC borrowed $1,765,000 under a demand note from TimeMasters, Inc.
          (TMI), a corporation controlled by our Chief Executive Officer. The
          note had stated interest at prime rate plus 1.75% and was satisfied in
          full in December 1996 through an offset of a note receivable from TMI
          arising from TMI's purchase of our common stock (see item (5) below).
          In consideration for providing financing to CSC and executing a
          subordination and forbearance agreement with our senior lender, TMI
          was issued a warrant for the purchase of 277,953 shares of our common
          stock at an exercise price of $6.35 per share. This transaction was
          submitted to and approved by the shareholders at our annual meeting in
          May 1996.

(5)       In September 1996, we issued 914,286 shares of restricted common stock
          in a private placement to TimeMasters, Inc., GRAMPI and GRAMPI #2
          (together as a group known as the "TimeMasters group"), which is
          controlled by Melvin L. Masters. The shares were issued at the market
          price of $4.375 per share for a total of $4 million. The TimeMasters
          group was also issued a warrant for the purchase of an additional

                                                                              36


          914,286 shares at $7.00 per share with an expiration date of September
          16, 2004. The TimeMasters group has the right to require us to effect
          up to five demand registrations under the Securities Act within ten
          years of the closing date of the transaction. The agreement also
          provides for incidental registration rights during this same period.
          In addition, shares acquired by TimeMasters upon the exercise of the
          warrant or conversion right, obtained pursuant to the $1,765,000
          demand note discussed in item (4) above, have preferential incidental
          registration rights expiring September 2006. We offset a portion of
          the proceeds from this sale with CSC's indebtedness to TMI (see item
          (4) above).

(6)       We have occasionally prepaid the rent and lease expense to GRAMPI for
          the Shady View I and II properties. When rent is prepaid there is an
          adjustment of the amount paid for rent at the next regular payment
          date to reflect the prepayment. In addition, interest is charged
          during the interim period.

(7)       Mr. Masters borrowed $585,000 from the Company in November 1996. The
          amount borrowed was repaid in December 1996 together with interest at
          10%.

(8)       In June 1998, we loaned $250,000 to GRAMPI. The note was personally
          guaranteed by Mr. Masters, was secured by certain shares of the
          Company's common stock owned by GRAMPI, and bore interest at the Prime
          Rate plus 2.0%. In September 1999, the principal balance of the note,
          which was originally due February 25, 1999, was combined with
          additional borrowing during fiscal 1999 by Mr. Masters into a new
          $500,000 non interest bearing note that is due September 1, 2000.
          During fiscal 1999, Mr. Masters and TMI borrowed an additional
          $375,472. This additional borrowing was combined in September 1999
          with $97,505 that was owed to the Company by TMI at June 30, 1998 into
          a second note from Mr. Masters of $472,977 that is payable September
          1, 2000 and bears interest at 9.75%. Both notes are secured by a Deed
          of Trust encumbering certain real property located in the state of
          Montana that is owned by GRAMPI. Total principal and accrued interest
          due from Mr. Masters at June 30, 1999 is $1,048,767.

(9)       In August 1999 Mr. Masters borrowed an additional $200,000 that is
          payable September 1, 2000 and bears interest at 9.75%. The note is
          secured by a Deed of Trust encumbering certain real property located
          in the state of Montana that is owned by GRAMPI.

Each of the foregoing transactions was approved by a disinterested majority of
our Board of Directors, by shareholders, or by both.  We believe that each such
transaction is on terms at least as favorable to us as could have been obtained
from an unaffiliated entity.

(10)      We assumed a note receivable from TEAM Property Management in the
          acquisition of K&R Technical Services, Inc. The note, which bears
          interest at 9% and is due September 1, 2000, had an outstanding
          balance of $329,982 at June 30, 1999.

(11)      We share facilities and expenses from time to time with TimeMasters,
          Inc. The receivable from TimeMasters of $206,711 at June 30, 1999 was
          combined with additional indebtedness into the $472,977 note described
          in (8).

(12)      We purchase certain inventory from Sihl-Zurich Paper Mill on Sihl AG,
          a greater than 5% shareholder of the Company. Total purchases in
          fiscal 1999 from Sihl were $2,327,631.

(13)      We lease space that we currently occupy in Cedar Falls Iowa from TEAM
          Property Management Company, a company that is controlled by Stephen
          Fisher, an executive and director of VirtualFund.com, and two other
          VirtualFund.com shareholders.

(14)      We assumed a note receivable of $114,849 from Stephen Fisher when we
          purchased K&R Technical Services, Inc. The note is due June 18, 2001
          and bears interest at 9%.

                                                                              37


                                    PART IV
                                    -------

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------   ----------------------------------------------------------------

(a) 1.    Financial Statements
          --------------------

          Consolidated Financial Statements of VirtualFund.com, Inc. and
          Subsidiaries:

               Independent Auditors' Report

               Consolidated Balance Sheets as of June 30, 1999 and 1998

               Consolidated Statements of Operations for the fiscal years ended
               June 30, 1999, 1998 and 1997

               Consolidated Statements of Stockholders' Equity for the fiscal
               years ended June 30, 1999, 1998 and 1997

               Consolidated Statements of Cash Flows for the fiscal years ended
               June 30, 1999, 1998 and 1997

               Notes to Consolidated Financial Statements

(a) 2.    Financial Statement Schedules
          -----------------------------
          VirtualFund.com, Inc. and Subsidiaries

          Schedule I  --  Condensed Financial Information of the Registrant
                          (Parent Only)
          Schedule II  --  Valuation and Qualifying Accounts

          Schedules not listed above have been omitted because they are either
          not applicable or required information has been given in the
          consolidated financial statements or notes thereto.

(a)(3)    Exhibits
          --------

          The exhibits to this Annual Report on Form 10-K are listed in the
          Exhibit Index on pages E-1 to E-2 of this Report. The Company will
          furnish a copy of any exhibit to a shareholder who requests a copy in
          writing upon payment to the Company of a fee of $5.00 per exhibit.
          Requests should be sent to: Director, Investor Relations,
          VirtualFund.com, Inc., 7090 Shady Oak Road, Eden Prairie, MN 55344.

(b)       Reports on Form 8-K: The Company did not file any reports on Form 8-K
          for the Quarter ended June 30, 1999.

(c)       Exhibits: The response to this portion of Item 14 is included as a
          separate section of this Annual Report on Form 10-K.

(d)       Financial Statement Schedules: The response to this portion of Item 14
          is included as a separate section of this Annual Report on Form 10-K.

                                                                              38


                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:  November 3, 1999
                                    VIRTUALFUND.COM, INC.

                                         By  /s/ Melvin L. Masters
                                             -------------------------------
                                         Melvin L. Masters, President, Chief
                                         Executive Officer and Chairman of the
                                         Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

                               President, Chief Executive Officer
/s/ Melvin L. Masters          and Chairman of the Board
- ------------------------
Melvin L. Masters              (Principal Executive Officer)

/s/ Roger Wikner               Director
- ------------------------
Roger Wikner

/s/ Timothy R. Duoos           Director
- ------------------------
Timothy R. Duoos

/s/ Edward S. Adams            Director
- ------------------------
Edward S. Adams

/s/ Stephen Fisher             Director
- ------------------------
Stephen Fisher

/s/ James H. Horstmann         Chief Financial Officer and
- ------------------------
James H. Horstmann             Principal Accounting Officer

                                                                              39



                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:  November 3, 1998
                                         VIRTUALFUND.COM, INC.

                                         By
                                             -------------------------------
                                         Melvin L. Masters, President, Chief
                                         Executive Officer and Chairman of the
                                         Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


                               President, Chief Executive Officer
- ------------------------       and Chairman of the Board
Melvin L. Masters              (Principal Executive Officer)

                               Director
- ------------------------
Roger Wikner

                               Director
- ------------------------
Timothy R. Duoos

                               Director
- ------------------------
Edward S. Adams

                               Director
- ------------------------
Stephen Fisher

                               Chief Financial Officer and
- ------------------------       Principal Accounting Officer
James H. Horstmann

                                                                              40



INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
VirtualFund.com, Inc. and Subsidiaries
Eden Prairie, Minnesota

We have audited the consolidated balance sheets of VirtualFund.com, Inc. and
Subsidiaries (the Company) as of June 30, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1999 and financial
statement schedules listed in the index at Item 14(a)(2). These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedules based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of VirtualFund.com, Inc.
and Subsidiaries as of June 30, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1999 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements, taken as a whole, present fairly
in all material respects the information therein set forth.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company is experiencing difficulty in generating sufficient cash flow to meet
its obligations and sustain its operations, which raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


Deloitte & Touche LLP
Minneapolis, Minnesota
October 21, 1999

                                      F-1


VIRTUALFUND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------



                                                                       June 30, 1999             June 30, 1998
                                                                       -------------             -------------
                                                                                       
ASSETS

 CURRENT ASSETS:
   Cash and cash equivalents                                         $       250,792         $       5,436,761
   Accounts receivable, less allowance for doubtful
     accounts and sales returns of $1,234,000 and
     $1,662,000, respectively (Notes 7 and 17)                            12,858,200                11,641,937
   Receivable - related parties (Note 15)                                  1,378,749                   347,505
   Inventory (Notes 5, 7 and 15)                                           8,630,576                 7,221,427
   Other current assets                                                    2,094,433                 1,923,825
   Deferred income taxes (Note 13)                                                                   1,214,000
                                                                     ---------------         -----------------
       TOTAL CURRENT ASSETS                                               25,212,750                27,785,455

PROPERTY AND EQUIPMENT, NET
    (Notes 6, 8 and 15)                                                    3,632,243                 3,041,884

GOODWILL, less accumulated amortization of $1,338,246                     10,132,423

DEFERRED INCOME TAXES (Note 13)                                                                      3,552,000

OTHER ASSETS (Note 7 and 15)                                                 223,676                   179,286
                                                                     ---------------         -----------------
                                                                     $    39,201,092         $      34,558,625
                                                                     ===============         =================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable (Notes 7 and 15)                                     $     3,868,002         $       2,417,968
  Notes payable - related parties (Notes 2 and 15)                         2,235,766                 1,874,311
  Current maturities of long-term debt (Notes 8 and 15)                      720,830                   259,550
  Convertible subordinated debenture (Note 9)                                                          375,866
  Accounts payable (Note 15)                                              12,737,616                10,556,398
  Accrued payroll and payroll taxes                                        2,380,492                 1,487,678
  Other current liabilities (Note 15)                                      1,757,822                 2,437,398
  Deferred revenue                                                         1,442,288                 1,222,265
                                                                     ---------------         -----------------
       TOTAL CURRENT LIABILITIES                                          25,142,816                20,631,434

LONG-TERM DEBT, less current maturities (Notes 8 and 15)                     614,245                    66,746

COMMITMENTS AND CONTINGENCIES (Notes 2, 12 and 17)

STOCKHOLDERS' EQUITY: (Notes 2, 9, 10, 11, and 17)
  Series A convertible preferred stock, $.01 par value;
    authorized 5,000,000 shares; 1,499,998 shares issued and
    outstanding; redeemable; $7,500,000 liquidation preference             7,500,000
  Common stock, $.01 par value; authorized
     50,000,000 shares; 15,803,866 and 15,778,866 shares issued
     and outstanding, respectively                                           158,039                   157,789
  Additional paid-in capital                                              33,040,170                33,015,420
  Accumulated deficit                                                    (27,254,178)              (19,312,764)
                                                                     ---------------         -----------------
       TOTAL STOCKHOLDERS' EQUITY                                         13,444,031                13,860,445
                                                                     ---------------         -----------------
                                                                     $    39,201,092         $      34,558,625
                                                                     ===============         =================


                See notes to consolidated financial statements.

                                      F-2


VIRTUALFUND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------



                                                                                       Years Ended June 30,
                                                              -------------------------------------------------------------
                                                                   1999                    1998                   1997
                                                              -------------           -------------           -------------
                                                                                                     
CONTINUING OPERATIONS
   NET SALES                                                  $   4,138,211

    COST OF SALES                                                 3,057,710
                                                              -------------           -------------           -------------
        GROSS PROFIT                                              1,080,501

   OPERATING EXPENSES
     Sales and marketing                                          1,274,572
     Research and development                                       938,997           $     203,153
     General and administrative                                   4,523,084               2,474,936           $   2,359,004
     Goodwill amortization                                        1,338,246
                                                              -------------           -------------           -------------
                                                                  8,074,899               2,678,089               2,359,004
                                                              -------------           -------------           -------------
        OPERATING LOSS                                           (6,994,398)             (2,678,089)             (2,359,004)

   OTHER INCOME (EXPENSE)
     Interest expense                                              (162,394)
     Interest income                                                 95,639
     Other income (expense)                                          25,486
                                                              -------------           -------------           -------------
                                                                    (41,269)
                                                              -------------           -------------           -------------
   LOSS FROM CONTINUING OPERATIONS
       BEFORE INCOME TAXES                                       (7,035,667)             (2,678,089)             (2,359,004)
   INCOME TAX (PROVISION) BENEFIT                                (3,342,000)                920,000              (1,289,000)
                                                              -------------           -------------           -------------
LOSS FROM CONTINUING OPERATIONS                                 (10,377,667)             (1,758,089)             (3,648,004)

EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
    net of income tax provision of $1,424,000, $920,000 and
    $0, in 1999, 1998 and 1997, respectively (Notes 3 and 13)     2,554,554               3,598,921             (12,836,297)
                                                              -------------           -------------           -------------

NET (LOSS) EARNINGS                                           $  (7,823,113)          $   1,840,832           $ (16,484,301)
                                                              =============           =============           =============


BASIC AND DILUTIVE NET (LOSS)
   EARNINGS PER COMMON SHARE (Note 14)
     LOSS FROM CONTINUING OPERATIONS                          $        (.66)          $        (.11)           $       (.25)
     EARNINGS (LOSS) FROM
            DISCONTINUED OPERATIONS                                     .16                     .23                    (.90)
                                                              -------------           -------------            ------------
        NET (LOSS) EARNINGS PER COMMON SHARE                  $        (.50)          $         .12            $      (1.15)
                                                              =============           =============            ============


Weighted average common shares outstanding (Note 14)             15,782,770              15,316,003              14,305,609
                                                              =============           =============            ============


                              See notes to consolidated financial statements.

                                      F-3


VIRTUALFUND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------



                                                                                  Additional
                                              Common Stock         Preferred       Paid-In      (Accumulated
                                       ------------------------
                                          Shares      Par Value      Stock         Capital         Deficit)          Total
                                       ----------    ----------   -----------   ------------   -------------     ------------
                                                                                               
BALANCES, JUNE 30, 1996                12,026,134    $  120,261                 $ 17,450,655   $  (4,606,480)    $ 12,964,436

Issuance of common stock -
  Private placements (Note 10)          2,695,971        26,960                   11,810,376                       11,837,336
  Conversion of debentures (Note 9)       105,000         1,050                      361,763                          362,813
  Stock options exercised (Note 11)       180,357         1,804                      339,520                          341,324
  Services rendered                        25,000           250                       99,750                          100,000
Litigation settlement (Note 17)                                                      636,000                          636,000
Distributions to Kilborn
   S corporation shareholders                                                                        (62,815)         (62,815)
Stock option tax benefit (Note 13)                                                   199,000                          199,000
Net loss                                                                                         (16,484,301)     (16,484,301)
                                       ----------    ----------   -----------   ------------   -------------     ------------

BALANCES, JUNE 30, 1997                15,032,462       150,325                   30,897,064     (21,153,596)       9,893,793


Issuance of common stock -
   Conversion of debentures (Note 9)      525,000         5,250                    1,985,146                        1,990,396
   Stock options exercised (Note 11)       80,071           801                      134,623                          135,424
   Litigation settlement (Note 17)        141,333         1,413                       (1,413)
Net earnings                                                                                       1,840,832        1,840,832
                                       ----------    ----------   -----------   ------------   -------------     ------------

BALANCES, JUNE 30, 1998                15,778,866       157,789                   33,015,420     (19,312,764)      13,860,445


Issuance of common stock -
Stock options exercised (Note 11)          25,000           250                       24,750                           25,000
Other                                                                                               (118,301)        (118,301)
Acquisition of K&R Technical
   Services, Inc. (Note 2)                                        $ 7,500,000                                       7,500,000
Net loss                                                                                          (7,823,113)      (7,823,113)
                                       ----------    ----------   -----------   ------------   -------------     ------------

BALANCES, JUNE 30, 1999                15,803,866    $  158,039   $ 7,500,000   $ 33,040,170   $ (27,254,178)    $ 13,444,031
                                       ==========    ==========   ===========   ============   =============     ============


                See notes to consolidated financial statements.

                                      F-4


VIRTUALFUND.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 16)
- --------------------------------------------------------------------------------


                                                                                   Years Ended June 30,
                                                                 ---------------------------------------------------
                                                                      1999                 1998             1997
                                                                 -------------       -------------     -------------
                                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net (loss) earnings                                             $  (7,823,113)      $   1,840,832     $ (16,484,301)
 Adjustments to reconcile net (loss) earnings to net
  cash provided by operating activities:
   Depreciation and amortization                                     2,004,899           2,098,330         5,786,303
   Amortization of goodwill                                          1,338,246
   Revaluation of acquired technology, patents and licenses                                                1,024,374
   Revaluation of capitalized software                                                                     3,214,690
   Loss on sale of property and equipment                                8,700             102,875           149,395
   Gain on settlement of product quality issues                                                           (1,416,665)
   Litigation settlements                                                                                    636,000
   Deferred income taxes                                             4,766,000                             1,084,000
   Stock option tax benefit                                                                                  199,000
Change in assets and liabilities, net of effects from
 purchase of K&R Technical Services, Inc.:
  Accounts receivable                                                 (471,988)          1,192,113           808,951
  Inventory                                                         (1,399,986)          2,462,264         5,649,929
  Other current assets                                                (200,543)             36,418           391,735
  Income tax receivable                                                                                      400,781
  Accounts payable                                                   1,706,804             393,788        (4,184,779)
  Accrued payroll and payroll taxes                                    648,459            (148,241)         (292,350)
  Other current liabilities                                           (708,992)           (285,640)          (53,945)
  Deferred revenue                                                      (2,071)           (152,182)         (519,815)
                                                                 -------------       -------------     -------------
NET CASH (USED IN) PROVIDED BY
 OPERATING ACTIVITIES                                                 (133,585)          7,540,557        (3,606,697)

CASH FLOWS FROM INVESTING ACTIVITIES:
 Loans to related parties                                           (1,141,208)           (337,460)         (585,000)
 Collection of loans from related parties                              437,981                               585,000
 Additions to property and equipment                                  (978,279)         (1,041,811)       (1,156,650)
 Additions to capitalized software costs                                                                  (1,557,931)
 Proceeds from sale of property and equipment                           16,841              24,600            82,357
 Additions to patents and other assets                                 (29,173)            (43,163)         (500,596)
 Payments for acquisition of K&R Technical
   Services Inc., net of cash acquired                              (1,388,655)
 Other                                                                (425,580)
                                                                 -------------       -------------     -------------
NET CASH USED IN INVESTING ACTIVITIES                               (3,508,073)         (1,397,834)       (3,132,820)

CASH FLOWS FROM FINANCING ACTIVITIES:
 Payment of related party note payable                              (1,798,588)
 Payment of debenture                                                 (375,866)
 Net borrowing (payments) under revolving credit lines               1,264,719            (796,300)       (1,836,447)
 Proceeds from long-term debt                                          228,908
 Payments on long-term debt                                           (888,484)           (655,269)       (1,246,968)
 Acquisition of Kilborn treasury stock                                                                       (25,000)
 Distributions to Kilborn S-corporation shareholders                                                         (62,815)
 Issuance of common stock                                               25,000             135,424        10,378,660
                                                                 -------------       -------------     -------------
NET CASH (USED IN) PROVIDED BY
 FINANCING ACTIVITIES                                               (1,544,311)         (1,316,145)        7,207,430
                                                                 -------------       -------------     -------------
(DECREASE) INCREASE IN CASH AND
 CASH EQUIVALENTS                                                   (5,185,969)          4,826,578           467,913

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF YEAR                                                   5,436,761             610,183           142,270
                                                                 -------------       -------------     -------------
CASH AND CASH EQUIVALENTS
 AT END OF YEAR                                                  $     250,792       $   5,436,761     $     610,183
                                                                 =============       =============     =============


                See notes to consolidated financial statements.

                                      F-5


VIRTUALFUND.COM, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

1.       BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

         Business

         VirtualFund.com, Inc. (the Company) is a diversified technology
         holding company operating in two business segments.

         The Digital Graphics Business Unit (DGBU) designs, manufactures,
         markets and sells wide-format digital color printers, aftermarket inks
         and specialty coated media for graphic arts professionals. Management
         has indicated its intent to sell the DGBU and as a result, all DGBU
         operations are disclosed herein as discontinued operations.

         The Internet Services Business Unit (ISBU) provides information system
         design, implementation and support services, develops and sells
         Internet-based electronic commerce software, and provides Internet
         hosting services. This business unit will be the primary operating
         company going forward.

         Liquidity/Discontinued Operations

         The accompanying consolidated financial statements have been prepared
         on a going concern basis, which contemplates the realization of assets
         and the satisfaction of liabilities in the normal course of business.
         Currently, the Company is experiencing difficulty in generating
         sufficient cash flow to meet its obligations and sustain its
         operations, which raises substantial doubt about its ability to
         continue as a going concern. As a result of declining revenues during
         the previous three years, management has taken steps to pursue
         opportunities outside its traditional business. In this regard, the
         Company is developing a new operating segment in the Business-to-
         Business electronic commerce market. The development of this market has
         required substantial cash, which has been financed by the cash flow
         from the DGBU up to this point. Further development of this market is
         planned and may result in further significant losses during the start
         up period. In addition, ColorSpan Corporation's revolving credit
         facility with its senior lender, General Electric Capital Corporation
         (GECC), will expire in December 1999. GECC has indicated that it will
         not renew this agreement, as the Company no longer meets the account
         size objectives of their portfolio. RSPnet.com, Inc.'s revolving credit
         facility will expire on November 22, 1999. Replacement financing has
         not yet been secured for either credit facility.

         The financial statements do not include any adjustments relating to the
         recoverability and classification of recorded asset amounts and
         classification of liabilities that might be necessary should the
         Company be unable to continue as a going concern.

         To fund the ISBU in the future, management intends to sell the DGBU
         comprised of ColorSpan Corporation, its subsidiaries and Kilborn Photo
         Products, Inc. The sales proceeds will be used to further invest in and
         grow the ISBU products for electronic commerce. As a result of this
         decision, the consolidated statements of operations have been restated
         to disclose the DGBU as a discontinued operation. Management believes
         the sale proceeds will fund the ISBU through the fiscal 2000 year and
         into the following year.

         Credit Risk

         The Company sells its products on a prepaid basis, on a COD basis,
         through nonrecourse third-party leasing arrangements and by extending
         credit in the normal course of business. Its DGBU customer base is
         comprised primarily of resellers and end users in the graphic arts,
         prepress and desktop publishing industries throughout the world. Credit
         risk in the DGBU is spread across a significant number of customers and
         geographic areas such that no material credit risk resides with one or
         a small number of customers or in a given geographic area. The ISBU
         customer base ranges from small local entities to Fortune 500 companies
         located primarily in the Midwest and in the agriculture industry.
         Revenue in the ISBU is concentrated in a few large customers. In fiscal
         1999, the contribution to revenue of two customers contributed
         approximately 50% revenue from continuing operations. The Company
         performs ongoing credit evaluations of its customers' financial
         condition and generally requires no collateral.

         Consolidation

         The consolidated financial statements include the accounts of
         VirtualFund.com, Inc. and its subsidiaries, RSPnet.com, Inc. (RSPN),
         Kilborn Photo Products, Inc. (Kilborn), and ColorSpan Corporation
         (CSC), and CSC's subsidiaries, ColorSpan Europe, Ltd. (CSE), ColorSpan
         Asia/Pacific, Ltd. (CSA), and ColorSpan Latin America, Inc. (CSLA).
         Kilborn, CSC and its subsidiaries represent the DGBU and are disclosed
         herein as discontinued operations. All significant intercompany
         balances and transactions have been eliminated in consolidation.

         Revenue recognition and warranties

         Product sales are recorded on shipment. Reserves are established for
         anticipated returns of product and bad debts. The Company offers
         extended maintenance agreements with revenue from these agreements
         recognized ratably over the contract period. The Company provides a
         warranty for labor and materials on certain products sold. No other
         stock balancing programs or product rebate programs exist outside of
         the terms of the limited warranty. The estimated warranty liability is
         included in other current liabilities in the consolidated balance
         sheets.

                                      F-6


         The Company also provides information system design, implementation and
         support services under fixed price and time and materials contracts.
         For fixed price contracts, revenue is recorded on the basis of the
         estimated percentage of completion of services rendered. Losses, if
         any, on fixed price contracts are recognized when the loss is
         determined. For time and materials contracts, revenue is recognized at
         contractually agreed upon rates as the costs are incurred.

         Cash equivalents

         All highly liquid cash investments with a maturity of three months or
         less at the date of purchase are considered to be cash equivalents.

         Inventories

         Inventories are stated at the lower of cost or market, with cost
         determined using the first-in, first-out (FIFO) basis.

         Property and equipment

         Property and equipment are recorded at cost. Depreciation and
         amortization are computed using the straight-line method over the
         estimated useful lives of the assets of 2 to 39 years.

         Goodwill

         The excess of the purchase price over the fair value of assets acquired
         in acquisitions is recorded as goodwill. Goodwill is amortized on a
         straight-line basis over five years. At each reporting date, management
         assesses whether there has been a permanent impairment in the value of
         its long-term assets such as goodwill. The factors considered by
         management in performing this assessment include current operating
         results, trends and prospects, as well as the effects of demand,
         competition and other economic factors.

         Research and Development Costs and Capitalized software

         Expenditures related to the development of new products and processes,
         including significant improvements and refinements to existing products
         and the development of software are expensed as incurred, unless they
         are required to be capitalized. Software development costs incurred
         subsequent to establishment of the software's technological feasibility
         are capitalized. Capitalization ceases when the software is available
         for general release to customers. The recoverability of capitalized
         software development costs is continually evaluated, and provisions for
         estimated losses are recorded in the period such losses are determined.
         The following amounts are included in discontinued operations:
         Amortization of capitalized software development costs and provisions
         for impairment losses aggregated $2,494,154 and $3,214,690 for the year
         ended June 30, 1997, respectively. These provisions reduced the
         Company's capitalized software development costs to zero at June 30,
         1997. Software development costs incurred during fiscal 1999 and 1998
         were not significant, and as such, no costs were capitalized

         Acquired technology, patents, and licenses

         Acquired technology, patents, and licenses primarily related to the
         DGBU are amortized using the straight-line method over the estimated
         useful lives of the assets, generally from three to five years.
         Amortization of acquired technology, patents and licenses included in
         discontinued operations aggregated $100,800, $200,957 and $710,838 for
         the fiscal years ended June 30, 1999, 1998, and 1997, respectively. The
         recoverability of these assets is continually evaluated by comparing
         the remaining unamortized cost to the estimated future cash flows of
         the associated assets. Provisions for estimated losses are recorded in
         the period such losses are determined and totaled $1,533,837 and was
         also included in discontinued operations for the year ended June 30,
         1997.

         Fair value of Financial instruments

         Statement of Financial Accounting Standards (SFAS) No. 107,
         "Disclosures About Fair Value of Financial Instruments," requires
         disclosure of the fair value of certain financial instruments. Cash and
         cash equivalents, accounts receivable, short-term debt, accounts
         payable, and accrued liabilities are carried at amounts believed to
         approximate fair value. The carrying amount of the Company's long-term
         debt approximated its fair value at June 30, 1999 and 1998 due to the
         debt agreements containing market interest rates.

         Income taxes

         The Company utilizes the asset and liability method of accounting for
         income taxes as set forth in SFAS No. 109, "Accounting for Income
         Taxes." Under the asset and liability method, deferred tax assets and
         liabilities are recognized for the future tax consequences attributable
         to the differences between the financial statement and tax bases of
         existing assets and liabilities. Deferred tax assets and liabilities
         are measured using enacted tax rates expected to apply to taxable
         income in the years in which these temporary differences are expected
         to be recovered or settled.

                                      F-7


         Advertising

         The Company expenses the costs of advertising the first time the
         advertising takes place, except for direct-response advertising, which
         is capitalized and amortized over its expected period of future
         benefits. Direct-response advertising consists of printing, postage,
         and mailing list costs relating to direct mail advertising. The
         capitalized costs of the advertising are amortized over the period
         during which the benefits of the mailings are expected, up to two
         months following the mailing date.

         At June 30, 1999, $103,000 of advertising related to discontinued
         operations was included in other current assets as compared with
         $21,000 at June 30, 1998. Advertising expense primarily incurred in the
         DGBU and expensed in discontinued operations was $3,434,000, $3,549,000
         and $6,298,000 for the years ended June 30, 1999, 1998, and 1997,
         respectively.

         Foreign Currency

         The Company has certain accounts receivable in foreign currencies, and
         a line of credit payable in Dutch Guilders. Foreign currency
         receivables and payables are translated using current rates.

         Net earnings (loss) per common share

         The Company has adopted SFAS No. 128, "Earnings Per Share". Basic
         earnings (loss) per share is computed by dividing net earnings (loss)
         by the weighted average number of common shares outstanding during each
         period. Common share equivalents include stock options, warrants,
         convertible debenture (Note 9) and shares issuable relating to the
         litigation settlement (Note 17). All common equivalent shares were
         excluded from the calculation because they were anti-dilutive for all
         periods presented.

         Stock-Based Compensation

         In October 1995, the Financial Accounting Standards Board issued SFAS
         No. 123, "Accounting for Stock-Based Compensation." The Company has
         elected to continue following the guidance of Accounting Principles
         Board Opinion No. 25, "Accounting for Stock Issued to Employees," for
         measurement and recognition of stock-based transactions with employees
         and has adopted the disclosure-only provisions of SFAS No. 123.

         Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         Comprehensive Income

         As of July 1, 1998, the Company adopted Statement of Financial
         Accounting Standards No. 130, "Reporting Comprehensive Income."
         Statement 130 establishes new rules for the reporting and display of
         comprehensive income and its components. The adoption of this Statement
         had no impact on the Company's net income or stockholders' equity.

         New Accounting Standards

         The Financial Accounting Standards Board has also recently issued SFAS
         No. 133, "Accounting for Derivative Instruments and Hedging Activities"
         which will be effective for the Company in fiscal 2001. The Company is
         reviewing the requirements of this standard and has not yet determined
         the impact on the financial statements of the Company.

         Reclassifications

         Certain amounts presented in fiscal 1998 and 1997 have been
         reclassified to conform to the fiscal 1999 presentation.


2.       BUSINESS COMBINATIONS

         On July 15, 1998, the Company issued 600,000 shares of common stock in
         exchange for all of the common stock of Kilborn Photo Products, Inc.
         (Kilborn). Kilborn is an inkjet coating facility for specialty media
         and is based in Cedar Rapids, Iowa. The business combination was
         accounted for as a pooling of interests, and therefore, all prior
         period financial statements presented have been restated as if the
         merger took place at July 1, 1996. The operations of Kilborn Photo
         Products, Inc. are part of the DGBU, and are included in discontinued
         operations. Assets acquired and liabilities assumed include the
         following as of July 15, 1998:

                                      F-8


                  Accounts receivable                       $   155,000
                  Inventory                                     411,000
                  Property, plant and equipment, net            280,000
                  Other assets                                   91,000
                  Notes payable and accrued interest          2,956,000
                  Other liabilities                               6,000


         On December 18, 1998, the Company, through its wholly owned subsidiary
         RSPnet.com, Inc., issued 1,499,998 shares of Series A Convertible
         Preferred Stock and notes payable of $3,678,258, in exchange for all of
         the common stock of K&R Technical Services, Inc. d/b/a TEAM
         Technologies, a privately held information technology consulting
         company. Each share of Series A Convertible Preferred Stock is
         convertible into Common Stock of the Company, initially at the rate of
         one share of Common Stock for each share of Series A Convertible
         Preferred Stock, and has a guaranteed value of $5 per share after two
         years from the date of issuance. The Series A Convertible Preferred
         Stock has been valued at $5 per share for accounting purposes and the
         acquisition has been accounted for using the purchase method of
         accounting. Accordingly, the aggregate purchase price of approximately
         $11,278,000, including transaction costs, has been allocated to the
         assets acquired and liabilities assumed based upon the fair values at
         the date of acquisition. The historical carrying amounts of the assets
         acquired and liabilities assumed approximated their fair value with
         liabilities assumed exceeding assets acquired by $193,000. The purchase
         price and the liabilities assumed in excess of tangible assets acquired
         has been recorded as goodwill in the amount of $11,471,000 and is being
         amortized on a straight-line basis over five years. Tangible assets
         acquired and liabilities assumed include the following as of
         December 1, 1998:

                  Accounts receivable                       $   983,000
                  Notes receivable - related party              444,000
                  Property, plant and equipment               1,236,000
                  Other assets                                  195,000

                  Note payable                                  568,000
                  Term debt                                   1,230,000
                  Accounts payable                              346,000
                  Accrued compensation                          423,000
                  Other liabilities                             484,000

         The operating results of the acquired business have been included in
         the consolidated statement of income from the effective date of
         acquisition, which was December 1, 1998. The following pro forma
         results of operations for the years ended June 30, 1999 and 1998 assume
         the acquisition occurred as of July 1, 1997:



                                                                          June 30, 1999      June 30, 1998
                                                                          -------------      -------------
                                                                                       
                  Net sales                                                $   7,150,000     $  4,467,000
                  Net loss                                                    (7,954,000)      (5,297,000)
                  Basic and dilutive loss per common share                          (.50)            (.35)


3.       DISCONTINUED OPERATIONS

         Net sales from discontinued operations were $71,578,364, $82,609,562,
         and $89,411,732 in fiscal 1999, 1998, and 1997, respectively. The
         results from discontinued operations do not include any general
         corporate overhead expense. Debt and the corresponding interest expense
         relating to the Digital Graphics Business Unit reside within the
         operating companies of the discontinued operations. The components of
         net assets of discontinued operations included in the Consolidated
         Balance Sheets at June 30, 1999 and 1998 are as follows:

                                      F-9


                                                 June 30, 1999     June 30, 1998
                                                 -------------     -------------
          Accounts and notes receivable         $  12,374,195     $  11,723,051
          Inventory                                 8,630,576         7,221,427
          Other current assets                      1,976,591         5,026,435
          Property and equipment, net               2,109,494         2,393,487
          Other assets                                107,659         3,731,286
          Notes payable                             3,237,835         2,417,968


4.   RESTRUCTURING AND OTHER SPECIAL CHARGES

     Restructuring and other special charges are related to DGBU activities and
     included as discontinued operations. In September 1998, the Company
     reversed $600,000 of special charges incurred in the fourth quarter of
     fiscal 1996 related to intellectual property licenses. These charges, which
     were previously accrued and expensed by the Company, were not incurred due
     to a negotiated settlement. As of June 30, 1999 there are no remaining
     amounts accrued.

     In June 1997, the Company incurred pre-tax charges of $7.8 million related
     to the revaluation of intellectual property and inventory and $636,000 for
     settlement of the shareholders' lawsuit (Note 17). The special charges were
     incurred primarily as a result of a change in the estimated net realizable
     values of the DGBU's PressMate and DisplayMaker Express products. These two
     products represent the DGBU's first two proprietary printers developed and
     manufactured in-house.


5.   INVENTORY

     DGBU inventory consists of the following:



                                                                           June 30, 1999     June 30, 1998
                                                                           --------------    -------------
                                                                                      
     Raw materials                                                         $   4,372,616     $   3,686,653
     Work in process                                                             204,451           207,303
     Finished goods:
       Consumables                                                             2,509,904         2,604,318
       Hardware                                                                1,543,605           723,153
                                                                           -------------     -------------
                                                                           $   8,630,576     $   7,221,427
                                                                           =============     =============


6.   PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:



                                                      Life Used
                                                  for Depreciation         June 30, 1999      June 30, 1998
                                                 -----------------         -------------      -------------
                                                                                     
         Land                                                              $      64,800      $     64,800
         Buildings                                   39 Years                    110,200           110,200
         Equipment                                   2 - 5 years              11,264,828        10,722,310
         Capitalized tooling                         3 years                     800,748           440,710
         Furniture and fixtures                      5 - 7 years               4,404,681         4,145,772
         Purchased software                          3 years                   1,616,802         1,112,377
         Vehicles                                    5 years                     188,203           209,738
         Leasehold improvements                      5 years                   2,970,255         2,920,276
                                                                           -------------     -------------
                                                                              21,420,517        19,726,183
         Accumulated depreciation and amortization                            17,788,274        16,684,299
                                                                           -------------     -------------
                                                                           $   3,632,243     $   3,041,884
                                                                           =============     =============


                                      F-10


         Property and equipment includes assets under capital leases as follows:



                                                                           June 30, 1999     June 30, 1998
                                                                           -------------     -------------
                                                                                       
         Equipment                                                         $     788,587     $     160,171
         Furniture and fixtures                                                  345,005           233,435
         Purchased software                                                      443,293           180,275
                                                                           -------------     -------------
                                                                               1,576,885           573,881
         Accumulated amortization                                                488,937           230,247
                                                                           -------------     -------------
                                                                           $   1,087,948     $     343,634
                                                                           =============     =============



7.       NOTES PAYABLE

         Notes payable consists of the following:



                                                                           June 30, 1999    June 30, 1998
                                                                           -------------    -------------
                                                                                      
         Note payable under revolving
         line of credit (1)                                                $   1,489,011

         Note payable under revolving
         line of credit (2)                                                    1,729,524     $   2,015,988

         Note payable to a bank (3)                                              630,167

         Note assumed in Kilborn acquisition paid in fiscal 1999                                   382,680

         Note payable to former Kilborn shareholder                               19,300            19,300
                                                                           -------------     -------------

                                                                           $   3,868,002     $   2,417,968
                                                                           =============     =============

         Weighted average interest rate                                             8.04%             6.39%
                                                                           =============     =============


         (1) On January 17, 1996, CSC entered into a credit agreement with GECC.
         The agreement allowed CSC to borrow up to $10,000,000 based on
         availability equal to 70% of the net eligible accounts receivable and
         25% of the net eligible inventory. Borrowings are secured by inventory,
         accounts receivable, and general intangibles and bear interest at a
         defined bank reference rate (prime) plus 2.0% (9.75% at June 30, 1999)
         with a 0.5% unused line fee. At June 30, 1999, approximately $3,633,000
         of eligible financing was unused under this credit line. Availability
         under this credit line fluctuates daily. The agreement, which expired
         in January 1999, has been extended until December 1, 1999. Under the
         terms of the extension, the line of credit was reduced to a maximum of
         $6,000,000 subject to the same availability provisions, and the
         interest rate was increased to prime plus 2.5% effective August 1,
         1999. GECC has indicated that it will not renew this agreement, as the
         Company no longer meets the account size objectives of their portfolio.

         (2) CSE, a subsidiary of the Company's CSC subsidiary, maintains a
         receivables financing arrangement, which has no stated expiration, with
         a commercial finance company whereby CSE may borrow up to 80% of
         eligible accounts receivable, with a maximum advance of $2,500,000. At
         June 30, 1999, approximately $770,000 was unused under this credit
         line. Borrowings are due in Dutch Guilders on demand and bear interest
         at the Promissory Note Discount Rate of the Dutch Central Bank plus
         2.5% (5% at June 30, 1999). Borrowings in U.S. Dollars are due on
         demand and bear interest at a rate that fluctuates with the market
         (8.25% at June 30, 1999).

         (3) The Company assumed a revolving credit facility with the
         acquisition of K&R Technical Services, Inc. that expired on May 1,
         1999. The Company has negotiated a structured pay down schedule with
         the lender requiring final payment on November 22, 1999. Interest
         accrues at prime plus 2.25% (10% at June 30, 1999).

                                      F-11


8.       LONG-TERM DEBT

         Long-term debt consists of the following:



                                                                                         June 30, 1999   June 30, 1998
                                                                                         -------------   -------------
                                                                                                   
         Note payable to a finance company, payments, including
         principal and interest at 8.57%, of $3,640 due monthly
         through January 2002, secured by certain
         domestic property and equipment                                                 $      98,279

         Note payable to a finance company, payments, including
         principal and interest at 8.25%, of $1,500 due monthly through
         January 2002, secured by certain domestic property and equipment                       41,751

         5% Community Economic Betterment Account (CEBA)
         loan due June 2001 that is forgivable
         if certain employment quotas are met                                                   45,000

         Notes payable to a finance company paid in fiscal 1999                                            $      60,295

         Obligations under capital leases for equipment,
         payable in monthly installments (Note 12)                                           1,150,045           266,001
                                                                                         -------------     -------------
                                                                                             1,335,075           326,296
         Less current maturities                                                               720,830           259,550
                                                                                         -------------     -------------
                                                                                         $     614,245     $      66,746
                                                                                         =============     =============


         Maturities of long-term debt at June 30, 1999, excluding capital lease
         obligations, are as follows:

         Year ending June 30:

         2000                                            $      51,797
         2001                                                  101,360
         2002                                                   31,873
                                                         -------------
                                                         $     185,030
                                                         =============

9.       CONVERTIBLE SUBORDINATED DEBENTURE

         In September 1996, the Company entered into a series of agreements with
         one of its largest trade creditors, converting approximately $1.7
         million of trade payables and a promissory note of $859,516 into a $2.5
         million convertible subordinated debenture. The debenture was due
         September 12, 1998 together with accrued interest at an annual rate of
         8.0%. The debenture contained voluntary, automatic and mandatory
         conversion provisions. Under the voluntary conversion provision, the
         debenture was convertible in whole or in part into common stock of the
         Company at $6.00 per share at any time that the market price of the
         Company's common stock was less than $6.00 per share. The debenture was
         automatically converted at the rate of 30,000 shares a week at the
         market price of the common stock at any time that the market price
         equaled or exceeded $6.00 per share. The automatic conversion provision
         contained limited price protection under certain circumstances. Under
         the mandatory conversion provision, the debenture was converted on a
         quarterly basis at market prices and in share quantities equal to
         specified threshold amounts, less any shares converted under the other
         provisions. The mandatory provision was effective for the quarter
         ending March 31, 1997 and continued until the debenture was paid off.
         As of June 30, 1998, 630,000 shares had been converted aggregating
         $2,353,209. No additional conversions took place. The remaining
         principal in the amount of $375,866 and accrued interest was paid
         during fiscal 1999.



10.      STOCKHOLDERS' EQUITY

         In September 1996, the Company privately placed 2,695,971 shares of its
         common stock, together with warrants to purchase an additional
         2,757,000 shares, for $12 million ($11.8 million, net of transaction
         costs) to three separate groups. Sihl-Zurich Paper Mill on Sihl AG
         (Sihl), a Swiss corporation, was issued 1,371,429 shares and warrants
         to purchase an additional 1,371,429 shares, at an exercise price of
         $7.00 per share, for an

                                      F-12


         aggregate $6 million. TimeMasters, Inc. and affiliates, which are
         controlled by the Company's Chief Executive Officer, were issued
         914,286 shares and warrants to purchase an additional 914,286 shares,
         at an exercise price of $7.00 per share, for an aggregate $4 million.
         The Company received $2.2 million from TimeMasters and affiliates and
         offset the remaining $1.8 million against a note payable and accrued
         interest due to TimeMasters. General Electric Capital Corporation, the
         Company's senior lender, was issued 410,256 shares and warrants to
         purchase an additional 471,285 shares at an exercise price of $6.79 per
         share, for an aggregate $2 million.

         In December 1998, the Board of Directors approved the plan to issue
         shares of Series A Convertible Preferred Stock (Preferred Stock), with
         certain powers, preferences, rights, qualifications, limitations and
         restrictions, to purchase K&R Technical Services, Inc. On December 18,
         1998, the Company issued 1,499,998 shares of Preferred Stock to the
         shareholders of K&R Technical Services, Inc. (Note 2). Holders of the
         Preferred Stock have the same voting rights as the Company's Common
         stockholders and have a liquidation preference of $5.00 per share. The
         Preferred Stock is convertible at the option of the holder into Common
         Stock initially at the rate of one share of Common Stock for each share
         of Preferred Stock, and has a guaranteed value of $5.00 per share after
         two years from the date of issuance. The Preferred Stock automatically
         converts to Common Stock if the Common Stock trades at or above $5.00
         per share for a specified period of time. The Preferred Stock also has
         a mandatory conversion feature on December 18, 2000, the redemption
         date, whereby each share is converted at the option of the holder into
         either Common Stock at the initial conversion rate, or a value of
         $5.00. The Company may fulfill the $5.00 value, $7,500,000 in
         aggregate, by issuing additional shares of Common Stock above the
         initial conversion rate, if necessary, or by issuing cash.


11.      STOCK OPTIONS AND WARRANTS

         On June 24,1999, the stockholders approved an amendment to the
         "LaserMaster Technologies, Inc. 1996 Stock Incentive Plan" to revise
         the name of the plan to the "VirtualFund.com, Inc. 1996 Stock Incentive
         Plan", to extend the term of the plan to ten years from the date of
         shareholder approval of the amendment and to increase the number of
         shares available for awards under the plan from 1,500,000 shares to
         5,000,000 shares. Under the plan, incentive stock options and
         non-statutory stock options may be granted to key employees, directors,
         and consultants of the Company at exercise prices not less than 100
         percent of the fair market value of the common stock at the date of
         grant and 110 percent for incentive stock options granted to
         individuals owning 10 percent or more of the Company's common stock.
         The plan is administered by a Stock Option Committee appointed by the
         Board of Directors. The committee establishes all terms and conditions
         of each grant, except that, in the case of incentive options, the term
         may not exceed 10 years. The Company also has a 1990 Restated Stock
         Option Plan with 3,513,309 shares authorized.


         Warrant activity and activity under the stock option plans is
         summarized as follows:




                                                        Weighted Average                  Weighted Average
                                          Warrants       Warrant Price        Options       Option Price
                                          Outstanding      Per Share        Outstanding       Per Share
                                          -----------    -------------      -----------     ------------
                                                                              
         Balance, June 30, 1996              292,953       $      6.31        2,763,110       $     3.54

         Granted                           2,757,000              6.96          954,381             4.07
         Exercised                                                             (180,357)            1.89
         Forfeited                                                             (729,024)            4.37
         Repriced*                                                                                 (0.55)
                                          ----------                        -----------
         Balance, June 30, 1997            3,049,953              6.90        2,808,110             3.38

         Granted                                                              1,051,500             2.97
         Exercised                                                              (80,071)            1.69
         Forfeited                           (15,000)                          (150,500)            3.07
         Repriced**                                                                                (0.89)
                                          ----------                        -----------
         Balance, June 30, 1998            3,034,953              6.91        3,629,039             3.11

         Granted                                                              1,736,500             2.00
         Exercised                                                              (25,000)            1.00
         Forfeited                                                             (603,650)            3.08
                                          ----------                        -----------
         Balance, June 30, 1999            3,034,953       $      6.91        4,736,889       $     2.71
                                          ==========                        ===========


                                      F-13


                                                                          
         Exercisable, June 30, 1997        3,049,953       $      6.90          779,308        $   2.65
         Exercisable, June 30, 1998        3,034,953              6.91        1,034,513            2.71
         Exercisable, June 30, 1999        3,034,953              6.91        1,160,889            2.76

         

         * The Company's Board of Directors approved the repricing of 929,250
         non-statutory stock options to the closing Nasdaq price on July 17,
         1996 ($3.63 per share). These options had original exercise prices
         ranging from $4.00 to $6.50 per share with an average exercise price of
         $4.18 per share.

         ** The Company's Board of Directors approved the repricing of 776,000
         non-statutory stock options to the closing Nasdaq price on September
         26, 1997 ($3.00 per share). These options had original exercise prices
         ranging from $3.38 to $4.75 per share with an average exercise price of
         $3.89 per share.


         Pro Forma Information:

         The Company has adopted the disclosure-only provisions of Statement of
         Financial Accounting Standards No. 123, "Accounting for Stock-Based
         Compensation" (SFAS 123). Accordingly, since options have been issued
         with exercise prices at or above market value of the Company's stock,
         no compensation expense has been recognized for the stock option plans.
         Had compensation expense for the Company's stock option plans been
         determined based on the fair value at the grant date for awards since
         July 1, 1995 consistent with the provisions of SFAS 123, the Company's
         net (loss) earnings and net (loss) earnings per share would have been
         adjusted to the pro forma amounts reflected in the following table:



                                                            June 30, 1999       June 30, 1998       June 30, 1997
                                                            -------------       -------------       -------------
                                                                                           
         Reported net (loss) earnings                       $  (7,823,113)      $   1,840,832       $ (16,484,301)
         Pro forma net (loss) earnings                         (8,305,228)          1,243,163         (16,830,610)
         Basic and diluted net (loss) earnings per share:
                As reported                                          (.50)                .12               (1.15)
                Pro forma                                            (.53)                .08               (1.18)


         Statement No. 123 method of accounting has not been applied to options
         granted prior to July 1, 1995, thus the resulting pro forma
         compensation cost may not be representative of that to be expected in
         future years. The fair value of each option grant has been estimated as
         of the date of grant using the Black-Scholes option-pricing model with
         the following weighted-average assumptions used for grants in fiscal
         1999, 1998 and 1997:



                                                            June 30, 1999       June 30, 1998       June 30, 1997
                                                            -------------       -------------       -------------
                                                                                           
         Expected dividend yield                            $           -        $          -       $           -
         Expected stock price volatility                               65%                 60%                 60%
         Risk-free interest rate                                     5.90%               5.50%               6.22%
         Expected life of options (years)                             4.5                 4.5                 4.5


         The per share weighted-average fair value of stock options granted
         during 1999, 1998 and 1997 is estimated as $1.14, $1.60 and $2.23,
         respectively on the date of grant using the Black-Scholes option
         pricing model.

         The following table summarizes information about the Company's stock
         option plans at June 30, 1999:



                                               Weighted
           Range of           Number            Average          Weighted          Number           Weighted
           Exercise       Outstanding at       Remaining          Average       Exercisable at      Average
            Prices        June 30, 1999    Contractual Life   Exercise Price    June 30, 1999    Exercise Price
            ------        -------------    ----------------   --------------    -------------    --------------
                                                                                  
         $ .85 to 2.00        1,422,122        106  months       $    1.57             50,372       $     1.37

          2.01 to 3.00        2,071,567         73  months            2.78            848,817             2.55

          3.01 to 4.00        1,179,250         86  months            3.83            244,250             3.66

            above 4.00           63,950         85  months            4.73             17,450             4.69
                          -------------                                            ----------
                              4,736,889                          $    2.71          1,160,889       $     2.76
                          =============                                            ==========


                                      F-14


12.      COMMITMENTS

         Leases
         The Company leases certain equipment under leases that meet the
         criteria for capital lease classification. These agreements have been
         capitalized at the lesser of the fair market value of the equipment or
         the present value of the future minimum lease payments. The Company
         also leases other equipment under operating leases. In addition, the
         Company leases its office and warehouse facilities under operating
         leases that expire at various dates through October 2011. The leases
         require payments of property taxes, insurance, and maintenance costs in
         addition to basic rent and contain renewal options for periods ranging
         from one to three years.

         Certain of the facilities leases are under a 15-year commercial lease
         with Grandchildren's Realty Alternative Management Program I
         ("GRAMPI"), a Minnesota limited partnership controlled by the Company's
         Chief Executive Officer, for space it currently occupies in Shady View
         I & II. The Shady View space is approximately 52% of all space leased
         by the Company. GRAMPI purchased the real estate in April 1995, after
         the Company's Board of Directors declined to do so. GRAMPI sold the
         property in October 1996 in a sale-leaseback transaction and remains
         the lessor to the Company. The Company's Board of Directors retained
         services of an outside commercial real estate brokerage firm and
         outside legal counsel to negotiate the lease with the landlord's
         outside legal counsel. Management and the outside brokerage firm and
         legal counsel believe that the lease is at market rate.

         Certain of the facilities leases are under a 15-year commercial lease
         with TEAM Property Management Company, a company controlled by three
         VirtualFund.com shareholders.

         Rent expense is allocated to discontinued operations based on the
         square feet of space occupied by facilities used by the DGBU.

         Rent expense under all equipment and facilities operating leases
         (including property taxes, insurance, and maintenance costs) was as
         follows:


                                                                     Year Ended June 30
                                                     ---------------------------------------------
                                                         1999             1998             1997
                                                     ------------     -----------     ------------
                                                                             
               GRAMPI                                $  1,682,000     $ 1,547,000     $  1,525,000
               TEAM Property Management                   113,000
               Other parties                            1,390,000       1,037,000        1,104,000
                                                     ------------    ------------     ------------
               Total                                 $  3,185,000    $  2,584,000     $  2,629,000
                                                     ============    ============     ============


         Future minimum lease payments under capital and operating leases in
         effect at June 30, 1999 are as follows:



                                                 Capital                       Operating Leases
                                                              -------------------------------------------------
         Year ending June 30:                    Leases           TEAM              GRAMPI             Other
                                               -----------    -------------     -------------      ------------
                                                                                       
         2000                                  $   734,688    $     192,000     $   1,320,000      $  1,316,000
         2001                                      402,387          192,000         1,320,000           916,000
         2002                                       66,428          192,000         1,264,000           850,000
         2003                                       34,440          192,000         1,236,000           829,000
         2004                                        4,566          192,000         1,236,000           697,000
         Thereafter (2005 through 2011)                           1,408,000         8,870,000         2,038,000
                                               -----------    -------------     -------------      ------------
                                                 1,242,509    $   2,368,000     $  15,246,000      $  6,646,000
                                                              =============     =============      ============
         Less interest                             (92,464)
                                               -----------
         Present value of net
             minimum lease payments            $ 1,150,045
                                               ===========


         Employment agreements
         The Company has employment agreements with thirteen of its officers and
         executives that renew automatically on an annual basis. Three of the
         agreements provide continuation payments equal to 60 months pay and two
         of the agreements provide continuation payments equal to 36 months pay
         upon termination of employment in certain circumstances, including
         change of control. The other eight agreements provide for 12 months
         notice of termination, other than for cause, or payment in lieu of
         notice. Three of the agreements also provide for acceleration of option
         vesting in the event of a change in control or termination without
         cause. As of June 30,

                                      F-15


         1999, the minimum commitment based on current annual salary levels set
         for the thirteen individuals was, in aggregate, $4,850,000. The Company
         also has agreements with the three former owners of K&R Technical
         Services, Inc. that prohibits them from competing with or recruiting
         from the Company for periods of 2 years and 3 years, respectively. The
         agreements call for guaranteed bonuses to be paid to these individuals
         until the Company raises new working capital totaling $9,000,000. At
         that point, the bonuses will convert to a basic bonus calculation based
         on achieving qualified revenue targets. As of June 30, 1999, $467,250
         has been accrued relating to these agreements, with a potential
         additional liability of $3,532,750.

         Employee benefit plan
         The Company has two qualified defined contribution 401(k) plans
         covering substantially all employees. One plan covers RSPN employees,
         the other plan covers all other domestic employees. The plans offer
         employees a savings feature and discretionary Company matching
         contributions. There were no employer contributions to the plans for
         the years ended June 30, 1999, 1998, and 1997.

13.      INCOME TAXES

         The provision for income taxes consists of the following:



                                                                             Year Ended June 30,
                                                            ----------------------------------------------------
                                                                1999                1998                1997
                                                            -------------       -------------      -------------
                                                                                          
         Continuing operations:
            Current, primarily federal                      $           -       $           -      $    (205,000)
            Deferred, primarily federal                        (3,342,000)            920,000         (1,084,000)
                                                            -------------       -------------      -------------
                                                               (3,342,000)            920,000         (1,289,000)

         Discontinued operations, primarily deferred           (1,424,000)           (920,000)
                                                            -------------       -------------      -------------
                                                            $  (4,766,000)      $           -      $  (1,289,000)
                                                            =============       =============      =============


         A reconciliation of the expected federal income tax provision at the
         statutory rate of 35% with the provision for income taxes is as
         follows:



                                                                             Year Ended June 30,
                                                            ----------------------------------------------------
                                                                1999                 1998               1997
                                                            -------------       -------------      -------------
                                                                                          
         Tax (provision) benefit
            computed at statutory rates                     $   1,070,000       $    (644,000)     $   5,318,000
         State income tax, net of
            federal benefit                                       198,000             (31,000)           288,000
         Graduated tax bracket
           benefit (provision)                                    (31,000)             18,000           (152,000)
         Change in valuation allowance                         (6,399,000)            457,000         (7,339,000)
         Other                                                    396,000             200,000            596,000
                                                            -------------       -------------      -------------
                                                            $  (4,766,000)      $           -      $  (1,289,000)
                                                            =============       =============      =============

         Reconciliation of income tax provision:
            Continuing operations                           $  (3,342,000)      $     920,000      $  (1,289,000)
                                                            =============      ==============      =============

            Discontinued operations                         $  (1,424,000)      $    (920,000)     $           -
                                                            =============       =============      =============


         Under SFAS No. 109, deferred tax assets and liabilities are classified
         as current and non-current on the basis of the classification of the
         related asset or liability for financial reporting. Deferred taxes are
         recorded for temporary differences between the bases of assets and
         liabilities for financial reporting purposes and tax purposes.

                                      F-16


         Temporary differences comprising the net deferred taxes shown on the
         consolidated balance sheets are as follows:



                                                                 June 30,1999                    June 30, 1998
                                                 -------------------------------------------     ---------------
                                                    Assets       Liabilities       Total              Total
                                                 ------------   -------------   ------------     ---------------
                                                                                     
         Allowance for doubtful
              accounts and sales returns         $    420,000                   $    420,000      $      565,000
         Inventory costs                            2,360,000                      2,360,000           2,612,000
         Accrued vacation                             188,000                        188,000             145,000
         Other                                        270,000   $    (313,000)       (43,000)           (144,000)
                                                 ------------   -------------   ------------      --------------
              Current                               3,238,000        (313,000)     2,925,000           3,178,000

         Property and equipment basis                 686,000                        686,000             682,000
         Net operating loss carryforwards           8,467,000                      8,467,000           6,573,000
         Research and development credit
              carryforwards                         1,773,000                      1,773,000           1,773,000
         Alternative minimum tax credits              225,000                        225,000             225,000
         Other                                         26,000                         26,000              38,000
                                                 ------------   -------------   ------------      --------------
              Noncurrent                           11,177,000               -     11,177,000           9,291,000
                                                 ------------   -------------   ------------      --------------
                   Gross                           14,415,000        (313,000)    14,102,000          12,469,000
             Valuation allowance                  (14,102,000)                   (14,102,000)         (7,703,000)
                                                 ------------   -------------   ------------      --------------
                   Net                           $    313,000   $    (313,000)  $          -      $    4,766,000
                                                 ============   =============   ============      ==============


         The valuation allowance for deferred tax assets as of June 30, 1999 and
         1998 is $14,102,000 and $7,703,000, respectively. The net change in the
         total valuation allowance for the year ended June 30, 1999 was an
         increase of $6,399,000. Realization of the deferred tax asset will
         depend on the Company's ability to generate sufficient taxable income.
         Based on the Company's recent operating losses and the uncertain future
         of its current strategy to develop the ISBU around the Internet,
         management is not certain that the Company will be able to generate
         sufficient future taxable income to fully utilize its deferred tax
         assets. In addition, realization of net operating loss carryforwards
         may be limited under certain provisions of the Internal Revenue Code
         regardless of the Company's ability to generate taxable income. As a
         result, the Company has recorded a valuation allowance for the entire
         deferred tax asset.

         At June 30, 1999, the Company has net operating loss carryforwards for
         federal income tax purposes of approximately $22.2 million and net
         operating loss carryforwards for state income tax purposes of
         approximately $9.4 million, which are available to offset future
         taxable income, if any, through 2019 and 2014 respectively. The Company
         also has alternative minimum tax credit carryforwards of approximately
         $225,000 available to reduce future federal income taxes, if any, over
         an indefinite period and research credit carryforwards of approximately
         $1.8 million available to reduce future federal income tax, if any,
         through 2011.

         The Company recognized income tax benefits of $199,000 in 1997
         pertaining to the exercise of stock options, which are reflected in
         additional paid-in capital.


14.      EARNINGS PER SHARE CALCULATION

         The following table summarizes the securities that could potentially
         dilute basic earnings per share in the future that were not included in
         the computation of diluted (loss) earnings per share because to do so
         would have been antidilutive for the periods presented:



                                                                  1999               1998              1997
                                                              -----------         -----------      -----------
                                                                                          
         Stock options                                          4,736,889             858,117        2,808,110
         Warrants                                               3,034,953           3,034,953        3,049,953
         Convertible debenture                                                         28,998          794,687
         Shares issuable relating to settlement
            of litigation                                                             140,953          141,333
                                                              -----------         -----------      -----------
                                                                7,771,842           4,063,021        6,794,083
                                                              ===========         ===========      ===========


                                      F-17


15.      RELATED PARTY TRANSACTIONS

         The Company is involved in various transactions with TimeMasters, Inc.
         (TMI), a corporation controlled by the Company's Chief Executive
         Officer. The Company also purchases certain inventory from a greater
         than 5% shareholder and maintains one of its employee 401(k) plan
         investments with an affiliate of its senior lender. The Company's
         senior lender is also a shareholder. Transactions with related parties
         are as follows:



                                                                             Year Ended June 30,
                                                            ---------------------------------------------------
                                                                 1999              1998                1997
                                                            -------------      -------------       ------------
                                                                                          
         Interest expense (Notes 7 and 8)                   $     497,574      $      336,816       $    727,630
         Interest expense (a)                                                           7,440             83,693
         Interest income (b), (f)                                  94,093               4,696             38,882
         Rent expense (Note 12), (f)                            1,795,000           1,547,000          1,525,000
         Operating expenses (c)                                   427,874             198,723             88,240
         Equipment purchases (d)                                   31,903              52,970             49,075
         Inventory purchases (h)                                2,327,631           2,721,156          1,569,844


         Balances outstanding with related parties are as follows:



                                                                         June 30,
                                                            ---------------------------------
                                                                  1999              1998
                                                            -------------       -------------
                                                                          
         Receivables and accrued interest (b), (f)          $   1,378,749       $     347,505
         Other assets (g)                                         122,029
         Notes payable (Note 7)                                 1,489,011              60,295
         Notes payable - related parties (Note 2), (e)          2,235,766           1,874,311
         Accounts payable (h)                                     262,924             597,608
         Capital lease obligations (Note 8)                       156,178             141,513


         Amounts related to continuing operations:

         (a) During September and October 1995, CSC borrowed $1,765,000 under a
         demand note from TMI. In January 1996, CSC obtained a new line of
         credit with GECC that required the indebtedness to TMI be subordinated
         to the line of credit and not be repaid unless certain financial
         covenants were achieved. In return for such subordination and for the
         significant restrictions on repayment, the Company issued to TMI a
         warrant to purchase 277,953 shares of common stock. The warrant is
         exercisable at $6.35 per share through January 17, 2002. In December
         1996, the principal balance of $1,765,000, along with $53,715 in
         accrued interest, was offset against a similar amount due from TMI
         related to an equity investment in the Company (Note 10). Fiscal 1998
         expense represents interest paid to GRAMPI for past due rent payments.

         (b) In September 1996, the Company issued 914,286 shares of common
         stock and warrants to purchase an additional 914,286 shares of common
         stock to a group affiliated with TMI in exchange for promissory notes
         aggregating $4 million (Note 10). In addition, Mel Masters, the
         Company's CEO, borrowed $585,000 from the Company in November 1996. The
         amount borrowed was repaid in December 1996 together with interest at
         10%. On June 26, 1998 GRAMPI borrowed $250,000 from the Company. The
         note was personally guaranteed by Mr. Masters and was secured by
         certain shares of the Company's common stock owned by GRAMPI, bore
         interest at the Prime Rate plus 2.0%. In September 1999, the principal
         balance of the note, which was originally due February 25, 1999, was
         combined with additional borrowing during fiscal 1999 by Mr. Masters
         into a new $500,000 non-interest bearing note that is due September 1,
         2000. During fiscal 1999, Mr. Masters and TMI borrowed an additional
         $375,472. This additional borrowing was combined in September 1999 with
         $97,505 that was owed to the Company by TMI at June 30, 1998 into a
         second note from Mr. Masters of $472,977 that is payable September 1,
         2000 and bears interest at 9.75%. Both notes are secured by a Deed of
         Trust encumbering certain real property located in the state of Montana
         that is owned by GRAMPI. Total principal and accrued interest due from
         Mr. Masters at June 30, 1999 is $1,048,767. The Company also assumed a
         note receivable from TEAM Property Management in the acquisition of K&R
         Technical Services, Inc. The note, which bears interest at 9% and is
         due September 1, 2000, had an outstanding balance of $329,982 at June
         30, 1999.

                                      F-18


         (c) Under a Use Indemnification Agreement and certain related Board of
         Directors' actions, the Company has the right to sponsor business and
         business-related occasions at facilities owned by Masters Trust I
         and/or Melvin L. Masters and/or TimeMasters, Inc. In addition, the
         Company occasionally uses an airplane that is owned by a company
         controlled by Mr. Masters for business-related travel. The Company
         indemnifies the owners against loss or damage beyond available
         insurance, reimburses out-of-pocket and operating expenses, and pays a
         usage charge based on what management believes are market rates. The
         Company also uses the services of a travel agency that is controlled by
         Mr. Masters.

         (d) The Company has installed a campus-wide TMI wireless voice system
         in its Eden Prairie facility. There are no monthly call operating
         charges for unlimited use of that system. The system hardware was
         acquired in 1995 for $211,362 based on competitive proposals for two
         other comparable systems. The Company acquired additional hardware and
         upgrades in 1999, 1998 and 1997.

         (e) The balance at June 30, 1999 represents notes issued in acquisition
         of K&R Technical Services. One note for $733,150 is due June 18, 2000
         and three other notes aggregating $1,502,616 are due September 1, 2000.
         All four notes will become due and payable ten days after receipt of
         funds from the sale of the DGBU or an equity financing if funds are
         sufficient to pay the note obligations. Interest accrues on the notes
         from June 18, 1999 at a rate of 9%. The notes are classified as current
         liabilities due to management's decision to sell the DGBU. One of the
         three notes due September 1, 2000 is a $733,150 note payable to Stephen
         Fisher, an executive and director of the Company. The balance at June
         30, 1998 represents a note payable to a former Kilborn shareholder that
         was paid at the time of acquisition.

         (f) The Company subleases space to TMI. Rent charged to TMI reduces
         rent expense and was $18,996, $18,820, and $18,608 for the years ended
         June 30, 1999, 1998 and 1997 respectively. The Company also performed
         services and paid various amounts on behalf of TMI. The receivable from
         TMI of $206,711 at June 30, 1999 was combined with additional
         indebtedness into the $472,977 note described in (b).

         (g) Other assets includes a note receivable from Stephen Fisher that
         was assumed in the acquisition of TEAM Technologies. The note is due
         June 18, 2001 and bears interest at the rate of 9.00%.

         Amounts related to discontinued operations:

         (h) Inventory purchases from Sihl, a greater than 5% shareholder, and
         related payables at year end.



16.      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH
         FINANCING ACTIVITIES



                                                                                    Year Ended June 30,
                                                                     ---------------------------------------------
                                                                         1999            1998            1997
                                                                     -------------   -------------   -------------
                                                                                            
         The Company paid cash for the following items:
              Interest paid                                          $     810,219   $     691,445   $   1,980,003
              Income tax (received) paid, net                             (118,827)          7,677        (668,054)

         Financing transactions not affecting cash:

             1,499,998 shares of convertible preferred stock issued
             for acquisition of K&R Technical Services, Inc.             7,500,000

             Notes payable issued for acquisition of K&R
             Technical Services, Inc.                                    3,678,258

             Accounts payable converted to convertible
             subordinated debenture                                                                      1,668,314

             Note payable converted to convertible
             subordinated debenture                                                                        859,516

             Convertible subordinated debenture and accrued
             interest converted to common stock                                          1,990,396         362,813

             Note payable to related party offset against note
             receivable from related party                                                               1,765,000


                                      F-19


                                                                                     
             Accrued interest offset against note receivable
             from related party and interest receivable                                                     53,715

             Common stock issued for services                                                              100,000

             Litigation settlement in exchange for common stock                                            636,000

             Capital lease obligations                                     178,856         160,171

             

17.      LITIGATION

         During fiscal 1999, the Company recorded other income, which is
         included in discontinued operations, of $1,500,000 as a result of the
         settlement of a lawsuit filed by ColorSpan Corporation against Sentinal
         Business Systems, Inc. The Company received $1,150,000 in cash in May
         1999, as was required by the agreement. The $350,000 balance owed to
         the Company is recorded in accounts receivable and is due by June 1,
         2000. Although management believes that the remaining $350,000 will be
         collected, under the terms of the settlement agreement, if the other
         unsecured creditors are not paid out at a specified amount, the Company
         may be required to return a portion of its settlement.

         In October 1995, a shareholder of the Company (Becker) filed an action
         against the Company and four of its officers and directors alleging
         violations of the Securities and Exchange Act of 1934. In December
         1995, similar claims filed by other shareholders were consolidated into
         the Becker claim as a class action to include all purchasers of the
         Company's stock during the period of December 3, 1993 through December
         8, 1994. The basic allegation was that the Company and the named
         defendants knew of material, negative, non-public information and
         withheld such information from the market so that they could personally
         benefit by selling shares of common stock at an inflated price. A
         settlement in this case was reached between the Company and the
         plaintiffs and was approved in October 1997. The settlement included an
         amount from the Company's insurance carrier and $636,000 from the
         Company. The Company's portion of the proposed settlement was to be
         paid in cash or common stock at the Company's discretion. The Company
         elected to contribute common stock and issued 141,333 shares on June
         30, 1998 in settlement of the obligation. The Company recorded its
         $636,000 share of the proposed settlement as expense included in
         discontinued operations and additional paid in capital as of June 30,
         1997.

         In the ordinary course of its business the Company experiences various
         types of claims which sometimes result in litigation or other legal
         proceedings. The Company does not anticipate that any of these
         proceedings will have a material effect on the Company's operations or
         financial position.


18.      QUARTERLY RESULTS OF OPERATIONS
         (Unaudited) (in thousands, except per share data)




                                                              Quarter Ended
                                       --------------------------------------------------------
                                                                                                      Fiscal
                                          Oct. 4          Jan. 3       April 4        June 30          Year
                                       ------------    -----------   -----------    -----------     ----------
                                                                                     
         Fiscal 1999:
         Net sales:
            Continuing                          -      $      487     $    2,020      $   1,631      $   4,138
            Discontinued                 $   15,355        17,562         17,194         21,468         71,579
                                        -----------   -----------    -----------    -----------     ----------
         Total net sales                 $   15,355        18,049     $   19,214     $   23,099      $  75,717

         Gross profit:
             Continuing                         -             128            666            287          1,081
             Discontinued                     6,937         6,645          7,610          8,855         30,047
                                       ------------   -----------    -----------    -----------     ----------
         Total gross profit                   6,937         6,773          8,276          9,142         31,128

         Net (loss) earnings:
             Continuing                      (1,088)       (1,606)        (1,998)        (5,686)       (10,378)
             Discontinued                       419        (1,005)           650          2,491          2,555
                                       ------------   -----------    -----------    -----------     ----------
         Total net loss                        (669)       (2,611)        (1,348)        (3,195)        (7,823)


                                      F-20




                                                                                            
     Basic and diluted
     net (loss) earnings per
      common share:
         Continuing                                   (.07)          (.10)         (.13)          (.36)          (.66)
         Discontinued                                  .03           (.07)          .04            .16            .16
                                              ------------    -----------   -----------    -----------     ----------
     Total loss per common share                      (.04)          (.17)         (.09)          (.20)          (.50)




                                                                    Quarter Ended (a)                       Fiscal
                                              --------------------------------------------------------
                                                Sept. 28        Dec. 28       Mar. 29        June 30          Year
                                              ------------    -----------   -----------    -----------     ----------
                                                                                            
     Fiscal 1998:
     Net sales:
         Continuing                                      -              -             -              -              -
         Discontinued                         $     15,306    $    21,647        21,273         22,506         82,610
                                              ------------    -----------   -----------    -----------     ----------
     Total net sales                          $     15,306         21,647    $   21,273     $   22,506      $  82,610

     Gross profit:
         Continuing                                      -             -              -              -              -
         Discontinued                                5,584         8,571          8,956          9,570         33,311
                                              ------------   -----------    -----------    -----------     ----------
     Total gross profit                              5,584         8,571          8,956          9,570         33,311

     Net (loss) earnings:
         Continuing                                   (454)         (520)          (682)          (102)        (1,758)
         Discontinued                               (1,192)        1,418          1,603          1,656          3,599
                                              ------------   -----------    -----------    -----------     ----------
     Total net (loss) earnings                      (1,646)          898            921          1,554          1,841

     Basic and diluted
     net (loss) earnings per common share:
         Continuing                                   (.03)         (.03)          (.05)          (.01)          (.11)
         Discontinued                                 (.08)          .09            .11            .11            .23
                                              ------------   -----------    -----------    -----------     ----------
     Total (loss) earnings per common share           (.11)          .06            .06            .10            .12


         (a) Fiscal 1998 quarterly results have not been restated to reflect the
         acquisition of Kilborn Photo Products, which are included in
         discontinued operations, as those amounts are not available.

                                      F-21


VIRTUALFUND.COM, INC. AND SUBSIDIARIES                                Schedule I

CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (PARENT ONLY)

CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------



                                                      June 30,        June 30,
ASSETS                                                 1999             1998
                                                   -------------   -------------
                                                             
CURRENT ASSETS:
  Cash and cash equivalents                        $      38,253   $     337,702
  Accounts receivable                                     46,205             822
  Receivable - related parties                           689,582         265,569
  Receivable from subsidiary                           5,413,551       3,620,920
  Other current assets                                    92,965         152,450
                                                   -------------   -------------
       TOTAL CURRENT ASSETS                            6,280,556       4,377,463

PROPERTY AND EQUIPMENT, NET                              475,528         648,396

INVESTMENT IN SUBSIDIARIES                             8,319,233      10,431,160
                                                   -------------   -------------

                                                   $  15,075,317   $  15,457,019
                                                   =============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term debt             $     159,862   $      85,154
  Convertible subordinated debenture                                     375,866
  Accounts payable                                       465,053         583,920
  Accrued payroll                                        620,437         215,949
  Accrued expenses                                       385,934         268,939
                                                   -------------   -------------
       TOTAL CURRENT LIABILITIES                       1,631,286       1,529,828

LONG-TERM DEBT, less current maturities                                   66,746

STOCKHOLDERS' EQUITY:
  Preferred stock                                      7,500,000
  Common stock                                           158,039         157,789
  Additional paid-in capital                          33,040,170      33,015,420
  Accumulated deficit                                (27,254,178)    (19,312,764)
                                                   -------------   -------------
       TOTAL STOCKHOLDERS' EQUITY                     13,444,031      13,860,445
                                                   -------------   -------------
                                                   $  15,075,317   $  15,457,019
                                                   =============   =============


   See notes to condensed financial information of registrant on page F-24.

                                      F-22


VIRTUALFUND.COM, INC. AND SUBSIDIARIES                                Schedule I
                                                                     (Continued)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (PARENT ONLY)

STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
- ------------------------------------------------



                                                                                        Years ended June 30,
                                                                          -----------------------------------------------
                                                                               1999              1998           1997
                                                                          -------------     -------------   -------------
                                                                                                   
REVENUES (management fees from subsidiaries)(a)                           $   5,178,000     $   4,730,000   $   4,200,000

OPERATING EXPENSES(b)                                                         5,136,086         5,090,665       5,418,186
                                                                          -------------     -------------   -------------

EARNINGS (LOSS) BEFORE INCOME TAXES AND
 EQUITY IN (LOSS) EARNINGS OF SUBSIDIARIES                                       41,914          (360,665)     (1,218,186)

EQUITY IN (LOSS) EARNINGS OF SUBSIDIARIES(c)                                 (9,638,027)        2,201,497      (9,129,115)

INCOME TAX BENEFIT (PROVISION)                                                1,773,000                        (6,137,000)
                                                                          -------------     -------------   -------------

NET (LOSS) EARNINGS                                                          (7,823,113)        1,840,832     (16,484,301)

OTHER                                                                          (118,301)

DISTRIBUTIONS TO KILBORN S CORPORATION SHAREHOLDERS                                                               (62,815)

ACCUMULATED DEFICIT AT BEGINNING OF YEAR                                    (19,312,764)      (21,153,596)     (4,606,480)
                                                                          -------------     -------------   -------------

ACCUMULATED DEFICIT AT END OF YEAR                                        $ (27,254,178)    $ (19,312,764)  $ (21,153,596)
                                                                          =============     =============   =============


   See notes to condensed financial information of registrant on page F-24.

(a)  $5,028,000, $4,730,000 and $4,200,000 for fiscal 1999, 1998 and 1997,
     respectively, relate to discontinued operations

(b)  $2,560,866, $2,772,785 and $3,059,182 for fiscal 1999, 1998 and 1997,
     respectively, relate to discontinued operations

(c)  $2,554,554, $3,598,421 and $(12,836,797) for fiscal 1999, 1998 and 1997,
     respectively relate to discontinued operations

                                      F-23


VIRTUALFUND.COM, INC. AND SUBSIDIARIES                               Schedule I
                                                                     (Continued)
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (PARENT ONLY)

CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------


                                                                                    Years Ended June 30,
                                                                       ---------------------------------------------
                                                                            1999            1998            1997
                                                                       -------------   -------------   -------------
                                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) earnings                                                  $  (7,823,113)  $   1,840,832   $ (16,484,301)
  Adjustments to reconcile net (loss) earnings to net
       cash provided by (used in) operating activities:
   Equity in (earnings) loss of subsidiaries                               9,638,027      (2,201,497)      9,129,115
   Depreciation and amortization                                             316,966         320,439         345,493
   Litigation settlement                                                                                     636,000
   Stock option tax benefit                                                                                  199,000
   Loss (gain) on sale of property and equipment                                 109          26,794         (14,250)
   Net change in operating current assets
      and liabilities                                                     (1,394,136)        360,798      (3,714,392)
                                                                       -------------   -------------   -------------
NET CASH PROVIDED BY (USED IN)
    OPERATING ACTIVITIES                                                     737,853         347,366      (9,903,335)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Notes receivable - related party                                          (424,013)       (250,000)
  Additions to property and equipment                                       (155,067)       (197,893)       (224,023)
  Proceeds from sale of property and equipment                                                   300          55,450
                                                                       -------------    ------------    ------------
NET CASH USED IN INVESTING ACTIVITIES                                       (579,080)       (447,593)       (168,573)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock                                                    25,000         135,424      10,378,660
  Payment of debenture                                                      (375,866)
  Payments on long-term debt                                                (107,356)        (27,488)        (10,691)
                                                                       -------------  --------------   -------------
NET CASH (USED IN) PROVIDED BY
    FINANCING ACTIVITIES                                                    (458,222)        107,936      10,367,969

INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                                           (299,449)          7,709         296,061

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                               337,702         329,993          33,932
                                                                      --------------   -------------   -------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                              $       38,253   $     337,702   $     329,993
                                                                      --------------   -------------   -------------



NOTES:    See consolidated financial statements for details of and changes in
          stockholders' equity. See Note 2 to consolidated financial statements
          for information regarding the acquisition of Kilborn Photo Products,
          Inc. See Note 9 to consolidated financial statements for information
          regarding the convertible subordinated debenture.

          Capital lease obligations of $115,318 and $160,171 were incurred
          during the years ended June 30, 1999 and 1998 respectively.

          No cash dividends have been paid to VirtualFund.com, Inc. by the
          subsidiaries.

                                      F-24


VIRTUALFUND.COM, INC. AND SUBSIDIARIES                               Schedule II

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------



                                                       Balance          Charged                             Balance
                                                      beginning         to costs          Accounts            at
                                                         of               and             written           end of
Description                                            period           expenses            off             period
- -----------                                        --------------    -------------     -------------    --------------
                                                                                            
1999:
Allowance for doubtful accounts
   and sales returns                               $    1,662,000    $     318,000       $     746,000    $    1,234,000

1998:
Allowance for doubtful accounts
   and sales returns                               $    1,987,000    $     683,000       $   1,008,000    $    1,662,000

1997:
Allowance for doubtful accounts
   and sales returns                               $    2,475,000    $     764,000       $   1,252,000    $    1,987,000


                                      F-25


                                 EXHIBIT INDEX

                             VirtualFund.com, Inc.
                          Annual Report on Form 10-K
                    for the fiscal year ended June 30, 1999



  Exhibit
    No.                              Description                                 Method of Filing
    --        ----------------------------------------------------------  -------------------------------
                                                                    
2.1           Agreement and Plan of Merger, dated as of December 18,
              1998, by and among VirtualFund.com, Inc., Virtual
              Acquisition Corp. I, K&R Technical Services, Inc. and the
              shareholders of K&R Technical Services, Inc. .............    Incorporated by reference to
                                                                            Exhibit 2.1 to the Company's
                                                                            Form 8-K filed December 31, 1998.

3.1           Articles of Incorporation of the Company as amended
              March 24, 1994............................................    Incorporated by reference to
                                                                            Exhibit 3.1 of the Company's
                                                                            Form 10-K filed on September 28,
                                                                            1995.

3.2           Restated Bylaws of the Company as amended March 24, 1994..    Incorporated by reference to
                                                                            Exhibit 3.2 of the Company's
                                                                            Form 10-K filed on September 28,
                                                                            1995.

4.1           Certificate of Designation of the Powers, Preferences and
              Rights, and Qualifications, Limitations and Restrictions,
              of Series A Convertible Preferred Stock of
              VirtualFund.com, Inc. ....................................    Incorporated by reference to
                                                                            Exhibit 4.1 to the Company's
                                                                            Form 10-Q filed February 17, 1999.

4.2          Sample Certificate of the Company's common stock...........    Incorporated by reference to the
                                                                            Company's Registration Statement of
                                                                            Form S-1 (Registration No. 33-36202).

10.1          Eighth Amendment and Consent to Credit Agreement, dated
              December, 1998 between ColorSpan Corporation and General
              Electric Capital Corporation .............................    Filed herewith electronically.




10.2          Ninth Amendment and Consent to Credit Agreement, dated
              January 25, 1999 between ColorSpan Corporation and
              General Electric Capital Corporation......................    Filed herewith electronically.



10.3          Tenth Amendment and Consent to Credit Agreement, dated
              March 31, 1999 between ColorSpan Corporation and General
              Electric Capital Corporation. ............................    Filed herewith electronically.



10.4          Eleventh Amendment and Consent to Credit Agreement, dated
              June 30, 1999, between ColorSpan Corporation and General
              Electric Capital Corporation. ............................    Filed herewith electronically.



10.5          Twelfth Amendment and Consent to Credit Agreement,


                                      E-1


                                                                      
              dated August 31, 1999, between ColorSpan Corporation and
              General Electric Capital Corporation. ...................     Filed herewith electronically.

10.6          Thirteenth Amendment and Consent to Credit Agreement,
              dated October 15, 1999, between ColorSpan Corporation and
              General Electric Capital Corporation. ...................     Filed herewith electronically.

23.1          Consent of Deloitte & Touche LLP.........................     Filed herewith electronically.

27.1          Financial Data Schedule..................................     Filed herewith electronically.

99.1          Cautionary Factors Under Private Securities Litigation
              Reform Act of 1995.......................................     Filed herewith electronically.



                                      E-2

EX-10.1

                                                                    EXHIBIT 10.1

               EIGHTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
               ------------------------------------------------

     This EIGHTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this "Amendment") is
entered into as of this _____ day of December, 1998 by and between COLORSPAN
CORPORATION (f/k/a LaserMaster Corporation), a Minnesota corporation
("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
as Agent and Lender ("Agent").  Unless otherwise specified herein, capitalized
terms used in this Amendment shall have the meanings ascribed to them by the
Credit Agreement (as hereinafter defined).

                                   RECITALS
                                   --------

     WHEREAS, Borrower and Agent have entered into that certain Credit Agreement
dated as of January 17, 1996, as amended by that certain First Amendment to
Credit Agreement dated as of May 15, 1996, that Second Amendment to Credit
Agreement dated as of January 31, 1997, that Third Amendment to Credit Agreement
dated as of May 14, 1997, that Fourth Amendment to Credit Agreement dated as of
October 14, 1997, that Fifth Amendment to Credit Agreement dated as of February
17, 1998, that Sixth Amendment and Consent to Credit Agreement dated as of June
30, 1998, and that Seventh Amendment and Consent to Credit Agreement dated as of
July 15, 1998 (as further amended, supplemented, restated or otherwise modified
from time to time, the "Credit Agreement"); and

     WHEREAS, Borrower and Agent wish to enter into certain amendments to the
Credit Agreement, all as more fully set forth herein;

     NOW THEREFORE, in consideration of the mutual covenants herein and other
good and valuable consideration, the parties hereto agree as follows:

     Section 1.  Amendments to Definitions in Credit Agreement.
                 ---------------------------------------------

          (a)    Definitions.  Schedule A to the Credit Agreement is amended as
                 -----------
     follows:

                 (i)   to delete the definition of Commitment Termination
                 Date and insert the following definition in its place:

                       "Commitment Termination Date" shall mean the earliest of
                        ---------------------------
                       (i) March 31, 1999, (ii) the date of termination of
                       Lenders' obligations to advance funds or permit existing
                       advances to remain outstanding pursuant to Section 8.2,
                                                                  -----------
                       and (iii) the date of indefeasible prepayment in full by
                       Borrower of the Revolving Credit Loan, and the permanent
                       reduction of the Revolving Credit Loan Commitment to zero
                       dollars ($0), in accordance with the provisions of
                       Section 1.2.
                       -----------

                 (ii)  to amend clause (a) of the definition of Borrowing Base
                 to read in its entirety as follows: 



                 (a) seventy percent (70%) of Eligible Accounts, less reserves,
                 provided that in no event shall the amount calculated in this
                 clause (a) with respect to Asia/Pacific exceed $1,000,000 at
                 any time or the amount calculated in this clause (a) with
                 respect to CSLA exceed $250,000 at any time.

     Section 2.  Representations and Warranties.
                 ------------------------------

          Borrower represents and warranties that:

          (a)    the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);

          (b)    each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

          (c)    neither the execution, delivery and performance of this
Amendment nor the consummation of the transactions contemplated hereby does or
shall contravene, result in a breach of, or violate (i) any provision of
Borrower's certificate or articles of incorporation or bylaws, (ii) any law or
regulation, or any order or decree of any court or government instrumentality or
(iii) indenture, mortgage, deed of trust, lease, agreement or other instrument
to which Borrower or any of its Subsidiaries is a party or by which Borrower or
any of its Subsidiaries or any of their property is bound, except in any such
case to the extent such conflict or breach has been waived by a written waiver
document a copy of which has been delivered to Agent on or before the date
hereof; and

          (d)    no Default or Event of Default will exist or result after
giving effect hereto.

     Section 3.  Conditions to Effectiveness.
                 ---------------------------

          This Amendment will be effective upon satisfaction of the following
conditions:

          (a)    Execution and delivery of four counter-parts of this Amendment
by each of the parties hereto.

          (b)    Delivery to Agent of a pledge agreement executed by Holdings
with respect to the stock of Kilborn, along with share certificates for all of
the outstanding capital stock of Kilborn and stock powers endorsed in blank.

                                       2


          (c)    Delivery to Agent of a Phase I, and, if requested, Phase II,
environmental audits regarding real estate operated by Kilborn.

     Section 4.  Reference to and Effect Upon the Credit Agreement.
                 -------------------------------------------------

          (a)    Except as specifically amended above, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

          (b)    The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver or any right, power or remedy of Agent or any
Lender under the Credit Agreement or any Loan Document, nor constitute a waiver
of any provision of the Credit Agreement or any Loan Document, except as
specifically set forth herein. Upon the effectiveness of this Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of similar import shall mean and refer to the Credit Agreement
as amended hereby.

     Section 5.  Waiver.  In consideration of the foregoing, Borrower hereby
                 ------
waives, and covenants not to sue Agent with respect to, any and all claims it
may have against Agent, whether known or unknown, arising in tort, by contract
or otherwise prior to the date hereof.

     Section 6.  Costs and Expenses.  As provided in Section 11.3 of the Credit
                 ------------------
Agreement, Borrower agrees to reimburse Agent for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment.

     SECTION 7.  GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND
                 -------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.

     Section 8.  Headings.  Section headings in this Amendment are included
                 --------
herein for convenience of reference only and shall not constitute a part of this
amendment for any other purposes.

     Section 9.  Counterparts.  This Amendment may be executed in any number of
                 ------------
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.

                                       3


          IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.

                                        COLORSPAN CORPORATION


                                        By:________________________________
                                        Title:_____________________________

Revolving Credit Loan
Commitment:   $10,000,000

                                        GENERAL ELECTRIC CAPITAL
                                        CORPORATION, as Agent


                                        By:________________________________
                                        Title:_____________________________

                                       4

EX-10.2

                                                                    Exhibit 10.2


                NINTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
                -----------------------------------------------

          This NINTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this
"Amendment") is entered into as of this 25/th/ day of January, 1999 by and
between COLORSPAN CORPORATION (f/k/a LaserMaster Corporation), a Minnesota
corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation, as Agent and Lender ("Agent"). Unless otherwise specified herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them by the Credit Agreement (as hereinafter defined).

                                   RECITALS
                                   --------

          WHEREAS, Borrower and Agent have entered into that certain Credit
Agreement dated as of January 17, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of May 15, 1996, that Second Amendment to
Credit Agreement dated as of January 31, 1997, that Third Amendment to Credit
Agreement dated as of May 14, 1997, that Fourth Amendment to Credit Agreement
dated as of October 14, 1997, that Fifth Amendment to Credit Agreement dated as
of February 17, 1998, that Sixth Amendment and Consent to Credit Agreement dated
as of June 30, 1998, and that Seventh Amendment and Consent to Credit Agreement
dated as of July 15, 1998 and that Eighth Amendment and Consent to Credit
Agreement dated as of December 30, 1998 (as further amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement"); and

          WHEREAS, Borrower and Agent wish to enter into certain amendments to
the Credit Agreement, all as more fully set forth herein;

          NOW THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the parties hereto agree as follows:

     Section 1.  Overadvance.
                 -----------

          Notwithstanding the provisions set forth in Section 1.1(a) of the
Credit Agreement, Agent and Lenders hereby consent to Revolving Credit Advances
to Borrower in an amount up to One Million Dollars ($1,000,000) in excess of the
Borrowing Base (the "Overadvance"); provided, however, that the aggregate amount
of all Revolving Credit Advances shall not at any time exceed Ten Million
Dollars ($10,000,000).  Agent and Lender's consent to such overadvance (the
"Overadvance Commitment") shall terminate on the earlier of March 31, 1999 or
the Overadvance Termination Date, as hereinafter defined.

     Section 2.  Repayment of Overadvance.
                 ------------------------

          Borrower shall have the right at any time, on prior written notice to
Agent and without premium, penalty or fee, to voluntarily prepay all or part of
the Overadvance and permanently reduce or terminate the Overadvance Commitment.


          Notwithstanding anything to the contrary in Section 1.10 of the Credit
Agreement, and provided that Borrower has paid all other Obligations then due,
Borrower may direct Agent to apply payments to reduce the amount of the
Overadvance. Such ability of Borrower to direct payments shall terminate on the
earlier of March 31, 1999 or the Overadvance Termination Date, as hereinafter
defined.

     Section 3. Consent to Intercompany Loan.
                ----------------------------

          Agent and Lenders consent to the intercompany loan by Borrower to
VirtualFund.com, Inc. (f/k/a LaserMaster Technologies, Inc.), a Minnesota
corporation ("Holdings") in an amount not to exceed One Million Five Hundred
Thousand Dollars ($1,500,000) for the purposes of paying those certain Non-
Negotiable Unsecured Subordinated Promissory Notes dated December 18, 1998 made
by Holdings in favor of Ranelle Bailiff, Mark Stewart, Mark Kittrell and Stephen
Fisher in the total original principal amount of One Million Four Hundred
Twenty-Eight Thousand Two Hundred Twenty and 53/100 Dollars ($1,428,220.53)
(collectively, the "Notes"). Such Notes were issued by Holdings as consideration
for the merger of K&R Technical Services, Inc., an Iowa corporation, with and
into RSPnet.com, Inc. (f/k/a Virtual Acquisition Corp. I), a Minnesota
corporation and wholly owned subsidiary of Holdings.

     Section 4. Release of Intellectual Property Lien.
                -------------------------------------

          Notwithstanding anything to the contrary in Section 11.16 of the
Credit Agreement or the Intellectual Property Security Agreements (as
hereinafter defined), Agent and Lenders agree to release their Liens created
pursuant to those certain Patent Security Agreements, Trademark Security
Agreements and Copyright Security Agreements of even date herewith (the
"Intellectual Property Security Agreements") executed by each of Borrower,
Asia/Pacific and CLSA in favor of Agent, on behalf of itself and Lenders, only
upon the earlier of the Overadvance Termination Date or the Termination Date.

     Section 5. Amendments to Definitions in Credit Agreement.
                ---------------------------------------------

          (a)   Definitions.  Schedule A to the Credit Agreement is amended to
                -----------
insert the following definitions:

                    "Overadvance Termination Date" shall mean the date that
                     ----------------------------
                    Agent receives payment in full of the Overadvance and notice
                    from Borrower of the termination of the Overadvance
                    Commitment.

                    "RSPnet" shall mean RSPnet.com, Inc. (f/k/a Virtual
                     ------
                    Acquisition Corp. I), a Minnesota corporation.

                    "K&R" shall mean K&R Technical Services, Inc., an Iowa
                     ---
                    corporation.

                                       2


     Section 6.  Representations and Warranties.
                 ------------------------------

          Borrower represents and warranties that:

          (a)  the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);

          (b)  each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

          (c)  neither the execution, delivery and performance of this Amendment
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of Borrower's
certificate or articles of incorporation or bylaws, (ii) any law or regulation,
or any order or decree of any court or government instrumentality or (iii)
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which Borrower or any of its Subsidiaries is a party or by which Borrower or any
of its Subsidiaries or any of their property is bound, except in any such case
to the extent such conflict or breach has been waived by a written waiver
document a copy of which has been delivered to Agent on or before the date
hereof; and

          (d)  no Default or Event of Default will exist or result after giving
effect hereto.

     Section 7.  Conditions to Effectiveness.
                 ---------------------------

          This Amendment will be effective upon satisfaction of the following
conditions:

          (a)  Execution and delivery of four counter-parts of this Amendment by
each of the parties hereto.

          (b)  The payment of a fee equal to the lesser of SIXTY THOUSAND
DOLLARS ($60,000) or six percent (6%) of the Overadvance.

(c)  Delivery to Agent of a pledge agreement executed by Holdings with respect
to the stock of RSPnet, along with share certificates for all of the outstanding
capital stock of RSPnet and stock powers endorsed in blank.

                                       3


          (d)  Delivery to Agent of a pledge agreement executed by Borrower with
respect to the intercompany note issued by Holdings to Borrower along with the
original of that note endorsed to Agent.

          (e)  Delivery to Agent of copyright, patent and trademark security
agreements executed by Borrower, Asia/Pacific, CSLA and Agent.

          (f)  Delivery to Agent of a warrant representing the right to purchase
50,000 shares of common stock of Holdings.

     Section 8.  Reference to and Effect Upon the Credit Agreement.
                 -------------------------------------------------

          (a)  Except as specifically amended above, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

          (b)  The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver or any right, power or remedy of Agent or any Lender
under the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of similar import shall mean and refer to the Credit Agreement as amended
hereby.

     Section 9.  Waiver. In consideration of the foregoing, Borrower hereby
                 ------
waives, and covenants not to sue Agent with respect to, any and all claims it
may have against Agent, whether known or unknown, arising in tort, by contract
or otherwise prior to the date hereof.

     Section 10. Costs and Expenses.  As provided in Section 11.3 of the
                 ------------------
Credit Agreement, Borrower agrees to reimburse Agent for all fees, costs and
expenses, including the fees, costs and expenses of counsel or other advisors
for advice, assistance, or other representation in connection with this
Amendment.

     SECTION 11. GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND
                 -------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.

     Section 12. Headings. Section headings in this Amendment are included
                 --------
herein for convenience of reference only and shall not constitute a part of this
amendment for any other purposes.

     Section 13. Counterparts. This Amendment may be executed in any number of
                 ------------
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.

                           [signature page follows]

                                       4


          IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.

                                    COLORSPAN CORPORATION
                                    (f/k/a Laser Master Corporation)

                                    By:_______________________________
                                    Title:____________________________



Revolving Credit Loan               GENERAL ELECTRIC CAPITAL
Commitment: $10,000,000             CORPORATION, as Agent

                                    By:_______________________________
                                    Title:____________________________

                                       5

EX-10.3

                                                                    EXHIBIT 10.3


                TENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
                -----------------------------------------------

          This TENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this
"Amendment") is entered into as of this 31/st/ day of March, 1999 by and between
COLORSPAN CORPORATION (f/k/a LaserMaster Corporation), a Minnesota corporation
("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
as Agent and Lender ("Agent"). Unless otherwise specified herein, capitalized
terms used in this Amendment shall have the meanings ascribed to them by the
Credit Agreement (as hereinafter defined).

                                   RECITALS
                                   --------

          WHEREAS, Borrower and Agent have entered into that certain Credit
Agreement dated as of January 17, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of May 15, 1996, that Second Amendment to
Credit Agreement dated as of January 31, 1997, that Third Amendment to Credit
Agreement dated as of May 14, 1997, that Fourth Amendment to Credit Agreement
dated as of October 14, 1997, that Fifth Amendment to Credit Agreement dated as
of February 17, 1998, that Sixth Amendment and Consent to Credit Agreement dated
as of June 30, 1998, and that Seventh Amendment and Consent to Credit Agreement
dated as of July 15, 1998, that Eighth Amendment and Consent to Credit Agreement
dated as of December 30, 1998, and that Ninth Amendment and Consent to Credit
Agreement dated as of January 25, 1999 (as further amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement"); and

          WHEREAS, Borrower and Agent wish to enter into certain amendments to
the Credit Agreement, all as more fully set forth herein;

          NOW THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the parties hereto agree as follows:

     Section 1. Mandatory Repayment of Overadvance.
                ----------------------------------

          Agent hereby agrees to extend the Overadvance Commitment until the
earlier of May 31, 1999 or the Overadvance Terminate Date.  Notwithstanding the
foregoing, Borrower hereby agrees to make the following payments to permanently
reduce the amount of the Overadvance and the Overadvance Commitment.

          (a) $100,000 on or before April 1, 1999;

          (b) an additional $100,000 on or before April 15, 1999;

          (c) an additional $100,000 on or before April 30, 1999;

          (d) an additional $350,000 on or before May 15, 1999;


          (e) the remaining $350,000 on or before May 31, 1999.

          Notwithstanding the foregoing, any Proceeds received by Borrower with
respect to any Accounts from sentinel Business Systems, d/b/a Sentinel Imaging,
including, without limitation, any settlement of claims asserted in In re
                                                                    -----
Sentinel Business Systems, d/b/a Sentinel Imaging, Case No. 98-10933-MWV, in the
- -------------------------------------------------
United States Bankruptcy Court for the District of New Hampshire, shall be
immediately paid to Agent to permanently reduce the amount of the Overadvance
and the Overadvance Commitment.

     Section 2. Voluntary Repayment of Overadvance.
                ----------------------------------

          In addition to the mandatory repayments described in Section 1 hereof,
Borrower shall have the right at any time, on prior written notice to Agent and
without premium, penalty or fee, to voluntarily prepay all or part of the
Overadvance and permanently reduce or terminate the Overadvance Commitment.

          Notwithstanding anything to the contrary in Section 1.10 of the Credit
Agreement, and provided that Borrower has paid all other Obligations then due,
Borrower may direct Agent to apply such payments to reduce the amount of the
Overadvance. Such ability of Borrower to direct payments shall terminate on the
earlier of May 31, 1999 or the Overadvance Termination Date.

     Section 3. Amendments to Definitions in Credit Agreement.
                ---------------------------------------------

          Definitions. Schedule A to the Credit Agreement is amended to delete
          -----------
the definition of Commitment Termination Date and insert the following
definition in its place:

          "Commitment Termination Date" shall mean the earliest of (i) June 30,
           ---------------------------
          1999, (ii) the date of termination of Lenders' obligations to advance
          funds or permit existing advances to remain outstanding pursuant to
          Section 8.2, and (iii) the date of indefeasible prepayment in full by
          -----------
          Borrower of the Revolving Credit Loan, and the permanent reduction of
          the Revolving Credit Loan Commitment to zero dollars ($0), in
          accordance with the provisions of Section 1.2.
                                            -----------

     Section 4. Amendment Fee.
                -------------

          In consideration of the Amendments contained herein, effective April
1, 1999, Borrower shall pay Agent a fee of TWELVE THOUSAND FIVE HUNDRED DOLLARS
($12,500) per month, payable on or before the first day of each month (the
"Amendment Fee"), until the Commitment Termination Date.

     Section 5. Representations and Warranties.
                ------------------------------

          Borrower represents and warranties that:

                                       2


          (a)  the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);

          (b)  each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

          (c)  neither the execution, delivery and performance of this Amendment
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of Borrower's
certificate or articles of incorporation or bylaws, (ii) any law or regulation,
or any order or decree of any court or government instrumentality or (iii)
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which Borrower or any of its Subsidiaries is a party or by which Borrower or any
of its Subsidiaries or any of their property is bound, except in any such case
to the extent such conflict or breach has been waived by a written waiver
document a copy of which has been delivered to Agent on or before the date
hereof; and

          (d)  no Default or Event of Default will exist or result after giving
effect hereto.

     Section 6.  Conditions to Effectiveness.
                 ---------------------------

          This Amendment will be effective upon satisfaction of the following
conditions:

          (a)  Execution and delivery of four counter-parts of this Amendment by
each of the parties hereto.

          (b)  The payment of the Amendment Fee due April 1, 1999 in the amount
of Twelve Thousand Five Hundred Dollars ($12,500).

     Section 7.  Reference to and Effect Upon the Credit Agreement.
                 -------------------------------------------------

          (a)  Except as specifically amended above, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

          (b)  The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver or any right, power or remedy of Agent or any Lender
under the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically
set forth herein.  Upon the

                                       3


effectiveness of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of similar import shall
mean and refer to the Credit Agreement as amended hereby.

     Section 8.  Waiver.  In consideration of the foregoing, Borrower hereby
                 ------
waives, and covenants not to sue Agent with respect to, any and all claims it
may have against Agent, whether known or unknown, arising in tort, by contract
or otherwise prior to the date hereof.

     Section 9.  Costs and Expenses.  As provided in Section 11.3 of the Credit
                 ------------------
Agreement, Borrower agrees to reimburse Agent for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment.

     SECTION 10. GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND
                 -------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.

     Section 11. Headings.  Section headings in this Amendment are included
                 --------
herein for convenience of reference only and shall not constitute a part of this
amendment for any other purposes.

     Section 12. Counterparts.  This Amendment may be executed in any number of
                 ------------
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.

                           [signature page follows]

                                       4


              IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date and year first above written.

                                    COLORSPAN CORPORATION
                                    (f/k/a Laser Master Corporation)

                                    By:_______________________________
                                    Title:____________________________



Revolving Credit Loan               GENERAL ELECTRIC CAPITAL
Commitment: $10,000,000             CORPORATION, as Agent


                                    By:_______________________________
                                    Title:____________________________

                                       5

EX-10.4

                                                                    Exhibit 10.4



              ELEVENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
              --------------------------------------------------

          This ELEVENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this
"Amendment") is entered into as of this 30/th/ day of June, 1999 by and between
COLORSPAN CORPORATION (f/k/a LaserMaster Corporation), a Minnesota corporation
("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
as Agent and Lender ("Agent"). Unless otherwise specified herein, capitalized
terms used in this Amendment shall have the meanings ascribed to them by the
Credit Agreement (as hereinafter defined).

                                   RECITALS
                                   --------

          WHEREAS, Borrower and Agent have entered into that certain Credit
Agreement dated as of January 17, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of May 15, 1996, that Second Amendment to
Credit Agreement dated as of January 31, 1997, that Third Amendment to Credit
Agreement dated as of May 14, 1997, that Fourth Amendment to Credit Agreement
dated as of October 14, 1997, that Fifth Amendment to Credit Agreement dated as
of February 17, 1998, that Sixth Amendment and Consent to Credit Agreement dated
as of June 30, 1998, and that Seventh Amendment and Consent to Credit Agreement
dated as of July 15, 1998, that Eighth Amendment and Consent to Credit Agreement
dated as of December 30, 1998, that Ninth Amendment and Consent to Credit
Agreement dated as of January 25, 1999 and that Tenth Amendment and Consent to
Credit Agreement dated as of March 31, 1999 (as further amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement"); and

          WHEREAS, Borrower and Agent wish to enter into certain amendments to
the Credit Agreement, all as more fully set forth herein;

          NOW THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the parties hereto agree as follows:

     Section 1. Reduction in Maximum Revolving Credit Loan.
                ------------------------------------------

          Notwithstanding anything to the contrary in the Credit Agreement,
Borrower and Agent hereby agree that for all purposes of the Credit Agreement,
the Maximum Revolving Credit Loan shall be Six Million Dollars ($6,000,000).
Notwithstanding anything to the contrary in Section 1.7(c) of the Credit
Agreement, such one-time prepayment and permanent reduction in the Maximum
Revolving Credit Loan shall be without premium or penalty.

     Section 2. Amendments to Definitions in Credit Agreement.
                ---------------------------------------------

          Definitions. Schedule A to the Credit Agreement is amended as follows:
          -----------

          (a)  Effective August 1, 1999, the definition of Applicable Margin is
amended to read in its entirety as follows:


          "Applicable Margin" shall mean two and one-half percent (2.5%) per
           -----------------
annum.

          (b) The definition of Commitment Termination Date is amended to read
in its entirety as follows:

          "Commitment Termination Date" shall mean the earliest of (i) August
           ---------------------------
          31, 1999, (ii) the date of termination of Lenders' obligations to
          advance funds or permit existing advances to remain outstanding
          pursuant to Section 8.2, and (iii) the date of indefeasible prepayment
                      -----------
          in full by Borrower of the Revolving Credit Loan, and the permanent
          reduction of the Revolving Credit Loan Commitment to zero dollars
          ($0), in accordance with the provisions of Section 1.2.
                                                     -----------

          (c) The definition of Revolving Credit Loan Commitment is amended to
read in its entirety as follows:

          "Revolving Credit Loan Commitment" shall mean (a) as to any Lender,
           --------------------------------
          the aggregate commitment of such Lender to make Revolving Credit
          Advances as set forth in the signature page to the Agreement or in the
          most recent Lender Addition Agreement executed by such Lender and (b)
          as to all Lenders, the aggregate commitment of all Lenders to make
          Revolving Credit Advances, which aggregate commitment shall be Six
          Million Dollars ($6,000,000) as of July 1, 1999, as such amount may be
          adjusted, if at all, from time to time in accordance with the
          Agreement.

     Section 3.  Extension Fee.
                 -------------

          In consideration of the Amendments contained herein, effective July 1,
1999, Borrower shall pay Agent an extension fee according to the schedule set
forth below (the "Extension Fee"), until the Commitment Termination Date:

July 1, 1999       FIFTEEN THOUSAND DOLLARS                     ($15,000)

August 2, 1999     FOUR THOUSAND DOLLARS                         ($4,000)

August 9, 1999     FOUR THOUSAND FIVE HUNDRED DOLLARS            ($4,500)

August 16, 1999    FIVE THOUSAND DOLLARS                         ($5,000)

August 23, 1999    FIVE THOUSAND FIVE HUNDRED DOLLARS            ($5,500)


     Section 4.  Representations and Warranties.
                 ------------------------------

          Borrower represents and warranties that:

          (a)  the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms,

                                       2


except as the enforcement thereof may be subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law);

          (b)  each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

          (c)  neither the execution, delivery and performance of this Amendment
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of Borrower's
certificate or articles of incorporation or bylaws, (ii) any law or regulation,
or any order or decree of any court or government instrumentality or (iii)
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which Borrower or any of its Subsidiaries is a party or by which Borrower or any
of its Subsidiaries or any of their property is bound, except in any such case
to the extent such conflict or breach has been waived by a written waiver
document a copy of which has been delivered to Agent on or before the date
hereof; and

          (d)  no Default or Event of Default will exist or result after giving
effect hereto.

     Section 5.  Conditions to Effectiveness.
                 ---------------------------

          This Amendment will be effective upon satisfaction of the following
conditions:

          (a)  Execution and delivery of four counter-parts of this Amendment by
each of the parties hereto.

          (b)  The payment of the Extension Fee due July 1, 1999 in the amount
of Fifteen Thousand Dollars ($15,000).

     Section 6.  Reference to and Effect Upon the Credit Agreement.
                 -------------------------------------------------

          (a)  Except as specifically amended above, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

          (b)  The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver or any right, power or remedy of Agent or any Lender
under the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of similar import shall mean and refer to the Credit Agreement as amended
hereby.

                                       3


     Section 7.  Waiver and Release.   In consideration of the foregoing,
                 ------------------
Borrower hereby waives, releases and covenants not to sue Agent with respect to,
any and all claims it may have against Agent, whether known or unknown, arising
in tort, by contract or otherwise prior to the date hereof.

     Section 8.  Costs and Expenses.  As provided in Section 11.3 of the Credit
                 ------------------
Agreement, Borrower agrees to reimburse Agent for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment.

     Section 9.  GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND
                 -------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.

     Section 10. Headings.  Section headings in this Amendment are included
                 --------
herein for convenience of reference only and shall not constitute a part of this
amendment for any other purposes.

     Section 11. Counterparts.  This Amendment may be executed in any number of
                 ------------
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.

                           [signature page follows]

                                       4


              IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date and year first above written.

                                    COLORSPAN CORPORATION
                                    (f/k/a Laser Master Corporation)

                                    By:_______________________________
                                    Title:____________________________



Revolving Credit Loan               GENERAL ELECTRIC CAPITAL
Commitment: $6,000,000              CORPORATION, as Agent


                                    By:_______________________________
                                    Title:____________________________

                                       5

EX-10.5

                                                                    Exhibit 10.5


               TWELFTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
               -------------------------------------------------

          This TWELFTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this
"Amendment") is entered into as of this 31st day of August, 1999 by and between
COLORSPAN CORPORATION (f/k/a LaserMaster Corporation), a Minnesota corporation
("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation,
as Agent and Lender ("Agent"). Unless otherwise specified herein, capitalized
terms used in this Amendment shall have the meanings ascribed to them by the
Credit Agreement (as hereinafter defined).

                                   RECITALS
                                   --------

          WHEREAS, Borrower and Agent have entered into that certain Credit
Agreement dated as of January 17, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of May 15, 1996, that Second Amendment to
Credit Agreement dated as of January 31, 1997, that Third Amendment to Credit
Agreement dated as of May 14, 1997, that Fourth Amendment to Credit Agreement
dated as of October 14, 1997, that Fifth Amendment to Credit Agreement dated as
of February 17, 1998, that Sixth Amendment and Consent to Credit Agreement dated
as of June 30, 1998, and that Seventh Amendment and Consent to Credit Agreement
dated as of July 15, 1998, that Eighth Amendment and Consent to Credit Agreement
dated as of December 30, 1998, that Ninth Amendment and Consent to Credit
Agreement dated as of January 25, 1999 and that Tenth Amendment and Consent to
Credit Agreement dated as of March 31, 1999, and that Eleventh Amendment and
Consent to Credit Agreement dated as of June 30, 1999 (as further amended,
supplemented, restated or otherwise modified from time to time, the "Credit
Agreement"); and

          WHEREAS, Borrower and Agent wish to enter into certain amendments to
the Credit Agreement, all as more fully set forth herein;

          NOW THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the parties hereto agree as follows:

     Section 1.  Amendments to Definitions in Credit Agreement.
                 ---------------------------------------------

          Definitions. Schedule A to the Credit Agreement is amended as follows:
          -----------

          The definition of Commitment Termination Date is amended to read in
its entirety as follows:

          "Commitment Termination Date" shall mean the earliest of (i)  October
           ---------------------------
          15, 1999, (ii) the date of termination of Lenders' obligations to
          advance funds or permit existing advances to remain outstanding
          pursuant to Section 8.2, and (iii) the date of indefeasible prepayment
                      -----------
          in full by Borrower of the Revolving Credit Loan, and the permanent
          reduction of the Revolving Credit Loan Commitment to zero dollars
          ($0), in accordance with the provisions of Section 1.2.
                                                     -----------

                                       1


     Section 3.  Extension Fee.
                 -------------

          In consideration of the Amendments contained herein, Borrower shall
pay Agent an extension fee of SEVEN THOUSAND FIVE HUNDRED DOLLARS ($7,500) (the
"Extension Fee"), payable on or before September 1, 1999.

     Section 3.  Representations and Warranties.
                 ------------------------------

          Borrower represents and warranties that:

          (a)  the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);

          (b)  each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

          (c)  neither the execution, delivery and performance of this Amendment
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of Borrower's
certificate or articles of incorporation or bylaws, (ii) any law or regulation,
or any order or decree of any court or government instrumentality or (iii)
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which Borrower or any of its Subsidiaries is a party or by which Borrower or any
of its Subsidiaries or any of their property is bound, except in any such case
to the extent such conflict or breach has been waived by a written waiver
document a copy of which has been delivered to Agent on or before the date
hereof; and

          (d)  no Default or Event of Default will exist or result after giving
effect hereto.

     Section 4.  Conditions to Effectiveness.
                 ---------------------------

          This Amendment will be effective upon satisfaction of the following
conditions:

          (a)  Execution and delivery of four counter-parts of this Amendment by
each of the parties hereto.

          (b)  The payment of the Extension Fee due September 1, 1999 in the
amount of Seven Thousand Five Hundred Dollars ($7,500).

                                       2


     Section 5.  Reference to and Effect Upon the Credit Agreement.
                 -------------------------------------------------

          (a)  Except as specifically amended above, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

          (b)  The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver or any right, power or remedy of Agent or any Lender
under the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of similar import shall mean and refer to the Credit Agreement as amended
hereby.

     Section 6.  Waiver and Release. In consideration of the foregoing,
                 ------------------
Borrower hereby waives, releases and covenants not to sue Agent with respect to,
any and all claims it may have against Agent, whether known or unknown, arising
in tort, by contract or otherwise prior to the date hereof.

     Section 7.  Costs and Expenses. As provided in Section 11.3 of the Credit
                 ------------------
Agreement, Borrower agrees to reimburse Agent for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment.

     Section 8.  GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
                 -------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.

     Section 9.  Headings.  Section headings in this Amendment are included
                 --------
herein for convenience of reference only and shall not constitute a part of this
amendment for any other purposes.

     Section 10. Counterparts.  This Amendment may be executed in any number of
                 ------------
counterparts, each of which when so executed shall be deemed an original but all
such counterparts shall constitute one and the same instrument.

                           [signature page follows]

                                       3


              IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date and year first above written.


                                    COLORSPAN CORPORATION
                                    (f/k/a Laser Master Corporation)


                                    By:_______________________________
                                    Title:____________________________



Revolving Credit Loan               GENERAL ELECTRIC CAPITAL
Commitment: $6,000,000              CORPORATION, as Agent


                                    By:_______________________________
                                    Title:____________________________

                                       4

EX-10.6

                                                                    Exhibit 10.6


             THIRTEENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT
             ----------------------------------------------------

          This THIRTEENTH AMENDMENT AND CONSENT TO CREDIT AGREEMENT (the
"Amendment") is entered into as of this 15/th/ day of October, 1999 by and
between COLORSPAN CORPORATION (f/k/a LaserMaster Corporation), a Minnesota
corporation ("Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a new York
corporation, as Agent and Lender ("Agent").  Unless otherwise specified herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them by the Credit Agreement (as hereinafter defined).

                                   RECITALS
                                   --------

          WHEREAS, Borrower and Agent have entered into that certain Credit
Agreement dated as of January 17, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of May 15, 1996, that Second Amendment to
Credit Agreement dated as of January 31, 1997, that Third Amendment to Credit
Agreement dated as of May 14, 1997, that Fourth Amendment to Credit Agreement
dated as of October 14, 1997, that Fifth Amendment to Credit Agreement dated as
of February 17, 1998, that Sixth Amendment and Consent to Credit Agreement dated
as of June 30, 1998, that Seventh Amendment and Consent to Credit Agreement
dated as of July 15, 1998, that Eighth Amendment and Consent to Credit Agreement
dated as of December 30, 1998, that Ninth Amendment and Consent to Credit
Agreement dated as of January 25, 1999, that Tenth Amendment and Consent to
Credit Agreement dated as of March 31, 1999, that Eleventh Amendment and Consent
to Credit Agreement dated as of June 30, 1999, and that Twelfth Amendment and
Consent to Credit Agreement dated as of August 31, 1999 (as further amended,
supplemented, restated or otherwise modified from time to time, the "Credit
Agreement"); and

          WHEREAS, Borrower and Agent wish to enter into certain amendments to
the Credit Agreement, all as more fully set forth herein;

          NOW THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the parties hereto agree as follows:

Section 1  Amendments to Definitions in Credit Agreement.

          Definitions.  Schedule A to the Credit Agreement is amended as
          -----------
follows:

          (a) The definition of Commitment Termination Date is amended to read
in its entirety as follows:

          "Commitment Terminate Date" shall mean the earliest of (i) December 1,
           -------------------------
          1999, (ii) the date of termination of Lenders' obligations to advance
          funds or permit existing advances to remain outstanding pursuant to
          Section 8.2, and (iii) the date of indefeasible prepayment in full by
          -----------
          Borrower of the Revolving Credit Loan, and the permanent reduction of
          the Revolving Credit Loan Commitment to zero dollars ($0), in
          accordance with the provisions of Section 1.2.
                                            -----------


Section 2  Extension Fee.

           In consideration of the Amendments contained herein, Borrower shall
pay Agent an extension fee of FIFTEEN THOUSAND DOLLARS ($15,000) (the "Extension
Fee"), payable on or before October 15, 1999.

Section 3  Representations and Warranties.

           Borrower represents and warranties that:

           (a) the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);

           (b) each of the representations and warranties contained in the
Credit Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

           (c) neither the execution, delivery and performance of this Amendment
nor the consummation of the transactions contemplated hereby does or shall
contravene, result in a breach of, or violate (i) any provision of Borrower's
certificate or articles of incorporation or bylaws, (ii) any law or regulation,
or any order or decree of any court or government instrumentality or (iii)
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which Borrower or any of its Subsidiaries is a party or by which Borrower or any
of its Subsidiaries or any of their property is bound, except in any such case
to the extent such conflict or breach has been waived by a written waiver
document a copy of which has been delivered to Agent on or before the date
hereof; and

           (d) no Default or Event of Default will exist or result after giving
effect hereto.

Section 4  Conditions to Effectiveness.

           This Amendment will be effective upon satisfaction of the following
conditions:

           (a) Execution and delivery of four counter-parts of this Amendment by
each of the parties hereto.

           (b) The payment of the Extension Fee due October 15, 1999 in the
amount of Fifteen Thousand Dollars ($15,000).

                                       2


Section 5  Reference to and Effect Upon the Credit Agreement

           (a) Except as specifically amended above, the Credit Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

           (b) The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver or any right, power or remedy of Agent or any Lender
under the Credit Agreement or any Loan Document, nor constitute a waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of similar import shall mean and refer to the Credit Agreement as amended
hereby.

Section 6  Waiver and Release.

           In consideration of the foregoing, Borrower hereby waives, releases
and covenants not to sue Agent with respect to, any and all claims it may have
against Agent, whether known or unknown, arising in tort, by contract or
otherwise prior to the date hereof.

Section 7  Costs and Expenses.

           As provided in Section 11.3 of the Credit Agreement, Borrower agrees
to reimburse Agent for all fees, costs and expenses, including the fees, costs
and expenses of counsel or other advisors for advice, assistance, or other
representation in connection with this Amendment.

Section 8  GOVERNING LAW.

           THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF
ILLINOIS.

Section 9  Headings.

           Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this amendment
for any other purposes.

Section 10 Counterparts.

          This Amendment may be executed in any number of counterparts, each of
which when so executed shall be deemed an original but all such counterparts
shall constitute one and the same instrument.

                           [signature page follows]

                                       3


          IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date and year first above written.


                                             COLORSPAN CORPORATION
                                             (f/k/a LaserMaster Corporation)

                                             By:____________________________
                                             Title:_________________________


Revolving Credit Loan                        GENERAL ELECTRIC CAPITAL
Commitment: $6,000,000                       CORPORATION, as Agent

                                             By:____________________________
                                             Title:_________________________

                                       4

EX-23.1

                                                                    EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No.
33-52916 and No. 333-11157 of VirtualFund.com, Inc. on Form S-8 of our report
dated October 21, 1999, appearing in the Annual Report on Form 10-K of
VirtualFund.com, Inc. for the year ended June 30, 1999.


Minneapolis, Minnesota
November 2, 1999

EX-27.1

 



<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNAL
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.


                                                  
<PERIOD-TYPE>                   3-MOS                   12-MOS
<FISCAL-YEAR-END>                          JUN-30-1999             JUN-30-1999
<PERIOD-START>                             APR-05-1999             JUL-01-1998
<PERIOD-END>                               JUN-30-1999             JUN-30-1999
<CASH>                                         250,792                 250,792
<SECURITIES>                                         0                       0
<RECEIVABLES>                               14,236,949              14,236,949
<ALLOWANCES>                                 1,234,000               1,234,000
<INVENTORY>                                  8,630,576               8,630,576
<CURRENT-ASSETS>                            25,212,750              25,212,750
<PP&E>                                       3,632,243               3,632,243
<DEPRECIATION>                              17,788,274              17,788,274
<TOTAL-ASSETS>                              39,201,092              39,201,092
<CURRENT-LIABILITIES>                       25,142,816              25,142,816
<BONDS>                                              0                       0
<PREFERRED-MANDATORY>                        7,500,000               7,500,000
<PREFERRED>                                          0                       0
<COMMON>                                       158,039                 158,039
<OTHER-SE>                                   5,785,992               5,785,992
<TOTAL-LIABILITY-AND-EQUITY>                39,201,092              39,201,092
<SALES>                                      1,631,301               4,138,211
<TOTAL-REVENUES>                             1,631,301               4,138,211
<CGS>                                        1,344,512               3,057,710
<TOTAL-COSTS>                                1,344,512               3,057,710
<OTHER-EXPENSES>                                     0                       0
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                              67,288                 162,394
<INCOME-PRETAX>                            (2,344,242)             (7,035,667)
<INCOME-TAX>                               (3,342,000)             (3,342,000)
<INCOME-CONTINUING>                        (5,686,242)            (10,377,667)
<DISCONTINUED>                               2,491,059               2,554,554
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                               (3,195,183)             (7,823,113)
<EPS-BASIC>                                   ($.20)                  ($.50)
<EPS-DILUTED>                                   ($.20)                  ($.50)


 

EX-99.1

                                 Exhibit 99.1

                          Cautionary Factors Under the
                Private Securities Litigation Reform Act of 1995

We desire to take advantage of the "safe harbor" provisions contained in the
Private Securities Litigation Reform Act of 1995 (the "Act").  This Form 10-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
Exhibit 99.  We wish to caution you not to place undue reliance on forward-
looking statements.  The factors listed in this Exhibit 99 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 ship
when expected or may contain technical difficulties; uncertain demand for new or
existing products; the impact of competitor's advertising, products or pricing;
availability or reliability of component parts, including sole source parts;
manufacturing limitations; 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.

     Risks Related to Sale of DGBU.  On October 21, 1999, the Company publicly
announced its intention to sell its DGBU and focus on its Internet and e-
commerce related businesses.  Although the Company is currently negotiating with
potential buyers for the DGBU, there can be no assurance that the Company will
be able to successfully complete the sale of the DGBU on terms acceptable to the
Company, if at all.  If the Company is unable to sell the DGBU, it will need to
obtain immediate capital from other sources, which may not be available.
Failure to sell the DGBU could also likely have an adverse impact on the value
and performance of that segment in future periods, due to the effect of the sale
announcement on the Company's relationships with customers, vendors and others.
Any failure to sell the DGBU on terms acceptable to the Company would have a
material adverse effect on the Company's business, financial condition and
results of operations.

     Going Concern Opinion. The Company is experiencing difficulty in generating
sufficient cash flow to meet its obligations and sustain its operations, which
raises substantial doubt about its ability to continue as a going concern. As a
result of declining revenues during these periods, management has taken steps to
pursue opportunities outside its traditional business.  In this regard, the
Company is developing a new operating segment in the Business-to-Business
electronic commerce market.  The development of this market has required
substantial cash, which has been financed by the cash flow from the DGBU up to
this point. Further development of this market is planned and may result in
further significant losses during the start up period. In addition, CSC's
revolving credit facility with its senior lender, General Electric Capital
Corporation (GECC), will expire in December 1999.  GECC has indicated that it
will not renew this agreement as the Company no longer meets the account size
objectives of their portfolio.  RSPN's revolving credit facility will expire on
November 22, 1999.  Replacement financing has not yet been secured for either
credit facility. As a result, the Company's independent certified public
accountants have indicated in their report on the Company's financial statements
for the year ended June 30, 1999 their substantial doubt as to the Company's
ability to continue as a going concern.  Although the Company is in the process
of negotiating a sale of the DGBU which could potentially provide the Company
with significant working capital, there can be no assurance that the Company
will complete the sale of the DGBU and receive this capital or other financing,

                                       1


or that the Company will be able to ever operate profitably in the future.  In
the event the Company is unable to solve its current financial difficulties, the
Company may have to cease operations or otherwise be liquidated.

     Nasdaq Delisting Proceedings.  The Company is subject to a number of
requirements in order to continue to list its Common Stock on the Nasdaq
National Market.  These requirements include timely filing of reports with the
SEC and the NASD and maintaining net tangible assets of not less than $4
million.

     On October 15, 1999, the Company received a letter from the NASD,
indicating that the Company's Common Stock would be delisted from the Nasdaq
National Market effective October 25, 1999 unless this report was filed with the
SEC and the NASD by the close of business on October 22, 1999.  As allowed by
the NASD rules, the Company appealed the delisting and requested continued
inclusion of its Common Stock on the Nasdaq National Market.

     On October 22, 1999, the NASD responded to the Company's appeal and
scheduled a hearing on the request for November 18, 1999. The NASD also
indicated that the hearing will not only consider the Company's failure to
timely file this report, but will also require the Company to demonstrate its
ability to sustain long-term compliance with all applicable maintenance
criteria, including the net tangible asset requirement.

     As of June 30, 1999, the Company had net tangible assets of $3,311,608, and
therefore was not in compliance with the Nasdaq National Market listing
requirements.  As of October 3, 1999, the deficiency of net tangible assets
approximated $1,532,000.  Although we believe that the pending negotiations to
sell the DGBU will eventually result in a sale providing us with sufficient
capital in order to meet the net tangible assets requirement with respect to
future periods, there can be no assurance that either of these transactions will
allow us to satisfy the net tangible assets requirement by the November 18, 1999
hearing date.  We do expect to be able to revalue our deferred tax assets as a
result of the decision to discontinue the DGBU and expect the revaluation will
provide an addition to our net tangible assets based on a business valuation of
the DGBU.

     If the Company fails to meet any of Nasdaq National Market listing
requirements, the market value of the Common Stock could fall and holders of
Common Stock would likely find it more difficult to dispose of shares of Common
Stock.  In addition, the Company and broker-dealers effecting transactions in
the Common Stock may become subject to additional disclosure and reporting
requirements applicable to low-priced securities, which may reduce the level of
trading activity in the secondary market for the Common Stock and limit or
prevent investors from readily selling their shares of Common Stock.

     Credit Availability.  ColorSpan's revolving credit facility agreement with
General Electric Capital Corporation (GECC) expired January 17, 1999 and was
subsequently extended until December 1, 1999. However, GECC has notified us of
their intent not to renew the credit facility as we do not meet the account size
objectives of their portfolio.  The balance due GECC under this agreement was
$1,053,600 as of October 3, 1999.  GECC will continue to hold its equity
interest in the Company.  In addition, the RSPnet.com, Inc. revolving credit
facility expired on May 1, 1999 and has been extended to November 22, 1999.  The
balance due Firstar under this agreement was $478,000 as of October 3, 1999. We
are currently negotiating the terms of alternative financing to replace the
financing provided by both lenders. There can be no assurances of this, or that
the cash available under any agreement which can be reached will be adequate to
meet our needs, or that sources of financing will be available to us on
favorable terms.

     Cash Needs.  Our credit agreement with a commercial finance company that
has financed its cash requirements in the past expired January 17, 1999 but was
extended to December 1, 1999. Previously, net operating losses in fiscal 1996 of
$10,461,534 and fiscal 1997 of $17,199,688 resulted in a need for additional

                                       2


financing. In September 1996, projected cash requirements in excess of available
sources required the issuance of private placements of common stock and warrants
to purchase common stock in the Company. We raised $11.8 million in these
private placements and have not pursued additional equity based financing since
that time. We expect to finance operations throughout the remainder of fiscal
1999 through cash flow from operating activities and short term borrowings.
Longer term financing for the RSPnet.com, Inc. (B2BX Corporation) business will
likely require the issuance of additional equity in VirtualFund.com, Inc. or
B2BX Corporation stock. There can be no assurances that cash availability under
any credit agreement which may be negotiated will be adequate to meet future
needs, or that other sources of financing will be available to us on favorable
terms, or at all, if our operations are further affected by declining revenue
from a lack of sales, significant research and development costs, introduction
difficulties with new product lines, competitive product introductions, or by
market conditions in general. We are investing heavily in development of ISBU
activities which have limited revenues on which to build. Many of our
competitors in this market have significantly more available resources with
which to attract and service new customers. We expect to generate a significant
amount of cash as a result of the sale of the DGBU, however, there can be no
assurance of our ability to sell the DGBU operations on terms that meet our
short term cash flow obligations. In addition, there can be no assurance that we
will achieve or maintain profitability on a quarterly or annual basis in the
future. In addition, we may need to raise additional funds in order to support
more rapid expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of unanticipated opportunities. Our future liquidity and capital
requirements will depend upon numerous factors, including the success of our
existing and new service offerings and competing technological and market
developments.

     We may be required to raise additional funds through public or private
financing, strategic relationships or other arrangements, particularly as our
acquisition strategy matures. There can be no assurance that such additional
funding, if needed, will be available on terms acceptable to us, or at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants, which may
limit our operating flexibility with respect to certain business matters.
Strategic arrangements, if necessary to raise additional funds, may require us
to relinquish our rights to certain of our intellectual property or selected
business opportunities. If additional funds are raised through the issuance of
equity securities, the percentage ownership of our existing stockholders will be
reduced, stockholders may experience additional dilution in net book value per
share, and such equity securities may have rights, preferences or privileges
senior to those of the holders of our Common Stock or newly issued Preferred
Stock. If adequate funds are not available on acceptable terms, we may be unable
to develop or enhance our services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business, financial condition, results of
operations and prospects.

     Potential Acceleration of Senior Debt.  Our current Senior Debt Agreement
includes financial covenants including capital expenditures, additions to
capitalized software and intellectual property, minimum debt service coverage
ratio and the maintenance of a minimum net worth, which we must meet. Our past
financial performance has made it necessary for us to renegotiate the minimum
net worth and minimum debt service coverage covenants to avoid being declared in
violation of the covenants by GECC. The replacement financing is expected to
include certain financial covenants, which we must meet as a condition of the
financing.  If future financial performance causes covenant violations and we
are unable to renegotiate our loan covenants at that time, we could be forced to
seek replacement financing at prices which may not be favorable to us. If
adequate sources of financing are not available, we may be required to sell
certain product lines or technologies on less than favorable terms. As of
October 3, 1999, the outstanding balance on our Senior Debt Agreement was
$1,053,600.

                                       3


     Expansion and Diversification to Software and Services Outside of our Core
Printer Business.  Our continuing efforts to expand sales and increase profits
and desire to reposition ourselves as a diversified technology company is
stimulating a series of new product development activities. The current focus of
these new business opportunities is primarily Internet-based software and
service businesses. In October 1999, we launched our newest Internet software
product called B2BXchange(TM). The product is an Internet operating environment
which will offer some basic activities and services for free, while attempting
to convert those subscribers to paying customers who rent storage space,
Internet access and software applications from our offerings associated with
B2BXchange.

     Our expansion into technologies outside of the core hard-copy base printer
business involves significant risk. Risks include, but are not limited to, the
following factors: New products may not meet customer needs or may face
significant competition from companies with lower overhead and product costs
and/or greater marketing and promotional budgets. In addition, we may not be
able to attract and retain key personnel and may not be able to develop the
products in the time needed to gain market acceptance.  In addition, because of
early stage development, we may not be able to predict product features needed
to gain market acceptance, development may require more time and resources than
anticipated for the development, or it may turn out that the product can not be
feasibly developed. Our diversification also carries the risk that the new
activity will distract management time and resources from focusing on the core
hard-copy based printer business. In addition, diversification may involve risks
related to the resources required to participate in this new business including,
but not limited to, risks related to raising cash or obtaining cash investments,
doing business with one or more "partners" as a partnership or joint venture,
and risks related to acquisitions or other combinations of businesses.

     The market for Internet professional services, software and e-commerce
solutions is characterized by rapid technological change, changes in user and
client requirements and preferences, frequent new product and service
introductions embodying new processes and technologies and evolving industry
standards and practices that could render our existing service practices and
methodologies obsolete. Our success will depend, in part, on our ability to
improve our existing services and develop new services and solutions that
address the increasingly sophisticated and varied needs of our current and
prospective clients, and respond to technological advances, emerging industry
standards and practices, and competitive service offerings. Failure to do so
could result in the loss of existing customers or the inability to attract and
retain new customers, either of which could have a material adverse effect on
our business, financial condition, results of operations and prospects. There
can be no assurance that we will be successful in responding quickly, cost-
effectively and sufficiently to these developments. If we are unable, for
technical, financial or other reasons, to adapt in a timely manner in response
to changing market conditions or client requirements, our business, financial
condition, results of operations and prospects would be materially adversely
affected.

     The Internet software industry is characterized by rapidly changing
technology and product development. There is no assurance that current product
development efforts for the Internet Services Business Unit (ISBU) will properly
anticipate the market and target customer needs, or will not be displaced by new
or other technology, products or services offered by others. Although we do not
believe that we have a quality and reliability reputation that may unfavorably
affect products at this time, if one or more products experiences product
failures, we may develop an unfavorable reputation which could dissuade a
purchaser or subscriber from our products. Such a reputation, if it were to
develop, may unfavorably affect new products even though they may not suffer
from any similar quality or reliability problems.

                                       4


     Product Acceptance/Market Anticipation.  Our products may not achieve
market acceptance.  In addition, the market anticipation or the announcement of
new products and technologies, whether offered by us or our competitors, could
cause customers to defer purchases of our existing products, which could have a
material adverse effect on our business and financial condition.

     Our Internet Services Business Unit announced, during the second quarter of
fiscal 1999, the first outside customer site using E-Com(TM) Tools, our
proprietary e-commerce software.  Subsequently, this product has been renamed
XcomTOOLS(TM) and a basic version is included for no charge when a customer
signs up as a B2BXchange customer. We have successfully used a version of the
software for our Supplies-By-Air(TM) business. However, there is no assurance
that outside customers will accept the software, or that it will be sufficiently
flexible to meet the variety of needs that exist in the target marketplace, that
the license fees for the software will be competitive, or that future offerings
by competitors will not displace current licenses of our software product. Our
products may not be accepted by the target market for technological or other
reasons.  In addition, we have not previously sold Internet commerce software
and may lack the sales and marketing expertise to successfully sell the product,
or we may not accurately predict the sales cycle or sales volume which could
adversely affect the financial results. Our inability to achieve market
acceptance of the e-commerce product could have a material adverse effect on our
financial condition and may affect the ability of the Internet Services Business
Unit to effectively market its other services or other outside or proprietary
software products.

     Potential Liability to Clients.  Many of our ISBU service and consulting
engagements involve the development, implementation and maintenance of
applications that are critical to the operations of our clients' businesses. Our
failure or inability to meet a client's expectations in the performance of our
services could injure our business reputation or result in a claim for
substantial damages against us, regardless of our responsibility for such
failure. In addition, RSPnet.com, Inc. provides data services that may include
confidential or proprietary client information. Although we have implemented
policies to prevent such client information from being disclosed to unauthorized
parties, lost, or used inappropriately, any such unauthorized disclosure, loss
or use could result in a claim for substantial damages. We have attempted to
limit contractually our damages arising from negligent acts, errors, mistakes or
omissions in rendering professional services; however, there can be no assurance
that any contractual protections will be enforceable in all instances or would
otherwise protect us from liability for damages. Although we maintain general
liability insurance coverage, including coverage for errors and omissions, there
can be no assurance that such coverage will continue to be available on
reasonable terms or will be available in sufficient amounts to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim. The successful assertion of one or more large claims against us that are
uninsured, exceed available insurance coverage or result in changes to our
insurance policies, including premium increases or the imposition of a large
deductible or co-insurance requirements, could adversely affect our business,
results of operations and financial condition.

     Competition; Low Barriers to Entry. Many competitors in the Internet
software industry are not profitable. The need to be competitive with the prices
and services offered by these competitors may impair the ability of the ISBU to
operate profitably. The market for Internet software and hosting services is
relatively new, intensely competitive, rapidly evolving and subject to rapid
technological change. We expect competition to persist, intensify and increase
in the future. Our ISBU competitors can be divided into several groups: computer
hardware and service vendors; Internet integrators and Web presence providers;
web design media and advertising agencies; large information technology
consulting service providers; telecommunications companies; Internet and online
service providers; and software vendors. Many of our ISBU current and potential
competitors have longer operating histories, larger installed customer bases,
longer relationships with clients and significantly greater financial,
technical, marketing and public relations resources than us and could decide at
any time to increase their resource commitments to our target markets. In
addition, the market for Intranet, Extranet and web site development is
relatively new and subject to continuing definition, and, as a

                                       5


result, may better position our competitors to compete in this market as it
matures. As a strategic response to changes in the competitive environment, we
may from time to time make certain pricing, service, technology or marketing
decisions or business or technology acquisitions that could have a material
adverse effect on our business, financial condition, results of operations and
prospects. Competition of the type described above could materially adversely
affect our business, results of operations, financial condition and prospects.

     In addition, our ability to maintain existing client relationships and
generate new clients will depend to a significant degree on the quality of our
services and our reputation among our clients and potential clients, compared
with the quality of services provided by, and the reputations of, our
competitors. To the extent we lose clients to our competitors because of
dissatisfaction with our services or our reputation is adversely affected for
any other reason, our business, financial condition, results of operations and
prospects could be materially adversely affected. In order to generate
customers, we intend to allow the free use of certain basic packages offered by
B2BXchange. Our business plan requires that we are able to convert a percentage
of these free users to paying, long term customers. There can be no assurance we
will be able to convert enough subscribers from the free offerings to those that
are billable in B2BXchange. If we are unable to convert users to paying
customers, our business and revenue models will have to be significantly
modified.

     There are relatively low barriers to entry into the ISBU's business.
Because professional services firms rely on the skill of their personnel and the
quality of their client service, they have no patented technology that would
preclude or inhibit competitors from entering their markets. We are likely to
face additional competition from new entrants into the market in the future.
There can be no assurance that existing or future competitors will not develop
or offer services that provide significant performance, price, creativity or
other advantages over those offered by us, which could have a material adverse
effect on our business, financial condition, results of operations and
prospects.

     Fluctuations in Quarterly Operating Results.  Our quarterly results of
operations have fluctuated and are expected to continue to fluctuate
significantly. These fluctuations have been caused by various factors,
including, but not limited to: the timing of new product announcements; product
introductions and price reductions by us or our competitors; the availability
and cost of key components and materials for our products; fluctuations and
availability in customer financing; the relative percentages of sales of
consumables and printer architectures; risks related to international sales and
trade; and general economic conditions. In addition, our operating results are
influenced by the seasonal buying patterns of our customers, which have in the
past generally resulted in reduced revenues and earnings during our first fiscal
quarter. Further, our customers typically order products on an as-needed basis,
and, as a result, virtually all of our sales in any given quarter result from
orders received in that quarter. We rarely operate with a backlog of orders from
quarter to quarter. Certain products require significant capital expenditures,
causing some customers to delay their purchasing decision. Delays in purchases
of low-volume, high-cost printers may cause significant fluctuations in the
sales volume for a given period. Our manufacturing plans, sales staffing levels
and marketing expenditures are primarily based on sales forecasts. Accordingly,
deviations from these sales forecasts may cause significant fluctuations in
operating results from quarter to quarter and may result in unanticipated
quarterly earnings shortfalls or losses. Historically, a large percentage of
orders have been received and shipped near the end of each month. If anticipated
sales and shipments do not occur, expenditure and inventory levels may be
disproportionately high and operating results could be adversely affected.

     Intellectual Property and Proprietary Rights.  Our ability to compete
effectively will depend, in part, on our ability to maintain the proprietary
nature of our technologies through patents, copyrights and trade secrets.
Important features of our products are incorporated in proprietary software,
some of which is licensed from others and some of which we own.   We attempt to
protect our proprietary software with a combination of patents, copyrights,
trademarks and trade secrets, employee and third-party nondisclosure agreements
and other methods of protection.  Despite these precautions, unauthorized third
parties may be able to copy certain

                                       6


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.

     Recently certain companies have sought and received patents for their
Internet business model.  As additional companies seek protection for business
models the Company's ISBU may be foreclosed from business opportunities
currently available or under consideration which could have an adverse effect on
revenues for the ISBU.

     Although we have not received notices from third parties alleging
infringement claims which we believe would have a material adverse effect on our
business, there can be no assurance that third parties will not claim that our
current or future products infringe on their proprietary rights.  Any such
claim, with or without merit, could result in costly litigation or might require
us to enter into a royalty or licensing agreement.  A royalty or licensing
agreement, if required, may not be available on terms acceptable to us, or at
all, which could have a material adverse effect upon our business, financial
condition and results of operations.  If we do not obtain such licenses, we
could encounter delays in product introductions while we attempt to design
around such issues, or we could find that the development or sale of products
requiring such licenses could be enjoined.  In addition, we could incur
substantial costs in defending ourselves in suits brought against us on such
patents or in bringing suits to protect our patents against infringement, which
could adversely affect our financial condition or results.  If the outcome of
any such litigation is adverse, our business and financial results could be
adversely affected.

     Litigation and Litigation Costs.  We are engaged in various actions related
to transactional matters, employee matters, customers' credit and product
quality and/or warranty issues.  In an action recently settled, it was alleged
that we were liable for copyright misuse and unfair competition.  Some of these
actions include claims against us for punitive, exemplary or multiple damages.
An award of punitive damages may not bear a direct relationship to the actual or
compensatory damages claimed from us.  Although we do not believe there are any
actions pending or threatened against us which would have a material adverse
impact on our financial position, there is no assurance that there will not be a
similar claim in other actions or an adverse award of multiple punitive or
exemplary damages which could adversely affect our cash position.

     Any litigation which we are involved in may have an adverse impact on our
operations and may result in a distraction or diversion of management's
attention, thereby adversely affecting our operations.


     Risks Related to Future Acquisitions or Partners.  A key component of our
continued growth strategy is expected to be the acquisition or partnering of
professional service firms that meet our goals for strategic growth and
expansion. The successful implementation of this acquisition strategy will
depend on our ability to identify suitable acquisition candidates, acquire such
companies on acceptable terms and integrate their operations successfully with
those of ours. There can be no assurance that we will be able to continue to
identify additional suitable acquisition candidates or that we will be able to
acquire such candidates on acceptable terms. Moreover, in pursuing acquisition
opportunities we may compete with other companies with similar growth
strategies, certain of which competitors may be larger and have greater
financial and other resources than us. Competition for these acquisition targets
may also result in increased prices of acquisition targets and a diminished pool
of companies available for acquisition. Acquisitions also involve a number of
other risks, including adverse effects on our reported operating results from
increases in goodwill amortization, acquired in-process technology, stock
compensation expense and increased compensation expense resulting

                                       7


from newly hired employees, the diversion of management attention, potential
disputes with the sellers of one or more acquired entities and the possible
failure to retain key acquired personnel. Lack of client satisfaction or
performance problems with an acquired firm could also have a material adverse
impact on our reputation as a whole, and any acquired company could
significantly underperform relative to our expectations. For all of these
reasons, our pursuit of an overall acquisition strategy or any individual
pending or future acquisition may have a material adverse effect on our
business, financial condition, results of operations and prospects. To the
extent we choose to use cash consideration for acquisitions in the future, we
may be required to obtain additional financing, and there can be no assurance
that such financing will be available on favorable terms, if at all. As we issue
stock to complete future acquisitions, existing stockholders will experience
further ownership dilution.

     Integration of Acquired Businesses.  During December 1998 we completed the
acquisition of K & R Technologies, Inc.  Our future performance will depend on
our ability to integrate this and other acquired businesses, which, even if
successful, may take a significant period of time, may place a significant
strain on our management and resources, and could subject us to additional
expenses during the integration process and to the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the acquired
businesses, the potential disruption of our ongoing business, the inability of
management to maximize our financial and strategic position through the
successful incorporation of acquired personnel and clients, the maintenance of
uniform standards, controls, procedures and policies and the impairment of
relationships with employees and clients as a result of any integration of new
management personnel. There can be no assurance that the services, technologies,
key personnel and businesses of the acquired business(es) will be effectively
integrated into our business or service offerings, or that such integration will
not adversely affect our business, financial condition, results of operations or
prospects. There can also be no assurance that any acquired services,
technologies or businesses will contribute at anticipated levels to our sales or
earnings, or that the sales and earnings from combined business(es) will not be
adversely affected by the integration process. Because the acquisition was
completed in December 1998, we are currently facing all of these challenges and
our ability to meet them over the long term and in volume has not been
established. The failure to integrate such acquisitions successfully could have
a material adverse effect on our business, financial condition, results of
operations and prospects.

     Recruitment and Retention of Consulting Professionals.  Our business of
delivering Internet and information technology professional services is labor
intensive. Accordingly, our success depends in large part on our ability to
identify, hire, train and retain consulting professionals who can provide the
Internet strategy, technology, marketing, audience development and creative
skills required by clients. There is currently a shortage of such personnel, and
this shortage is likely to continue for the foreseeable future. We will
encounter intense competition for qualified personnel from other companies, and
there can be no assurance that we will be able to identify, hire, train and/or
retain other highly qualified technical, marketing and managerial personnel in
the future. The inability to attract and retain the necessary technical,
marketing and managerial personnel would have a material adverse effect on our
business, financial condition, results of operations and prospects.

     Dependence on Key Personnel.  Our success depends to a significant extent
upon certain key personnel, including Mr. Masters, Chief Executive Officer and
President, and key research and development staff. The loss of our key
management or technical personnel could adversely affect our business. We
maintain key person life insurance in the amount of $2,000,000, payable to the
Company, on Mr. Masters. In addition, we have certain non-compete and
continuation contracts with key personnel. We also depend on our ability to
attract and retain highly skilled personnel. Competition for employees in
technology related markets is high and there can be no assurance that we will be
able to attract and retain the employees needed. In addition, our past financial
performance may limit our ability to hire and retain management professionals.

                                       8


     Risks Associated with Failure to Manage Growth.  The anticipated growth of
the ISBU and any future growth by acquisition would place a significant strain
on our limited personnel, management and other resources. In the future, we will
be required to attract, train, motivate and manage new employees successfully,
to effectively integrate new employees into our operations and to continue to
improve our operational, financial, management and information systems and
controls. There can be no assurance that our systems, procedures or controls
will be adequate to support our operations or that our management will be able
to achieve the rapid execution necessary to exploit the market for our business
model. The failure to effectively manage any further growth could have a
material adverse effect on our business, financial condition, results of
operations and prospects.

     Developing Internet Economy, Market for E-Commerce Solutions. A material
portion of our revenues is expected to be derived from services that depend upon
the adoption of Internet solutions by companies to improve their business
positioning and processes, and the continued development of the World Wide Web,
the Internet and E-Commerce. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure, lack of development of complementary products, implementation of
competing technology, delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity, governmental
regulation, or other reasons. The Internet has experienced, and is expected to
continue to experience, significant growth in the number of users and volume of
traffic. There can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed on it by this continued
growth. Our business model anticipates revenue and growth from Internet hosting
services and access. Technological changes in the delivery of Internet service
could adversely affect our ability to achieve operational and financial
objectives. Moreover, critical issues concerning the use of Internet and E-
Commerce solutions (including security, reliability, cost, ease of deployment
and administration and quality of service) remain unresolved and may affect the
growth of the use of such technologies to maintain, manage and operate a
business, expand product marketing, improve corporate communications and
increase business efficiencies. The adoption of Internet solutions for these
purposes, particularly by those individuals and enterprises that have
historically relied on traditional means, can be capital intensive and generally
requires the acceptance of a new way of conducting business and exchanging
information. If critical issues concerning the ability of Internet solutions to
improve business positioning and processes are not resolved or if the necessary
infrastructure is not developed, our business, financial condition, results of
operations and prospects will be materially adversely affected.

     Even if these issues are resolved, there can be no assurance that
businesses will elect to outsource the design, development, hosting and
maintenance of their Web sites to Internet professional services firms.
Companies may decide to assign the design, development, and implementation of
Internet solutions and hosting of the site to their internal information
technology divisions, which have ready access to both key client decision makers
and the information required to prepare proposals for such solutions. If
independent providers of Internet professional services prove to be unreliable,
ineffective or too expensive, or if software companies develop tools that are
sufficiently user-friendly and cost-effective, enterprises may choose to design,
develop or maintain all or part of their Intranets, Extranets or web sites in-
house. If the market for such services does not continue to develop or develops
more slowly than expected, or if our services do not achieve market acceptance,
our business, results of operations, financial condition and prospects will be
materially adversely affected.

     Government Regulation and Legal Uncertainties.   The Securities and
Exchange Commission (SEC), Nasdaq and the Financial Accounting Standards Board
(FASB) all have recently issued or are currently considering regulations or
requirements that can or will impact our financial results and/or potentially
our stock price in the future. Certain accounting treatments commonly used by
Technology companies have been limited or changed recently. The use of the
Pooling of Interest method of accounting for certain mergers has come

                                       9


under direct scrutiny by the SEC and the related accounting boards. Future use
of this treatment will be significantly limited if the proposals under review at
this time are adopted.

     With the use of the Pooling treatment significantly limited, most companies
will be forced to use the Purchase method of accounting when accounting for
future and current acquisitions.  One of the accounting principles associated
with this area utilized by many technology related acquisitions, including our
acquisition of TEAM Technologies, has been the practice of taking a current
charge to operations for certain "In Process Research and Development Expenses"
at the time of acquisition. The SEC has been issuing new guidelines and
examining many of these charges as a result. Many companies have been required
to restate acquisition-related charges as a result of these activities by the
SEC. The restatement of acquisition related costs could result in a material
change in our previously reported results which could have an adverse impact on
our stock price.

     Our ISBU is not currently subject to direct government regulation, other
than pursuant to certain franchising regulations, the securities laws and the
regulations thereunder applicable to all publicly owned companies, and laws and
regulations applicable to businesses generally, and there are currently few laws
or regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing popularity and use of the Internet, it is likely
that a number of laws and regulations may be adopted at the local, state,
national or international levels with respect to the Internet covering issues
such as user privacy, freedom of expression, pricing of products and services,
taxation, advertising, intellectual property rights, information security or the
convergence of traditional communications services with Internet communications.
For example, the Telecommunications Act of 1996 (the "Telecommunications Act")
imposes criminal penalties on anyone who distributes obscene or indecent
communications over the Internet. Although the anti-indecency provisions of the
Telecommunications Act have been declared unconstitutional by the federal
courts, the increased attention focused upon these liability issues as a result
of the Telecommunications Act could adversely affect the growth of the Internet
and therefore demand for our services. In addition, because of the growth in the
electronic commerce market, Congress has held hearings on whether to regulate
providers of services and transactions in the electronic commerce market, which
regulations could negatively affect client demand for Internet solutions that
facilitate electronic commerce. Moreover, the adoption of any such laws or
regulations may decrease the growth of the Internet, which could in turn
decrease the demand for our services or increase the cost of doing business or
in some other manner have a material adverse effect on our business, financial
condition, results of operations or prospects. In addition, the applicability to
the Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel and personal
privacy is uncertain.  The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Changes to such laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the marketplace
which could reduce demand for our services or increase the cost of doing
business as a result of costs of litigation or increased service delivery costs,
or could in some other manner have a material adverse effect on our business,
financial condition, results of operations and prospects.

     Dependence on Key Accounts.  The ISBU's current revenues are based mainly
on staff augmentation and service agreements with customers of the operations
acquired in December 1998. A significant portion of the revenue for that
operation has historically come from engagements with John Deere operations.  To
the extent that any or all of the John Deere contracts are terminated there
could be a direct and immediate material adverse effect on our business,
financial condition, results of operations and prospects.  Additionally, once a
project is completed there can be no assurance that a client will engage the
ISBU for further services. In addition, the ISBU's clients may unilaterally
reduce their use of the ISBU's services or terminate existing projects. The
termination of the ISBU's business relationship with any of its significant
clients or a material

                                       10


reduction in the use of ISBU's services by a significant client may have a
material adverse effect on our business, financial condition and operating
results.

     Client Uncertainty; Conflicts.  Uncertainty regarding the acquisition may
affect the ability of the ISBU to maintain existing relationships or attract new
clients. In addition, some clients desire that their vendors avoid providing
similar services to the competitors of such clients. The ISBU is actively
engaging non-exclusive channel partners to facilitate the licensing and service
opportunities for the e-commerce software and cross-selling of services.
Contracts with channel partners or certain customers may generate client
conflicts and potentially cause the loss of current clients or an inability to
perform services for certain competing businesses. The loss of significant
clients or an inability to provide services to a significant group of potential
clients could have a material adverse effect on our business, financial
condition, results of operations and prospects.

     Risks of Fixed-Price Engagements.  The ISBU generates a portion of its
revenues through project fees in a fixed fee for service basis and based on
current trends, it may need to increase the percentage of its engagements that
are billed on a fixed-price basis to remain competitive, and as a result,
increase the percentage of revenues derived from fixed-price engagements.  The
ISBU will assume greater financial risk from fixed-price type contracts than on
either time-and-material or cost-reimbursable contracts. The failure to estimate
accurately the resources and time required for an engagement, to manage client
expectations effectively regarding the scope of services to be delivered for the
estimated fees or to complete fixed-price engagements within budget, on time and
to clients' satisfaction would expose us to risks associated with cost overruns
and, in certain cases, penalties, any of which could have a material adverse
effect on our business, results of operations and financial condition.

Year 2000

     We are currently completing our work to resolve the potential impact of the
Year 2000 on the processing of time-sensitive information by our computerized
information systems. Year 2000 issues may arise if computer programs have been
written using two digits (rather than four) to define the applicable year.  In
such case, programs that have time-sensitive logic may recognize a date using
"00" as the year 1900 rather than the Year 2000, which could result in
miscalculations or system failures. We utilize a number of computer programs
across our entire operation. Year 2000 issues could impact our information
systems as well as computer hardware and equipment that is part of our telephony
network such as switches, termination devices and SONET rings that contain
embedded software or "firmware."

     Our exposure to potential Year 2000 problems exist in two general areas:
technological operations in our sole control, and technological operations
dependent in some way on one or more third parties. The majority of our exposure
in potential Year 2000 problems is in the latter area where the situation is
much less within our ability to predict or control. Our business is heavily
dependent on third parties, many of which are themselves heavily dependent on
technology.  We cannot control the Year 2000 readiness of those parties. In some
cases, our third-party dependence is on vendors of technology who are themselves
working towards solutions to Year 2000 problems. We have initiated projects to
identify and correct the potential problem in all of our enterprise systems.
Most of these projects have been completed or are in the final testing stage.
The costs incurred to date for projects specifically related to Year 2000 issues
total less than $40,000 and have been expensed in the financial statements.  In
some cases, systems have been upgraded to receive other benefits in which case
the Year 2000 issue was addressed at the same time.  We are using internal
resources to test the software modifications.  Funding for this area is expected
to, and has come from, cash flow from operations. We expect additional costs for
this issue will be less than $20,000.

     Our Products.  We design and sell products that are heavily reliant on
software.  While we have taken appropriate steps to ensure the readiness of this
software and believe it to be compliant, we cannot be certain

                                       11


that the software will operate error free, or that we will not be subject to
litigation, whether the software operates error free or not. However, we believe
that based on our efforts to ensure compliance and the fact that the
calculations needed in and by our products are not date dependent, it is not
reasonably likely that we will be subject to such litigation.

     Contingency Plans.  We have completed a basic contingency plan for the most
likely failures and have tested it. We continue to evaluate possible failures
and our exposure to those failures. Our largest exposure continues to come from
areas beyond our control.

     Environmental.  We are subject to local and federal laws and regulations
regarding the use, storage and disposition of inks used with our print products.
Although we believe we are in compliance with all such laws and regulations, and
are not aware of any notice or complaint alleging any violation of such laws or
regulations, there can be no assurance that there will not be some accidental
contamination, disposal or injury from the use, storage, or disposition of inks
or other materials used in our DGBU operations.  In the event of such accident,
we could be held liable for any damages that result and any such liability could
have a material adverse effect on our financial condition. In addition, there
can be no assurance that we will not be required to comply with environmental
claims, laws, or regulations in the future which could result in significant
costs which could materially adversely affect our financial condition.

     Tax Liability.  We sell our products from our offices in Eden Prairie,
Minnesota and report sales and income tax liability based on sales occurring at
that location.  It is possible that one or more state or local taxing
authorities could determine that there have been taxable transactions occurring
within their jurisdiction and seek recovery of taxes for current and/or past
periods.  In addition, it is possible that local, state or federal taxing
authorities will take issue with the reporting or determination of tax liability
and seek additional taxes for current and/or past periods. We currently have a
net operating loss ("NOL") carryforward that may be used to offset future
federal taxable income. However, there is no assurance that the NOL will
continue to be available as an offset against future federal taxable income or
that there will be sufficient taxable income to fully utilize the NOL. We have
been contacted by one state recently regarding possible sales and use tax nexus
as a result of the use of third parties to service products sold by us. An audit
of our records is underway.

     Deferred Tax Assets.  We have recorded deferred tax assets and the related
valuation allowances in accordance with the existing accounting standards. The
valuation of these assets is dependent on our ability to generate taxable income
with which to utilize these assets. There can be no assurance with our operating
history that sufficient taxable income can be generated to utilize these assets.
If the utilization of these assets comes into question, additional valuation
allowances will need to be recorded. The recording of additional valuation
allowances could have a material adverse affect on our financial results.

     Volatility of Stock Price.  The trading price of our common stock is
subject to wide fluctuations in response to variations in operating results,
changes in the laws or regulations to which we may be subject, announcements of
new products or technological innovations by us or our competitors, overall
economic conditions and indicators, market conditions unrelated to our
performance, and general conditions in the industry. Factors such as quarterly
variation in actual or anticipated operating results, changes in earnings
estimates by analysts, and analysts' reactions to our statements and actions
also contribute to stock price fluctuations. In addition, the prices of
securities of many high technology companies have experienced significant
volatility in recent years for reasons frequently unrelated to the operating
performance of the specific companies. These fluctuations may materially affect
the market price of our common stock.

     One time in the past, following fluctuations in the market price of our
stock, a securities action was commenced alleging that the Company and certain
insiders had knowledge of certain material, adverse information about us prior
to the time that such information allegedly caused a drop in the market price of
the

                                       12


stock. Because our stock has historically fluctuated significantly, it is
possible that following a significant change in the market price of the stock
another securities action could be commenced against us. Such action, whether
commenced by one or more individuals or by a class of securities holders, could
result in substantial costs and diversion of our management's attention and
resources and thereby cause an adverse affect on our business and financial
performance.

     Overall Market Fluctuations/Margin Calls.  The overall stock market has
been relatively volatile recently. The price of small capitalization stocks like
VFND may be significantly impacted by overall market declines. The impact on the
price of VFND common stock during a market decline may be magnified because of
the limited "float" available for an investor or investors who may seek or may
be required to sell their shares of VFND common stock to satisfy margin calls
from their individual brokers. The impact of market declines may be enhanced if
Company "insiders" are required to sell their shares of the Company's common
stock in such a situation. Such a sale by an insider under these circumstances
could cause adverse market perceptions which could result in a widespread sell
off of the stock in the general market and cause the stock price to decrease
further. It is likely there will be further fluctuations in the overall stock
market due to the complexities of the world wide market that exists today. There
can be no assurance future market volatility will not precipitate a significant
sell off of VFND common stock.

     Brand Awareness. Our business plan for B2BXchange calls for the development
of the B2BXchange brand in the Internet business-to-business e-commerce market.
The low barrier to entry in the Internet markets makes this a significant risk
area. In other Internet markets like the business-to-consumer  market, being the
first to market or the most recognizable name has been a major method of
differentiation from the competition in these markets. There is no assurance we
can generate the brand market awareness for B2BXchange or any other of our
products that will be necessary in order for us to compete in this market space.
The failure to generate the brand awareness is likely to have a significant
impact on our ability to grow revenues in this area in the future. The inability
to grow revenue would likely cause a significant change to our business model.

     Control of the Company's Stock. As of September 30, 1999, officers and
directors as a group beneficially owned 16.5% of the outstanding shares of our
stock.  One of our DGBU suppliers owned 13.3% of our outstanding shares. The
impact of the holdings of the officers and directors and the supplier is not

believed to be material. However, such control may reduce liquidity of the
stock, which may affect shareholder value.

     Our Board has adopted a Shareholder Rights Agreement. The Shareholder
Rights Agreement was adopted to provide our board of directors an opportunity to
assess and evaluate any takeover bid, and in the event a bid is made, to provide
the board with an appropriate period of time to explore and develop alternatives
which maximize shareholder value.  We cannot assure that shareholders or the
market may view or react adversely to this Shareholder Rights Agreement
adversely affecting shareholder value.

     In addition, Minnesota Statutes govern "control share acquisitions" and
require potential acquirers of at least 20% of the Company's stock to provide
notice and information to us about the proposed acquisition of stock and limits
voting rights in acquired stock unless such voting rights are approved by an
affirmative vote of shareholders and the control share acquisition is
consummated within 180 days after shareholder approval. The effect of the
statute is to limit the opportunity for a hostile takeover of control of the
Company unless a majority of shareholders consent.  There is no assurance that
the control share acquisition statute will not adversely affect shareholder
value.

     Dilution.  We have outstanding a large number of stock options and warrants
to purchase our Common Stock.  To the extent such options or warrants are
exercised, there will be further dilution. We expect to seek additional
acquisitions in pursuing our strategies and intend to grant additional stock
options and stock bonuses

                                       13


to the employees of the acquired companies. For these reasons, our acquisition
program will result in further substantial ownership dilution to investors.


Risk factors associated with discontinued operations

     Technology and Industry Pressures/Reliance on New Technology.  The pre-
press and wide-format color printing industries are highly competitive and are
characterized by frequent technological advances and new product introductions
and enhancements. As product life cycles get shorter, the resulting consumable
stream generated by the installed base may be negatively impacted. Accordingly,
we believe that our future success for the Digital Graphics Business Unit (DGBU)
depends upon our ability to enhance current products, to develop and introduce
new and superior products on a timely basis and at acceptable pricing, to
respond to evolving customer requirements, and to design and build products
which achieve general market acceptance.

     Product Quality/Malfunction Issues.  Any quality, durability or reliability
problems with existing or new products, regardless of materiality, or any other
actual or perceived problems with our products could have a material adverse
effect on market acceptance of such new products.  Any quality problems with
components could result in wide-spread failures of the products in the field
causing return and refund requests that would likely have a material effect on
our financial results and future sales potential. Such problems or perceived
problems could potentially arise with respect to any existing products. The
failure to resolve ink functionality issues, or some other failure of the
product to perform as expected by the customer may result in customer requests
for compensatory supplies or other requests which could have a material adverse
effect on our financial performance.

     We are aware of the intermittent presence of contaminants in certain inks
that caused perceived flaws in output from some of the Company's printers. We
have taken steps with our ink supplier to mitigate such contamination problems
and have compensated customers with replacement ink and media. In addition,
early versions of our PressMate(R) and DisplayMaker(R) Express products
experienced quality, durability and reliability problems associated with the use
of new technologies that had not received proper testing. We believe we have
addressed the problems associated with PressMate and DisplayMaker Express by
replacing certain components found in the original designs. All of these
problems contributed to our net losses incurred in fiscal years 1997 and 1996.
Two products which we introduced in the past several years experienced what we
consider "limited market acceptance." One product allowed the use of a very
limited variety of media types (paper, etc.) with the product. Another product
offering received limited market acceptance due to the amount of manual
intervention needed to produce output from the device. While the device
delivered significantly higher quality output than any competitive product
available at the time, the manual media handling and required maintenance was
seen by some users as a product limitation.

     New Product Design and Development.  The process of developing new products
involves adopting new and emerging technologies and components which may not
have product histories or long term use testing to establish expected life
cycles in the field or to assure long term field use. The time and expense
required to adopt new and emerging technologies and components, or to develop
new technologies cannot always be predicted with accuracy. There is no assurance
that new product design and development will occur within anticipated or
budgeted time and financial restrictions. New product design and development may
also delay product introductions, which could affect marketability of the
product, or may be more costly than anticipated.

     Product Acceptance/Market Anticipation.  Our products may not achieve
market acceptance.  In addition, the market anticipation or the announcement of
new products and technologies, whether offered by us or our competitors, could
cause customers to defer purchases of our existing products, which could have a
material adverse effect on our business and financial condition.

                                       14


     Our Digital Graphics Business Unit introduced a new family of printers, the
DisplayMaker Series XII, during March 1999. Although we have had successes
introducing new products in the past, some earlier products experienced limited
market acceptance and the introductions of some products have been delayed.  In
addition, the quality and reliability reputation of certain existing products
may unfavorably affect new products.  We may not be successful with current or
future product introductions, future market introductions may not be timely and
competitive, future products may not be priced appropriately, or future products
may not achieve market acceptance. Our inability to achieve market acceptance,
for technological or other reasons, could have a material adverse effect on our
financial condition.

     Dependence on Suppliers. Our aqueous inkjet printers require use of a sole-
sourced printhead supplied pursuant to a written contract with Hewlett-
Packard(R) Company (HP). We do not anticipate availability or quality issues
that would affect the supply of printheads supplied by HP. Our revenues
associated with sales of this product or products including those components
represent approximately 70% of our fiscal 1999 revenue. If we were unable to
resolve potential future availability or quality issues, our production and
support of our installed base will be materially adversely affected. We are also
dependent on sole-source suppliers for the heads for PressMate-FS and
DisplayMaker Express (DME). Over the time that we have worked with the supplier
for the PressMate printheads, there have been quality and consistency issues
with the printheads supplied. We do not have a written agreement with this
supplier and cannot purchase the supplies from another source. Currently, we do
not sell significant numbers of the PressMate-FS printers which utilize the
sole-sourced component. However, we have an installed base of PressMate-FS users
who purchase consumables from us and could experience head failure or need a
replacement. Overall, the percentage of our revenues related to the product
utilizing this head was 5% of fiscal 1999 revenue. We are also dependent upon a
sole-source supplier for the heads for the DME printer. The quality and
consistency of the printheads delivered by this supplier have also been a
problem in the past and, in some cases, have caused printer returns from our
customers. We believe we have addressed these problems by designing and
providing test equipment to enhance the manufacturing repeatability of the
critical components of the DME printheads and by having had certain employees
spend time at the vendor's facilities to identify and remove the contaminants
that were causing problems with the ink. Costs incurred by us to identify and
mitigate these problems and to meet our warranty obligations and keep these
printers operational contributed to our net losses incurred in fiscal years 1997
and 1996.

     Although we currently sell very few new DME printers, there is an installed
base of DME users who purchase consumables from us and could experience
printhead failure or require replacement.  We have a written agreement with the
sole-source supplier of the DME heads.  The written agreement includes the
manufacturing specifications and directions which would allow a second supplier
to produce the printheads if the current supplier were unable to cure any
defaults under the manufacturing and supply agreement.  If we were unable to
resolve a quality or supply issue with the head supplier, the effect may be
material and could result in a significant increase in returns of the DME
printer based on the inability to supply replacement printheads. Overall, the
percentage of our revenues related to the product utilizing this head was 5% of
fiscal 1999 revenue.

     Competitive Pricing/Product Introductions.  Various potential actions by
any of our competitors, especially those with a substantial market presence,
could have a material adverse effect on our business, financial condition and
results of operations.  Such actions may include price reductions, increased
promotion, announcement or accelerated introduction of new or enhanced products,
product giveaways, product bundling or other competitive actions.  Additionally,
a competitor's entry into the wide-format market in such ways to permit it to
compete more directly and effectively with our products could adversely affect
operational results.

                                       15


     Recently, HP offered significant rebates to potential customers.  The
rebates included the trade-in of ColorSpan and other wide-format devices for the
reduction of the purchase price of a comparable HP printer. Programs such as
this can potentially impact us by reducing the number of printers we sell
currently and by reducing the installed base of printers to which we sell
consumables.

     Uncertainty Regarding Development of Wide-Format Market; Uncertainty
Regarding Market Acceptance of New Products. The Wide-Format market is
relatively new and evolving.  Our future financial performance of the DGBU will
depend in large part on the continued growth of this market and the continuation
of present Wide-Format printing trends such as use and customization of large-
format advertisements, use of color, transferring of color images onto a variety
of substrates, point-of-purchase printing, in-house graphics design and
production and the demand for limited printing runs of less than 200 copies.
If the Wide-Format market does not achieve anticipated growth levels or there is
a substantial change in Wide-Format printing customer preferences, our business,
financial condition and results of operations could be adversely affected.
Additionally, in a new market, customer preferences can change rapidly and new
technology can quickly render existing technology obsolete.  Our failure to
respond effectively to changes in the Wide-Format market, to develop or acquire
new technology or to successfully conform to industry standards could have a
material adverse effect on our business and financial condition and results of
operations.

     Technological Advancements. The digital color inkjet printing market is
rapidly moving to two distinct technologies for the placement of ink on a
substrate: thermal inkjet cartridges and piezo-electric ink jet printheads.
Without a secure, economical source of one or both of these products we will
face serious competitive pricing and margin pressures going forward.  We
currently have a license to remanufacture specific HP 600 dpi and 300 dpi inkjet
cartridges for use in our wide-format, roll-fed color inkjet printers. HP and
Encad have also introduced inkjet printers with a capability of producing output
resolution of 600 dpi. HP and other inkjet cartridge manufacturers are
continuing to develop new cartridges to enhance resolution or performance
features.  If new cartridge technology developed by HP or other companies
provides a competitive advantage, we will need to secure an adequate source at
reasonable prices or develop a reasonably priced substitute.  If we were unable
to secure a reasonable source or develop a substitute, sales of printer engines
and the related gross margins could be negatively impacted.

     Our DGBU products target the market for high quality printing output.
Hardware and software technological advances have enhanced actual and perceived
resolution.   Other companies may achieve actual or apparent resolution with
less expensive printers and supplies and therefore capture the market held by
our higher cost printers.

     Intense Competition. The computer printer industry is intensely competitive
and rapidly changing. Some of our existing competitors, as well as a number of
potential new competitors, have longer operating histories, greater technical
resources, more established and larger sales and marketing organizations,
greater name recognition, larger customer bases and significantly greater
financial resources than we do, which may result in a competitive advantage.
Suppliers of Wide-Format print engines and systems compete on the basis of print
quality, cost, color, print time, print size, product features, including ease
of use, service, and price. Competitive product sales practices such as price
reductions, increased promotion, product giveaways and bundling, or announcement
or accelerated introduction of new or enhanced products could have a material
adverse effect on our sales and financial condition. New product introductions
and changes in pricing structure by competitors have had, and can be expected to
continue to have, a significant impact on the demand for our products. Our
thermal inkjet printers compete with piezo head printers which offer greater
media flexibility and increased outdoor durability for unlaminated prints.
Currently Encad and Hewlett-Packard are shipping new versions of their printer
lines with 600 dpi cartridges. Epson has released a new wide-format printer and
expects to ship in volumes in mid-1999. These products compete for market share
with our current

                                       16


DisplayMaker Series XII printers and anticipated new product offerings. It is
possible that our sales of certain products will compete with, or displace sales
of, other products we sell.

     Our DisplayMaker Series XII, DisplayMaker HiRes 8-Color Series and Giclee
PrintMakerFA(TM) products are based on relatively new technology, are complex
and must be reliable and durable to achieve market acceptance and enhance
revenue opportunities. Development and production of new, complex technologies
and products often have associated difficulties and delays. Consequently,
customers may experience unanticipated reliability and durability problems that
arise only as the product is subjected to extended use over a prolonged period
of time. We cannot assure that we have completely resolved operational problems
that have occurred in the past or that we will successfully resolve any future
problems in the manufacture or operation of our existing printers or any new
product. Our failure to resolve manufacturing or operational problems with
existing printers or any new product in a timely manner could have a material
adverse effect on our business, financial condition and results of operations.

     Our DisplayMaker Series XII, DisplayMaker HiRes Series and Giclee
PrintMakerFA products utilize HP licensed inkjet technology. We also purchase
licensed inkjet cartridges from HP who is a sole-source of the cartridge
component for our aqueous ink consumable offerings. We also compete with HP in
the wide-format digital color printing market. Currently, we have been granted
access to these and selected new technologies for use in our products and pay a
royalty for these rights. Our revenue associated with the sale of these products
including HP components was approximately 70% of our fiscal 1999 revenues. As
new technologies are developed, there can be no assurance that we will be able
to negotiate additional licenses for newly developed technologies or that the
new terms are equal to the terms currently in place.

     Certain companies that supply us with consumable products such as ink and
media compete with us by selling directly to our users or selling to competitors
who may offer the products to our users. Additionally, OEM private label ink
products that may be used in their own products may compete with ColorSpan(R)
products. Further, a number of competitors have introduced consumables which
they allege to be compatible with our products and have priced the consumables
below the ColorSpan-branded consumables.

     Although we believe that our Big Color(R) products possess certain
advantages over the competitors' products such as greater color gamut and better
built-in productivity features, the increased competition has negatively
impacted sales volumes and margins and may continue to impact volumes and
margins in the future. We have generally competed in these markets by
introducing technologically advanced products that create new market demand and
products which offer optimum performance characteristics. There can be no
assurance that we will be able to continue to innovate to the extent necessary
to maintain a competitive advantage in these markets or that other competitors
will not achieve sufficient product performance to achieve customer satisfaction
with their products offering better pricing or other competitive features.

     Industry Consolidation. As a growth industry, the Wide-Format digital
printing market has generated many new entrants into the fragmented market with
new products and new technologies. As the market matures, and the industry's
growth rate slows, companies with greater product distributions, brand
awareness, or technological or manufacturing efficiency advantages will emerge
as the market leaders maintaining or increasing their market share. Companies
with less marketable advantages will face significant pressure on revenue growth
and gross margins. In order to remain competitive, the smaller companies within
this sector may have to seek merger or consolidation opportunities with other
companies.

     If we were to merge with another company within the printer industry,
short-term financial results and the market price of our stock may be negatively
impacted. Merger or consolidation of competitors may enhance

                                       17


the financial strength and competitive abilities of such competitor(s) which
could adversely affect our sales and financial performance.

     Dependence on Component Availability and Costs. Certain components used in
our current and planned products, including print head and other printer
components, are currently available from sole sources, and certain other
components are available from only a limited number of sources. Substantially
all of our revenue is subject to these risks.  In the past we have experienced
delays as a result of the failure of certain suppliers to meet requested
delivery schedules and standards of product performance and quality.  In
addition, past losses from operations have restricted cash availability and the
ability to keep supplier debt current or within the established credit limits.
Although we have not experienced material delays in delivery schedules due to
our inability to pay suppliers, the requirement to bring certain component
suppliers' debt obligations current, or other restrictions in credit terms of
such component suppliers, could result in an inability to manufacture certain
product lines and thereby adversely affect our financial performance.  Our
inability to obtain sufficient supply of components, or to develop alternative
sources, could result in delays in product introductions, interruptions in
product shipments, the need to redesign products to accommodate substitute
components or the need to substitute alternative components which may not have
the same performance capabilities, any of which could have a material adverse
effect on our operating results.  A portion of the total manufacturing cost of
our typesetting and Big Color products is represented by certain components
whose prices have fluctuated significantly in recent years.  Significant
increases or decreases in the price or reductions in the availability of certain
components could have a material affect on our operating results.

     Returns Reserves.   We have established reserves for the return of
merchandise. The amount of the returns reserve is based on historical data
regarding returns of products. For new products there may be insufficient
information to accurately predict return rate and therefore the required reserve
may not be sufficient. Additionally, there may be an unknown or unanticipated
problem with a product or any component thereof, or a defect or shortage of
repair components or the consumable media or inks that are needed to use the
product which could cause the actual returns to exceed the reserves. Returns of
a product which exceed reserves could have an adverse effect on our financial
operations and results.

     Dependence on Consumables Revenues.  We anticipate we will derive an
increasing percentage of our DGBU revenues and operating income from the sale of
ink, paper, film and other consumables to our customers. During the third
quarter of fiscal 1999, consumables revenue was 61% of total revenue. To the
extent sales of our consumables are reduced because our customers are
unsuccessful in marketing their own printing services, product iterations by
ourselves or competitors make our products obsolete or customers substitute
third-party or private label consumables for ours, our results of operations
could be adversely affected. Reduced life cycles of hardware products are
expected to negatively impact consumable revenues. Further, although our
consumables are manufactured specifically to operate with our printing products
to produce optimum results, there can be no assurances that other manufacturers
of printing inks and papers will not develop products that can be sold and
compete with our printing products, or that other products will not produce
results which are satisfactory to the customer at a lower cost. We allege that
at least one manufacturer has improperly used our trade secrets to commence such
competition. Although we have been involved in legal action against such
manufacturer for misappropriation of trade secrets, there can be no assurances
that other manufacturers will not independently or legitimately develop
competing consumable products. In addition, product quality issues, limitations
in the availability of sole source consumables or changes in credit or trade
terms from sole sources could adversely affect the sales of consumables.

     Intellectual Property and Proprietary Rights. We have been granted various
United States patents for inventions related to resolution of conventional laser
printer engines, high-resolution imaging and image enhancement and wide-format
printing technologies and techniques, our Big Ink(R) Delivery System, product
patents, and consumable formulations. Additional patent applications are
pending. There can be no assurance

                                       18


that patents will be issued from any of these pending applications. With regard
to current patents or patents that may be issued, there can be no assurance that
the claims allowed will be sufficiently broad to protect our technology or that
issued patents will not be challenged, invalidated or violated, requiring
expenditures of cash to pursue and enforce our rights in the patented
technology. Applications to patent the basic TurboRes(R), ThermalRes(R) and Big
Ink Delivery System approaches and related technologies have been filed in
selected foreign countries. Patent applications filed in foreign countries are
subject to laws, rules and procedures which differ from those of the United
States, and there can be no assurance that foreign patents will be granted as a
result of these applications. Furthermore, even if these patent applications
result in the issuance of foreign patents, some foreign countries provide
significantly less patent protection than the United States.

     We rely on a variety of trademarks in the promotion and identification of
our products. We have a variety of trademarks which are registered, and others
that are not registered, or cannot be registered. There is no assurance that
there will not be some challenge to our rights to use one or more trademarks, or
an allegation that the use or display of one or more trademark violates the
trademark rights of another party, which could subject us to damages and losses
related to the loss of our opportunity to use recognized marks in the promotion
of our products.

     Additionally, patent, copyright and trademark protection has not been
sought, or may not be available in all foreign countries.  Although we have not
received any notices from third parties alleging intellectual or proprietary
property infringement, there can be no assurance that third parties will not
assert infringement claims against us in the future or that any such assertion
will not require us to expend funds defending such claims or require us to enter
into royalty arrangements on such terms as may be available, which may adversely
affect our financial performance.  Any claim that our current or future products
or manufacturing processes infringes on the proprietary rights of others, with
or without merit, could result in costly litigation which could adversely affect
our financial performance.

     We are actively pursuing development of new and unique print solutions and
processes, media and inks.  There are a significant number of patents which have
been filed relating to printing cartridges, printing methods and processes,
mechanical printer features, media and inks.  Many of these patents are held by
companies which are larger and have greater resources to pursue violation of
intellectual property.  Although our research and development process involves
an analysis of protected proprietary rights in any technology that is being
pursued, there is no assurance that we have completely reviewed and analyzed all
applicable patents, or that competitors or others will not interpret any such
products or processes we develop as violating protected intellectual rights and
pursue legal action, which could be costly and may affect our financial
performance. In addition, although we do not know of any violations of our
intellectual property rights, there can be no assurance that we will not be
forced to take action to protect our intellectual property portfolio.  Such
enforcement activity could require us to expend significant cash resources and
could affect our financial performance.

     Although we have not received notices from third parties alleging
infringement claims we believe would have a material adverse effect on our
business, there can be no assurance that third parties will not claim that our
current or future products or manufacturing processes infringe on their
proprietary rights. Any such claim, with or without merit, could result in
costly litigation or might require us to enter into a royalty or licensing
agreement. A royalty or licensing agreement, if required, may not be available
on terms acceptable to us, or at all, which could have a material adverse effect
upon our business, financial condition and results of operations. If we do not
obtain such licenses, we could encounter delays in product introductions while
we attempt to design around such patents, or we could find that the development,
manufacture or sale of products requiring such licenses could be enjoined. In
addition, we could incur substantial costs in defending ourselves in suits
brought against us on such patents or in bringing suits to protect our patents
against infringement,

                                       19


which could adversely affect our financial condition or results. If the outcome
of any such litigation is adverse, our business and financial results could be
adversely affected.

     International Operations.  Historically international revenues have
represented a substantial portion of our total revenues in the Digital Graphics
Business Unit. For the year ended June 30, 1999, international operations
composed 36.4% of total sales, compared to 41.1% for the same period last year.
Worsening economic conditions and exchange rate problems in the Japan,
Asia/Pacific, Latin America and Europe regions contributed to this decrease.
International operations are subject to various risks, including exposure to
currency fluctuations, political and economic instability, differing economic
conditions and trends, differing trade and business laws, unexpected changes in
applicable laws, rules, regulatory requirements or tariffs, difficulty in
staffing and managing foreign operations, longer customer payment cycles,
greater difficulty in accounts receivable collection, potentially adverse tax
consequences and varying degrees of intellectual property protection.
Fluctuations in currency exchange rates could result in lower sales volume
reported in U.S. Dollars. Fluctuations in foreign exchange rates are
unpredictable and may be substantial.  From time to time we have engaged in
limited foreign currency hedging transactions. Our European subsidiary extends
credit in the normal course of business in five relatively stable European
currencies. In addition, the financing agreement in place allows our subsidiary
to factor those receivables and receive Dutch guilders in which it pays its
expenses. Significant fluctuation in the relatively stable Dutch guilder could
have an adverse impact on the Company. Substantially all of our other
transactions are in U.S. dollars. There can be no assurance that we will be
successful in limiting our foreign currency exposure in the future.

     Reliance on Indirect Distribution.  We market and sell our products
domestically and internationally primarily through specialty distributors,
dealers, VARs and OEMs. Our sales are principally made through distributors,
which may carry competing product lines. Such distributors could reduce or
discontinue sales of our products, which could have a material adverse effect on
our business. There can be no assurance that these independent distributors will
devote the resources necessary to provide effective sales and marketing support
of our products. In addition, we are dependent upon the continued viability and
financial stability of these distributors, many of which are small organizations
with limited capital. These distributors, in turn, are substantially dependent
on general economic conditions and other unique factors affecting the wide-
format printer market. We believe that our future growth and success will
continue to depend in large part upon our distribution channels. To expand its
distribution channels, we entered into select OEM and private label arrangements
that allow it to address specific market segments. We cannot assure that we will
be successful in developing OEM and private label relationships, or that those
relationships will result in incremental business.

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