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                                   Exhibit 99

                          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-Q
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. We wish to caution you not to place undue reliance on forward-looking
statements. You are also advised that the factors listed below 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.

Other factors include the following:

     Credit Availability. ColorSpan's revolving credit facility agreement with
General Electric (GE) expired January 17, 1999. GE has notified us of their
intent not to renew the credit facility as we do not meet the minimum borrowing
objectives of their portfolio. However, GE has agreed to extend the credit
agreement through March 31, 1999, and has advanced us $1 million above our
borrowing base to facilitate the acquisition of K & R Technologies, Inc. GE will
continue to hold its equity interest in the Company. In addition, the
RSPnet.com,Inc. revolving credit facility was due to expire on May 1, 1999.
However, the lender has given written notice of its desire to terminate the RSPN
credit facility as soon as possible due to merger related covenant issues
associated with our purchase of the stock of K & R Technologies, Inc. We are
actively pursuing a number of alternate financing sources to replace the
financing provided by both lenders. Although we expect to have a qualified
lender or lenders in place by March 31, 1999, there can be no assurances of
this, or that the cash available under any agreement which can be reached will
be adequate to meet the Company's needs, or that sources of financing will be
available to the Company on favorable terms.

     Cash Needs. The Company's credit agreement with a commercial finance
company that has financed its cash requirements in the past expired January 17,
1999 but was extended to March 31, 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 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. The Company raised $11.8
million in these private placements and has not pursued additional outside
financing since that time beyond normal course equipment financing and employee
exercises of stock options. The Company expects to seek additional debt and/or
equity financing in the near future to fund its acquisition strategy. 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 the Company on favorable terms, or at all, if the
Company's operations are further affected by declining revenue from a lack of
sales, significant research and development costs, significant returns of
existing products, introduction difficulties with new product lines, competitive
product introductions, or by market conditions in general. In addition, there
can be no assurance that the Company
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will achieve or maintain profitability on a quarterly or annual basis in the
future. In addition, the Company 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. The Company's
future liquidity and capital requirements will depend upon numerous factors,
including the success of the Company's existing and new service offerings and
competing technological and market developments. The Company may be required to
raise additional funds through public or private financing, strategic
relationships or other arrangements, particularly as its acquisition strategy
matures. There can be no assurance that such additional funding, if needed, will
be available on terms acceptable to the Company, 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 the Company's
operating flexibility with respect to certain business matters. Strategic
arrangements, if necessary to raise additional funds, may require the Company to
relinquish its rights to certain of its intellectual property or selected
business opportunities. If additional funds are raised through the issuance of
equity securities, the percentage ownership of the stockholders of the Company
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 the Company's Common Stock or newly
issued Preferred Stock. If adequate funds are not available on acceptable terms,
the Company may be unable to develop or enhance its services and products, take
advantage of future opportunities or respond to competitive pressures, any of
which could have a material adverse effect on the Company's business, financial
condition, results of operations and prospects.

     Potential Acceleration of Senior Debt. The Company's current Senior Debt
Agreement includes financial covenants, which the Company must meet. Currently,
the Company is in compliance with all of the financial covenants required by its
Senior Lender. For further information, refer to the Company Form 10-K for the
fiscal year ended June 30, 1998, Item 14(a)1 and financial statements, Note #5
of the Notes to Consolidated Financial Statements. Past financial performance of
the Company has made it necessary for the Company to renegotiate the minimum net
worth and minimum debt service coverage covenants to avoid being declared in
violation of the covenants by GE. Any replacement financing is expected to
include certain financial covenants which the Company must meet as a condition
of the financing. If future financial performance causes covenant violations and
the Company is unable to renegotiate its loan covenants at that time, it could
be forced to seek replacement financing at prices which may not be favorable to
the Company. If adequate sources of financing are not available, the Company may
be required to sell certain product lines or technologies on less than favorable
terms. As of January 3, 1999, the outstanding balance on the Company's Senior 
Debt Agreement was $606,000.

     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
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.

     The market for Internet professional services and e-commerce 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 the Company's existing service practices and
methodologies obsolete. The Company's success will depend, in part, on its
ability to improve its existing services, develop new services and solutions
that address the increasingly sophisticated and varied needs of its current and
prospective clients, and respond 

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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 developments could have a material adverse effect on the Company's
business, financial condition, results of operations and prospects. There can be
no assurance that the Company will be successful in responding quickly,
cost-effectively and sufficiently to these developments. If the Company is
unable, for technical, financial or other reasons, to adapt in a timely manner
in response to changing market conditions or client requirements, its business,
financial condition, results of operations and prospects would be materially
adversely affected.

     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 and such new product design and
development may delay product introductions, which could affect marketability of
the product, or may be more costly than anticipated.

     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 the Company's products could have a material
adverse effect on market acceptance of such new products. Any quality problems
with components could result in "epidemic" or wide-spread failures of the
products in the field causing return and refund requests that would likely have
a material effect on the Company's 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.

     The Company is aware of the intermittent presence of contaminants in 
certain inks that caused perceived flaws in output from some of the Company's 
printers. The Company has taken steps with its ink supplier to mitigate such 
contamination problems and has compensated customers with replacement ink and 
media. In addition, early versions of the Company's PressMate and Displaymaker 
Express products experienced quality, durability and reliability problems 
associated with the use of new technologies that had not received proper 
testing. The Company believes it has addressed the problems associated with 
PressMate and DisplayMaker Express by replacing certain components found in the 
original designs. All of these problems contributed to the net losses incurred 
by the Company in fiscal years 1997 and 1996. Two products which the Company 
introduced in the past several years experienced what the Company considers 
"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.

     Although the Company does not believe that it has a quality and reliability
reputation that may unfavorably affect products at this time, if one or more
products experiences product failures, the Company may develop an unfavorable
reputation which could dissuade a purchaser from the Company's 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.

     Product Acceptance/Market Anticipation. The Company's products may not
achieve market acceptance. In addition, the market anticipation or the
announcement of new products and technologies, whether offered by the Company or
its competitors, could cause customers to defer purchases of the Company's
existing products, which could have a material adverse effect on the Company's
business and financial condition.

     The Company's Digital Graphics Business Unit introduced a new family of
printers, the DisplayMaker(R) 4000, 5000 and 6000 HiRes 8-Color series, during
September 1997. Two new versions of these printers have been introduced since
February 1998. The DisplayMaker 7000 was introduced in August 1998.
Additionally, in August 1998 the Company introduced the Giclee PrintMakerFA, an
8-Color HiRes drum-based printer. Although the Company has 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. The Company may not be successful with
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. The Company's inability to achieve market
acceptance, for technological or other reasons, could have a material adverse
effect on our financial condition.

     The Company's Internet/Software Business Unit (ISBU) recently announced the
first outside customer site using E-Com Tools, the Company's proprietary
e-commerce software. The Company has successfully used a version of the software
for its Supplies-By-Air business unit. 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 offering
by competitors will not displace current licenses of the Company's software
product. In addition, 

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the Company's products may not be accepted by the target market for
technological or other reasons. The Company's 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/Software Business
Unit to effectively market other its services or other outside or proprietary
software products.

     Potential Liability to Clients. Many of the Company's ISBU service and
consulting engagements involve the development, implementation and maintenance
of applications that are critical to the operations of their clients'
businesses. The Company's failure or inability to meet a client's expectations
in the performance of its services could injure the Company's business
reputation or result in a claim for substantial damages against the Company,
regardless of its responsibility for such failure. In addition, RSPnet.com, Inc.
provides data services that may include confidential or proprietary client
information. Although the Company has 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. The Company has attempted to limit contractually
their 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 the Company from liability for damages. Although the Company maintains
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 the Company that are uninsured, exceed available insurance coverage or
result in changes to the Company's insurance policies, including premium
increases or the imposition of a large deductible or co-insurance requirements,
could adversely affect the Company's business, results of operations and
financial condition.

     Dependence on Suppliers. The Company's aqueous inkjet printers require use
of a sole-sourced printhead supplied pursuant to a written contract with
Hewlett-Packard Company. The Company does not anticipate availability or quality
issues which would affect the supply of printheads supplied by Hewlett-Packard
Company (HP). The revenues of the Company associated with sales of this product
or products including those components represent approximately 67% of the
Company fiscal 1998 revenue. If we were unable to resolve a potential future
availability or quality issue, our production and support of our installed base
will be materially adversely affected. The Company is also dependent on sole-
source suppliers for the heads for PressMate-FS(R) 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, the Company has an installed base of printers who purchase consumables
from the Company and could experience head failure or need a replacement.
Overall, the percentage of the Company's revenues related to the product
utilizing this head was less than 7% of fiscal 1998 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, has caused printer returns from
the Company's customers. The Company believes it has addressed these problems by
designing and providing test equipment to enhance the manufacturing
repeatability of the critical components of the DME printheads and 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 the
Company to identify and mitigate these problems and to meet its warranty
obligations and keep these printers operational contributed to the net losses
incurred by the Company in fiscal years 1997 and 1996. Although we currently
sell very few new DME printers, there is an installed base of printers who
purchase consumables from the Company and could experience printhead failure or
require replacement. 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 the Company 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 the returns of the DME printer based
on the inability to supply replacement printheads.

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Overall, the percentage of the Company's revenues related to the product
utilizing this head was less than 9% of fiscal 1998 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.

     Recently, HP offered significant rebates to potential customers. The
rebates include 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.

     Competition; Low Barriers to Entry. The market for Internet software and
hosting services is relatively new, intensely competitive, rapidly evolving and
subject to rapid technological change. The Company expects competition to
persist, intensify and increase in the future. The Company's 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 the Company's 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 the Company and could decide at
any time to increase their resource commitments to the Company's target markets.
In addition, the market for Intranet, Extranet and web site development is
relatively new and subject to continuing definition, and, as a result, may
better position the Company's competitors to compete in this market as it
matures. As a strategic response to changes in the competitive environment, the
Company 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 the Company's business, financial condition, results
of operations and prospects. Competition of the type described above could
materially adversely affect the Company's business, results of operations,
financial condition and prospects.

     In addition, the Company's ability to maintain its existing client
relationships and generate new clients will depend to a significant degree on
the quality of its services and its reputation among its clients and potential
clients, compared with the quality of services provided by, and the reputations
of, the Company's competitors. To the extent the Company loses clients to its
competitors because of dissatisfaction with the Company's services or its
reputation is adversely affected for any other reason, the Company's business,
financial condition, results of operations and prospects could be materially
adversely affected.

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     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. The Company is
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, creative
or other advantages over those offered by the Company, which could have a
material adverse effect on its business, financial condition, results of
operations and prospects.

     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 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 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 300 dpi inkjet cartridges for use in our
wide-format, roll-fed color inkjet printers. HP has introduced a new inkjet
cartridge with a capability of producing output resolution of 600 dpi. The 600
dpi head is capable of producing output with greater resolution and at higher
speed. We have recently secured the use of this product and expect to be
entering into a supply contract for this product. The Company currently offers
one product which utilizes the 600 dpi head. However, the Company anticipates
that all future aqueous printer products may use this 600 dpi cartridge. We are
also considering several component suppliers in our search for a dependable,
manufacturable piezo-electric printhead. No one source has been identified for
use in a future product as of this time. If the market for wide-format color
demands the increased resolution provided by these new products and we are
unable to secure adequate supplies at reasonable prices or develop a reasonably
priced substitute from other sources, sales of our printer engines and the
related gross margins could be negatively impacted.

     Our 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 the Company, which may result in a competitive
advantage. Suppliers of wide-format print engines and systems compete on the
basis of print quality, color, print time, print size, product features,
including ease of use, service, and price. Competitive product sales practices
such as price reductions, increased promotion, product giveaways and bundling,
or announcement or accelerated introduction of new or enhanced products could
have a material adverse effect on 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 

                                       6
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the demand for our products. Currently, Hewlett-Packard is selling a new 54-inch
wide-format inkjet printer. ENCAD is shipping a new version of its printer line
with 600 dpi cartridges. Epson has released a new wide-format printer and
expects to ship in volumes in the Spring of 1999. These products compete for
market share with the Company's current DisplayMaker 5000, 6000 and 7000 series
of 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 HiRes 8-Color series, and DesignWinder and Giclee
PrintMakerFA 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 HiRes 8-Color DisplayMaker series of printers, the DesignWinder 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 67% of our
fiscal 1998 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 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 

                                       7
<PAGE>
 
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 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 printer marking engines and other
printer components, are currently available from sole sources, and certain other
components are available from only a limited number of sources. Substantially
all of the Company's 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 the Company has not experienced material delays in delivery
schedules due to its 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 the financial
performance of the Company. 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 the Company's 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.

     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 the Company or its 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 

                                       8
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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.

     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 the financial
operations and results of the Company. In fiscal 1996, the Company recorded a
special $1 million charge for expected returns of its older model PressMate
product in excess of previously established reserves.

     Dependence on Consumables Revenues. We anticipate we will derive an
increasing percentage of our revenues and operating income from the sale of ink,
paper, film and other consumables to our customers. During the second quarter of
fiscal 1999, consumables revenue was 60% 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, the Company's results of operations could be
adversely affected. Reduced life cycles of hardware products are expected to
negatively impact consumable revenues. Further, although 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 the Company's trade secrets to commence such
competition. Although we are 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. 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 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 

                                       9
<PAGE>
 
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.

     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(TM) Delivery System, product patents, and consumable formulations.
Additional patent applications are pending. There can be no assurance that
patents will be issued from any of these pending applications. With regard to
current patents or patents that may be issued, there can be no assurance that
the claims allowed will be sufficiently broad to protect 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, medias and inks. Many of these patents are held by
companies which are larger and have greater resources to pursue violation of
intellectual property. Although 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.

                                       10
<PAGE>
 
     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, 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 have instituted action against a
competitor for copyright infringement and other causes of action. The competitor
has counter-claimed alleging copyright misuse and unfair competition by the
Company. Although we do not believe any of our practices violate applicable
copyright laws, there is no assurance that claims or actions will not be
commenced by customers, competitors or governmental authorities based on
copyright, trade or anti-competitive claims which could affect our operations
and cash position.

     We are also engaged in various actions related to transactional matters,
employee matters, customers' credit and product quality and/or warranty issues.
Some of these actions include claims against 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 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.

     International Operations. Historically international revenues have
represented a substantial portion of our total revenues in the Digital Graphics
Business Unit. In the second quarter of fiscal 1999, international operations
composed 38.8% of total sales, compared to 44.5% for the same three month period
one year ago. 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 the Company
will be successful in limiting its foreign currency exposure in the future.

                                       11
<PAGE>
 
     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. During this past year, we launched an electronic commerce
(e-commerce) initiative for selling specialty media for wide-format printers
under the brand name of SuppliesoByoAir(TM). Currently, the Company's sales of
products over the Internet are less than 5% of the total revenues. Internet
based software and service activities represent an extension of many of our
printing and publishing tools which are integral to our core technology.

     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.

     Risks Related to Future Acquisitions or Partners. A key component of the
Company's continued growth strategy is expected to be the acquisition or
partnering of professional service firms that meet the Company's goals for
strategic growth and expansion. The successful implementation of this
acquisition strategy will depend on the Company's ability to identify suitable
acquisition candidates, acquire such companies on acceptable terms and integrate
their operations successfully with those of the Company. There can be no
assurance that the Company will be able to continue to identify additional
suitable acquisition candidates or that the Company will be able to acquire such
candidates on acceptable terms. Moreover, in pursuing acquisition opportunities
the Company may compete with other companies with similar growth strategies,
certain of which competitors may be larger and have greater financial and other
resources than the Company. Competition for these acquisition targets 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 the Company's reported operating results
from increases in goodwill amortization, acquired in-process technology, stock
compensation expense and increased compensation expense resulting from newly
hired employees, the diversion of management attention, potential disputes with
the sellers of one or more acquired entities and the possible failure to retain
key acquired personnel. Lack of client satisfaction or performance problems with
an acquired firm could also have a material adverse impact on the reputation of
the Company as a whole, and any acquired company could significantly
underperform relative to the Company's expectations. For all of these reasons,
the Company's pursuit of an overall acquisition strategy or any individual
pending or future acquisition may have a material adverse effect on the
Company's business, financial condition, results of operations and prospects. To
the extent the Company chooses to use cash consideration for acquisitions in the
future, the Company may be required to obtain additional financing, and there
can be no assurance that such financing will be available on favorable terms, if
at all. As the Company issues stock to complete future acquisitions, existing
stockholders will experience further ownership dilution.

                                       12
<PAGE>
 
     Integration of Acquired Businesses. During December 1998 the Company
completed the acquisition of K & R Technologies, Inc. The Company's future
performance will depend on its 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 the Company's management and resources, and
could subject it 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 the Company's
ongoing business, the inability of management to maximize the financial and
strategic position of the Company 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 the Company's
business or service offerings, or that such integration will not adversely
affect the Company's 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 the
Company's 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, the Company is currently facing
all of these challenges and its ability to meet them over the long term has not
been established. The failure to integrate such acquisitions successfully could
have a material adverse effect on the business, financial condition, results of
operations and prospects of the Company.

     Recruitment and Retention of Consulting Professionals. The Company's
business of delivering Internet and information technology professional services
is labor intensive. Accordingly, the Company's success depends in large part on
its 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.
The Company will encounter intense competition for qualified personnel from
other companies, and there can be no assurance that it 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 the Company's 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. Mr. Larry Lukis, who was
formerly Chief Engineer, has terminated his status as a regular employee and
anticipates working with the Company on a consulting basis. 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.

     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 the Company's limited personnel, management and other resources. In the
future, the Company will be required to attract, train, motivate and manage new
employees successfully, to effectively integrate new employees into its
operations and to continue to improve its operational, financial, management and
information systems and controls. There can be no assurance that the Company's
systems, procedures or controls will be adequate to support the 

                                       13
<PAGE>
 
Company's operations or that the Company's management will be able to achieve
the rapid execution necessary to exploit the market for the Company's business
model. The failure to effectively manage any further growth could have a
material adverse effect on the Company's business, financial condition, results
of operations and prospects.

     Developing Internet Economy, Market for E-Commerce Solutions. A material
portion of the Company's 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. The Company's business model anticipates revenue and growth from
Internet hosting services. Technological changes in the delivery of Internet
service could adversely affect the Company's ability to achieve its 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, the Company's 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 the Company's services do not achieve
market acceptance, its business, results of operations, financial condition and
prospects will be materially adversely affected.

     Government Regulation and Legal Uncertainties. The Company's 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 

                                       14
<PAGE>
 
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 the Company's 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 the Company's services or
increase the cost of doing business or in some other manner have a material
adverse effect on the Company's 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 the
Company's 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 the Company's business, financial condition,
results of operations and prospects.

     Dependence on Key Accounts. The ISBU 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 the Company's
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 reduction in the use of ISBU's services
by a significant client may have a material adverse effect on the Company's
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 the Company's 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 the Company to risks associated with cost
overruns and, in certain cases, penalties, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

                                       15
<PAGE>
 
     The Year 2000 Issue. We are currently working to resolve the potential
impact of the Year 2000 on the processing of time-sensitive information by
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 cases, 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 the entire operation. Year 2000 issues could impact our
information systems as well as computer hardware and equipment that is part of
our telephone 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 under 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 whom 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 systems. The costs
incurred to date total less than $30,000 and have been expensed in the financial
statements. 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. Currently, we estimate any additional costs for this issue will not
exceed $25,000. We currently expect to have the project completed by the end of
our fiscal year in June.

     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 not yet completed our planning and preparations
to handle the most reasonably likely worst case scenarios described above. We
intend to develop contingency plans for these scenarios during fiscal 1999. We
are currently contacting essential third parties to ascertain their readiness
and the impact they would have on our contingency planning. We believe that this
is the appropriate timeframe for developing such plans and that efforts prior to
that time should be focused on renovation, testing and verification of our
system modifications.

     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 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.

                                       16
<PAGE>
 
     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. The Company has 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 the Company.
An audit of the Company's records is underway.

     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 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. We have recently changed the Company's name to
VirtualFund.com, Inc. and have changed the name of our principal operating
subsidiary from LaserMaster Corporation to ColorSpan Corporation. We have
significant brand awareness associated with our LaserMaster trade names. If the
market is unable to accept or delays the acceptance of the name change, our
financial performance and sales may be negatively impacted.

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     Control of the Company's Stock. As of August 31, 1998, officers and
directors as a group beneficially owned 21.32% of the outstanding shares of our
stock. One of our suppliers owned 14.7% of the Company's 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.

     The Company's 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 take over 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 to the employees of the acquired companies. For these
reasons, our acquisition program will result in further substantial ownership
dilution to investors.

     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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