<PAGE>

------------------------------------------------------------------------------
------------------------------------------------------------------------------


THIS FORM 10-K/A3 IS BEING FILED TO AMEND FORM 10-K/A2, WHICH WAS FILED IN
ERROR BY THE COMPANY'S PRINTER. THIS FORM 10-K/A3 COMBINES FORM 10-K AND FORM
10-K/A AND AMENDS ITEM 11 AS WELL AS CERTAIN OTHER INFORMATION AS IT RELATES TO
ITEM 11. THIS FORM 10-K/A3 IS REDLINED AGAINST FORM 10-K FOR ITEMS 1 TO 9 AND
AGAINST FORM 10-K/A FOR ITEMS 10 TO 14. THE FORM 10-K/A2 FILING IS BEING
IGNORED BY THE COMPANY FOR PURPOSES OF THIS FILING AND ALL SUBSEQUENT FILINGS.

                  U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549


                                  FORM 10-K/A3


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

                  For the Fiscal Year ended: DECEMBER 31, 1998

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

                         Commission file number: 0-25602

                                TECH SQUARED INC.
             (Exact name of registrant as specified in its charter)

             MINNESOTA                                  41-1591872
     (State of Incorporation)              (I.R.S. Employer Identification No.)

                              5198 WEST 76TH STREET
                             EDINA, MINNESOTA 55439
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (612) 832-5622

        Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR
VALUE

         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. Yes X   No   .
                                                                  ---    ---

         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 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. [ ]


         As of April 23, 1999, 12,102,950 shares of Common Stock of the
Company were outstanding, and the aggregate market value of the Common Stock
of the Company as of that date (based upon the closing bid price of the
Common Stock at that date on the OTC Bulletin Board quotation system),
excluding outstanding shares beneficially owned by affiliates, was
approximately $23,551,234.


<PAGE>

                                     PART I.

ITEM 1.           BUSINESS

(a)      BUSINESS DEVELOPMENT

GENERAL

         Tech Squared Inc. ("Tech Squared") was incorporated under the laws of
the State of Minnesota in 1988 and currently has three wholly-owned
subsidiaries, Tabor Resources Corporation, a Minnesota corporation ("Tabor"),
MacUSA, Inc., a Minnesota corporation ("MacUSA") and PLI Corporation, a Nevada
corporation ("PLI"). Throughout this document the "Company" is used to
collectively refer to Tech Squared Inc. and the subsidiaries discussed above.

         The Company's primary business focus is on marketing & selling to the
businesses in the desktop publishing industry through direct catalog mailings
(approximately 72% of total revenues in 1998) and to value added reseller's
(VAR's) and other dealers. The Company's sales have been primarily of Apple
Macintosh(R) and, to a lesser degree, Microsoft Windows 95/Windows
NT/Windows/MS-DOS ("Wintel") compatible products such as (1) microcomputer
hardware and peripherals, including desktop computers, printers and printing
related devices, video monitors, electronic media, storage devices and memory
and (2) software programs primarily related to those utilized in the graphic
arts industry from such name brands as Adobe and Quark. Computer sales were
approximately 24% and 19% of total sales of its direct catalog ("DTP Direct")
sales in 1998 and 1997, respectively. DTP Direct's sales of Apple computers
accounted for 97% and 98% of the total computer system sales in 1997 and 1996,
respectively.

         In February 1999, the board of directors of Tech Squared authorized the
officers of the Company to make investigations and, if appropriate, enter into
preliminary negotiations regarding possible changes in the Company's business
including, but not limited to, strategic alliances, joint ventures, mergers,
sale of the Company's operating business and other alternatives. Such
investigation is at a preliminary stage and no prediction can be made as to
what, if any, transactions or changes will be effected.

 (b)     BUSINESS OF ISSUER

         Tech Squared is a national direct marketer and distributor of
microcomputer hardware and software products primarily for users of Apple
Macintosh(R) personal computers as well as for users of IBM compatible personal
computers. The Company's sales and marketing efforts are currently targeted
(i) at desktop publishing ("DTP"), graphic arts and pre-press industries through
its DTP Direct catalog, (ii) to computer dealers and value-added resellers
through its distribution business, and (iii) to developers of internal corporate
intranet and external Internet sites and managers of local area networks ("LAN")
and wide area networks ("WAN") through its Net Direct catalog. The Company
offers popular brand name hardware, software and peripherals from leading
vendors such as Adobe, Apple, Epson, GCC, Hewlett-Packard, IBM, Iomega, Kodak,
Minolta, Mitsubishi, NEC, Quantum, Quark, Seagate, Sony, SyQuest, Umax
Technologies, Umax Computer Corporation and U.S. Robotics.

         The Company markets its products through targeted mailings of its DTP
Direct catalog, which is currently produced six times per year and its Net
Direct catalog which was launched in 1998 and which is currently produced five
times per year. The Company's catalogs, which are mailed throughout the year,
include detailed descriptions and full-color photographs of the products sold by
the Company. In 1998, the Company mailed approximately 2.3 million DTP Direct
catalogs and approximately 1.1 million Net Direct catalogs. The Company also
markets its products to its DTP Direct and Net Direct customers and dealers
through its sales force using outbound telemarketing, to attract and retain its
small to mid-sized business customers.

                                     2


<PAGE>

         In 1998 and 1997, a substantial majority of the Company's net sales
were sales of Apple Macintosh-Registered Trademark- compatible products.
Apple Macintosh is a registered trademark of Apple Computer. While the
Company believes it could diversify its product offerings if its customers
desired alternatives, a decline in sales of Apple Macintosh computers or a
decrease in the supply of or demand for software and peripherals for such
computers could have a material adverse impact on the Company's business.
During 1998 the Company continued to expand its Wintel offerings through its
Build-to-Order PC program and has increased the variety of its Wintel
offerings in other categories primarily through its Net Direct catalog. The
Company plans to continue its efforts to expand its Wintel offerings in 1999.
Notwithstanding the Company's efforts to expand these offerings, the Company
is still substantially dependent on sales of Apple-related products and there
is no assurance that the Company will successfully transition enough sales to
Wintel-related products to offset any decline in the demand for Apple-related
products.

DIRECT MARKETING

         The Company's direct marketing operations are carried out primarily
through its DTP Direct catalog and through its recently added Net Direct
catalog. DTP Direct markets a broad assortment of DTP and graphics products
through a catalog that is currently published six times per year. The Company
published its first DTP Direct catalog in April. DTP Direct competes on the
basis of price, delivery, depth of product offering and product knowledge. The
Company believes that many of its' customers buy from the Company because of the
knowledge and expertise that the Company's sales force has developed. Computer
sales were approximately 24% and 19% of total sales of its direct catalog ("DTP
Direct") sales in 1998 and 1997, respectively. DTP Direct's sales of Apple
computers accounted for 97% and 98% of the total computer system sales in 1998
and 1997, respectively.

         The Company developed and launched the Net Direct catalog in the second
quarter of 1998. The Net Direct catalog is directed at the developers and
managers of intranet/internet websites offering the necessary hardware and
software that "webmasters" and LAN and WAN managers require to prepare and
maintain websites for corporate and personal use. Although the Company believes
the target market for its Net Direct catalog is substantially larger than for
its DTP Direct catalog market, and that the Net Direct catalog could provide a
significant opportunity for overall revenue growth, there are significant risks
associated with the launch and maintenance of such catalog including; a
completely new target audience, lack of any historical direct marketing data
upon which to base mailing decisions, competitive forces and new product lines.
The launch of the Net Direct catalog had a negative impact on profitability of
the Company in 1998, and will probably continue to have a negative impact on
profitability in 1999 and possibly beyond.

         The Company's direct marketing programs are designed to attract new
customers and to stimulate additional purchases from existing customers. The
Company continuously attracts new customers by selectively mailing catalogs to
prospective customers. Names of prospective customers are obtained from various
sources, including vendors, trade publications, and list brokers and are updated
continuously in an attempt to maximize the response rate from each catalog
delivered.

DISTRIBUTION

         The Company's dealer division sells computer hardware and software
products, wholesale to computer retailers, value-added resellers ("VARS"), and
other resellers (collectively, the "Distribution Business").

         The Company's Distribution Business focuses primarily on the Desktop
Publishing market and expertise in storage devices, which has allowed the
Company to identify many smaller dealers and VARs. Sales and marketing
activities in the Distribution Business include outbound

                                     3


<PAGE>

telemarketing activities to the Company's dealer customer list and a fax and
e-mail broadcast system used to update dealers on current pricing and special
offers.

         Historically, storage devices have been the largest category of
peripheral device sold by the Company's Distribution Business. Beginning in late
1995 the Company began broadening the products sold to its dealers and
increasing its customer base. As a result of Apple's decisions to stop licensing
its Mac operating system ("OS") to clone manufacturers and limit distribution of
its computer systems to a few large distributors, the Company's distribution
business experienced a significant reduction in computer systems sales in 1998.
The Company has its own private brand of storage device products marketed under
the "NuDesign-TM-" name. These products have historically been sold primarily to
the Company's mass merchant retail customers. In late 1995, the Company
significantly reduced its sales and marketing activities targeted towards these
mass merchant customers because of the high cost of doing business with them and
because of increasing downward pressure on gross margins. Sales to these mass
merchant customers in 1996 were nominal and were nonexistent in 1997 and 1998.

PURCHASING

         The Company purchases from approximately 700 vendors, which includes
direct purchases from manufacturers and from distributors. In 1998,
approximately 46% of the Company's total purchases were from distributors
compared to approximately 27% in 1997 and 20% in 1996. The increase is primarily
due to two factors. The first factor is the elimination of Mac OS clone systems
that were purchased directly from Umax Computer Corporation ("UCC") which
resulted in increased purchases of Apple computer systems from distributors.
Additionally, several manufacturers including Iomega and Seagate discontinued
selling to the Company directly, consequently these products were instead
purchased mostly through distributors. The Company does not maintain any
long-term purchase or supply contracts with any of its vendors instead
purchasing primarily on a purchase order basis. In order to meet customer's
needs for product the Company has continued to focus on drop shipments sent
directly to the customers from participating distributors and vendors. This
allows the Company to reduce freight expense as well as compete with larger
competitors as to product availability and diversification.

         In 1998 and 1997, sales of products purchased from Ingram Micro
accounted for approximately 24% and under 10%, respectively, of total sales.
Sales of products purchased from UCC accounted for approximately 13% and 12% of
total sales in 1997 and 1996, respectively. During 1997, Apple Computer
announced its intention to stop licensing the Mac OS to clone manufacturers, and
accordingly UCC stopped shipping Apple clones in the second quarter of 1998. In
1997 the Company began shifting its Mac OS CPU sales to Apple, and in the second
half of 1998, the Company moved exclusively to Apple for Mac OS CPU sales. There
can be no assurance that any Company supplier will remain in business or that
they will be able to fulfill the Company's supply requirements or its supply
schedule. Any inability to do so by such suppliers or the Company's inability to
locate other suppliers could have a material adverse effect on the Company.

         The Company's suppliers make funds available to the Company to promote
and increase sales of their products. The Company typically receives price
protection should a vendor subsequently lower its price.

COMPETITION

DIRECT MARKETING

         A substantial number of companies, both large and small, compete in
the retail and wholesale computer industry. Rapid technological advances in
hardware and software, short product life cycles, and continuing downward
pressure on product prices and margins characterize the industry.

                                     4


<PAGE>

         A growing segment of the retail computer industry involves sales of
computer hardware and software via the Internet. Companies engaged in such sales
are increasingly becoming a significant competitive factor because they
typically sell their products at lower margins than traditional direct marketing
companies. Additionally, the websites of these companies are readily available
to most consumers for price comparisons causing further price pressure.

         The Company's DTP Direct and Net Direct catalogs compete with consumer
electronic and computer retail stores, including superstores, and other direct
marketers of software and computer-related products, and, to a lesser degree,
direct marketing efforts to sell microcomputer hardware, software and
peripherals through the Internet. Additionally, the Company competes with other
direct marketing companies. Some of the catalogs within this channel include:
CDW, Creative Computers' MacMall, MacConnection, MacWAREHOUSE, MicroWAREHOUSE,
Multiple Zones, PC Connection and CompUSA Direct.

DISTRIBUTION BUSINESS

         Competition for the Company's Distribution Business comes primarily
from the largest distributors whose general scale of operations supports
competitive pricing for desktop publishing products without need for
specialization. These major distributors and competition include but are not
limited to Gates/Arrow, Ingram Micro, Merisel, Pinacor and Tech Data. The
principal factors on which competition is based in this market are price,
product availability, delivery time and the willingness of the distributor to
extend credit to the reseller.

         Nearly all of the Company's competitors have substantially greater
financial, marketing, and technological resources, larger product lines, larger
customer bases, greater name recognition, and greater purchasing power with
vendors than the Company. There can be no assurance that the Company can
continue to compete effectively against existing competitors or competitors that
may enter the market. In addition, price is an important competitive factor in
the personal computer software and hardware market and there can be no assurance
that the Company will not be subject to increased price competition.

BRANDED PRODUCTS

         The Company assembles and markets products under several brand names.
All branded products are assembled at the Company's Edina, Minnesota
headquarters. Assembling operations consist of final assembly, testing and
formatting of storage devices into external storage devices which can be
"plugged-in" to an Apple Macintosh computer, as well as upgrades to CPU's. A
summary of the brands that the Company offered in 1998 is as follows:

         MIRROR. The Company acquired the rights to the Mirror product line in
1994. The Company currently markets storage devices under the "Mirror" name.
Mirror branded products are sold primarily through direct channels with emphasis
on sales through the DTP Direct catalog.

         NUDESIGN PRO. In 1995, the Company introduced a line of hot swappable
storage systems using the NuDesign PRO brand name. These products are targeted
and sold primarily through the Company's DTP Direct and Net Direct catalogs and
through its Distribution Business.

                                     5



<PAGE>

RETURN POLICY

         Certain products identified as such in the Company's DTP Direct
catalog, including tape drives, hard drives, optical drives, and CD-ROM
drives may be returned within 30 days from the date shipped by the Company
for a full refund of the purchase price excluding original shipping charges.
Returned product must be in like new condition, in original packing, complete
with all warranty cards, manuals, cables and other materials as originally
shipped, and must not be modified or damaged. After 30 days from shipment, it
is the Company's policy to not give credit or refunds. The Company attempts
to return all products back to the manufacturer or distributor from which the
product was purchased. If the Company is unsuccessful in returning the
product to the respective manufacturer or distributor it is forced to sell at
a reduced price or discard the equipment. Provisions are made currently for
estimated product returns expected to occur under the Company's return policy
and for which it may not be able to return to the manufacturer or distributor.

DIGITAL RIVER, INC.

         In December 1995, the Company's wholly-owned subsidiary, MacUSA, was
granted, by Joel Ronning, the majority shareholder and Chairman of the Board
of Directors of the Company, an option, exercisable through December 31, 2000
(the "Digital River Option") to acquire 3,200,000 (post-split) shares (the
"Digital River Shares") of Digital River, Inc., a Minnesota corporation
("Digital River") which was then privately held. At that time, such shares
represented approximately 60% of the outstanding common of Digital River.

         Digital River conducted its initial public offering in August 1998.
Prior to such offering, the Company's ownership percentage of Digital River had
been reduced to approximately 23%. Upon completion of such offering, the
Company's ownership percentage was reduced to approximately 19%. Since such
offering, Digital River's shares have been traded on the Nasdaq stock market
under the symbol "DRIV."

           In December 1998, the Company participated in Digital River's
secondary offering by exercising and selling 200,000 shares of the Digital River
Option realizing net proceeds of $4,430,000. The Company continues to hold an
option to purchase 3,000,000 shares, which would represent ownership of
approximately 15% of Digital River as of March 15, 1999. The option is not
transferable and the balance is exercisable at any time through December 31,
2000 for total consideration of $0.93 (ninety-three cents). During the term of
the option, Mr. Ronning has agreed to vote the Digital River Shares at the
direction of the Company's Board of Directors. As additional consideration, the
Company has agreed to reimburse Mr. Ronning for any tax liability incurred in
connection with the transfer of the Option or the shares of Digital River stock
issuable upon the exercise thereunder.

         The Digital River Shares are subject to the provisions of the Fujitsu
Modification Agreement dated December 11, 1997 (the "Modification Agreement"),
between Mr. Ronning, Fujitsu Limited, a company organized under the laws of
Japan ("Fujitsu"), Digital River Inc., and MacUSA (collectively, the "Parties").
Pursuant to the terms of the Modification Agreement, the Parties agreed to
terminate previous agreements entered into in connection with an investment by
Fujitsu in Digital River and entered into the Modification Agreement. Under the
terms of the Modification Agreement, MacUSA remains a party to the agreement to
the extent that Mr. Ronning may transfer all shares of Digital River Inc. he
owns, along with any and all rights related thereto pursuant to the agreement or
otherwise to MacUSA, Inc., or Tech Squared Inc.

         The following summary of the business of Digital River is extracted
from the Form 10K filed by Digital River on March 19, 1999: Digital River is a
leading provider of comprehensive electronic commerce outsourcing solutions to
software publishers and online retailers. Digital River has developed a
technology platform that allows it to provide a suite of electronic commerce
services to its software publisher and online retailer clients, including
electronic software delivery ("ESD"). Digital River also provides data mining
and merchandising services to assist clients in increasing Internet page view
traffic to, and sales through, their Web stores. Rather than maintaining its own
branded Web store that would compete with its clients, Digital River provides an
outsourcing solution that allows its clients to promote their own brands while
leveraging Digital River's investment in infrastructure and technology. As of
March 5, 1999, Digital River had contracts with 1,621 software publisher clients
and 1,174 online retailer clients, including Corel Corporation, Cyberian
Outpost, Inc., Lotus Development Corporation, Micro Warehouse, Inc., Network
Associates, Inc., Symantec Corporation, Kmart Corporation,

                                     6

<PAGE>

CompUSA, Inc. and Wal-Mart Stores, Inc., and maintained a database of more
than 100,000 software products from its various software publisher clients,
including more than 30,000 software titles and more than 70,000 digital
images and fonts. Through March 5, 1999, Digital River had completed more
than 610,000 transactions for more than 490,000 unique end-users.

         Digital River's proprietary commerce network server ("CNS") technology
serves as the platform for Digital River's solutions. The CNS incorporates
custom software applications that enable ESD, Web store authoring, fraud
prevention, export control, merchandising programs and online registration, and
features a database of more than 100,000 software products. Using its CNS
platform, Digital River creates Web stores for its clients that replicate the
look and feel of each client's Web site. End-users enter the client site and are
then seamlessly transferred to Digital River's system. End-users can then browse
for products and make purchases online, and, once purchases are made, Digital
River delivers the products directly to the end-user, primarily through ESD.
Digital River also provides transaction-processing services and collects and
maintains critical information about end-users. This information can later be
used by Digital River's clients to facilitate add-on or upgrade sales and for
other direct marketing purposes. Digital River actively manages direct marketing
campaigns for its clients, and also delivers purchase information and Web store
traffic statistics to its clients on a regular basis.

         The shares of Digital River common stock are registered with the
Securities and Exchange Commission under the Securities Act of 1934 and Digital
River files reports with the Securities and Exchange Commission pursuant
thereto. Further information regarding Digital River can be obtained from such
reports, which are available from the Commission's EDGAR database at
www.sec.gov.

PATENTS AND TRADEMARKS

         The Company has obtained a registered and protectable mark on the
name "Tech Squared-Registered Trademark-" from the U.S. Patent and Trademark
Office. The Company also uses and claims rights to the names "Mirror-TM-",
"NU Design-TM-", "NU Design Pro-TM-", "DTP Direct-TM-" and "Net Direct-TM-"
to identify its products and services. Except with respect to "Tech Squared",
the Company has not filed trademark registration applications or obtained
registered and protectable marks on any of the foregoing names. There can be
no assurance that any application, if filed, will result in the receipt of a
registered and protectable mark.

         The effect of the foregoing tradenames is to provide an identity
between the Company and its products and services. While prior use of a
tradename may establish an exclusive right to its use in connection with the
sale of products and services in a particular market area, registration with the
U.S. Patent and Trademark Office provides such right throughout the United
States and a presumption of damage to the Company should the tradename be
infringed. There can be no assurance that the Company's use of the foregoing
tradenames will not infringe the rights of others or that any of the tradenames
used by the Company, whether or not registered, will be free from future
challenge by others.

NON-OPERATING ASSETS

         In addition to the Digital River Shares, The Company owns certain
assets that are not related to its core operations, or to its future
operating plans. A brief summary of these assets is as follows:

         CAM DESIGNS, INC. The Company owns shares of Cam Designs, Inc., ("CAM
Designs") common stock (the "Cam Designs Shares"). Cam Designs, a Delaware
corporation, is the parent company of MGA Holdings Ltd., a United Kingdom
corporation ("MGA") which shares are virtually all of the assets of Cam Designs.
MGA designs and engineers prototypes and tools for the automobile and aerospace
industries. Cam Designs' common stock is quoted on the NASDAQ National Market
under the symbol "CMDA." During the first quarter of 1998, the Company sold a
portion of the Cam Design Shares resulting in realized gains of approximately
$5,000. On

                                     7



<PAGE>

October 21, 1998, Cam Designs Inc. announced that it had agreed to have MGA
placed in receivership because of its inability to secure adequate banking
facilities and reduce outstanding debt. The value of the remaining shares of
Cam Designs was reduced to zero.

         MINING PROPERTIES The Company owns certain land or mining rights to
land in two different areas in Montana, known to have historically produced gold
and silver from mining operations. See "ITEM 2 Description of Property." The
Company sold a portion of the property located near Virginia City, Montana in
December 1998. The total remaining land area either owned or leased by the
Company is approximately 1,900 acres. The Company intends to continue soliciting
offers for the remaining property, and does not intend to further develop these
mining properties because it believes the cost and risks involved would be
significant. The Company wrote down the value of the remaining assets by
$538,000. See "ITEM 3. Legal Proceedings - Hanover Gold Litigation".

EMPLOYEES

         The Company employs approximately 100 people, all of whom are located
at the Company's headquarters in Edina, Minnesota. There are approximately 50
employees in sales, marketing, technical support and customer service, and the
remaining employees are in operations and corporate administration.

RISK FACTORS

        In evaluating the Company and its business, you should carefully
consider the following risk factors as well as all of the information
contained in this report. The following risk factors are not exhaustive. In
addition to the factors discussed in this annual report, among the other
factors that could cause actual results to differ materially are the
following: business conditions and growth in the personal computer industry
and the general economy; significant changes in the consumer demand for
computers and requirements related to relative platforms such as Apple vs.
Wintel; competitive factors such as rival computer and peripheral product
sellers and price pressures; availablity of vendor products at reasonable
prices; inventory risks due to shifts in market demand; and other risks
represented from time to time in reports filed by the Company with the
Securities and Exchange Commission, including this Form 10-K.

LOSSES

         The Company has incurred losses from operations in 1996 and 1998 and
net losses during each of 1996, 1997 and 1998. The Company expects losses
from operations to continue for the foreseeable future.

RISKS RELATED TO NEW LINE OF BUSINESS

         The Company's recently-launched Net Direct catalog involves significant
risks including a completely new target audience, lack of any historical direct
marketing data upon which to base mailing decisions, competitive forces, and new
product lines. The launch of the Net Direct catalog had a negative impact on the
Company's profitability in 1998 and will likely continue to have a negative
impact on profitability in 1999 and, possibly, beyond.

RISKS RELATED TO DIGITAL RIVER

         The Company's net worth is substantially tied to the market price of
Digital River common stock. At December 31, 1998, over 90 percent of the
Company's assets, as shown on its balance sheet, consisted of its investment in
Digital River. The stock of Digital River has been subject to significant
volatility in the public market since Digital River's initial public offering in
August 1998. The Company's investment in Digital River is at-risk and subject to
such volatility.

         The shares of Digital River beneficially held by the Company
represent approximately 15 percent of the outstanding common stock of Digital
River. As a result, such shares are subject to restrictions on
transferability, both legal and market-imposed. If the Company were to
attempt to liquidate its investment in Digital River, it would likely cause
the trading price of Digital River common stock to decline significantly.

         The Company's investment in Digital River is also subject to all of the
risks associated with the business of Digital River, as published or announced
by Digital River from time to time, including those set forth in Digital River's
filings with the Securities and Exchange Commission, such as its recently-filed
Form 10K.

                                     8
<PAGE>

         The Company is also subject to a significant tax liability upon any
sale of shares of Digital River common stock. The distribution of shares of
Digital River common stock to the shareholders of the Company would likely be
treated as a sale, subjecting the Company to significant tax liability for such
a distribution. Accordingly, the Company's ability to realize any profit from
the exercise of its option to acquire Digital River shares and sell such shares
would be subject to a significant reduction by such taxes.

CONTINUED DEVELOPMENT OF ELECTRONIC COMMERCE AND INTERNET INFRASTRUCTURE
DEVELOPMENT

         An increasing portion of sales are made over the Internet in part
because of the growing use and acceptance of the Internet by end-users. This
growth is a recent development. No one can be certain that acceptance and use
of the Internet will continue to develop or that a sufficiently broad base of
consumers will adopt and continue to use the Internet and other online
services as a medium of commerce. Sales of computer-related products over the
Internet do not currently represent a significant portion of overall computer
product sales. Growth of Internet sales is dependent on potential customers
using the Internet in addition to traditional means of commerce to purchase
products. The Company cannot accurately predict the rate at which they will
do so.

COMPETITION

         The Company is subject to significant competition from a number of
companies, both large and small. Further, recent technological advances, shorter
product life cycles, and increased sales via the Internet subject the Company to
further risk and continuing downward pressure on product prices and margins.
Many of the Company's competitors have significantly greater resources, access
to manufacturers, purchasing power and name recognition than the Company. Some
competitors, including an increasing number of Internet retailers, are now
marketing their products at or below cost. There can be no assurance the Company
will be able to compete effectively.

PRIVACY CONCERNS WITH RESPECT TO LIST DEVELOPMENT AND MAINTENANCE

         The Company mails catalogs and sends electronic messages to names in
its proprietary customer database and to potential customers whose names are
obtained from rented or exchanged mailing lists. World-wide public concern
regarding personal privacy has subjected the rental and use of customer
mailing lists and other customer information to increased scrutiny. Any
domestic or foreign legislation enacted limiting or prohibiting these
practices could negatively affect the Company's business, financial condition
and results of operations.

MANAGEMENT INFORMATION SYSTEMS

         The Company depends on the accuracy and proper use of its management
information systems. Many of the Company's key functions depend on the
quality and effective utilization of the information generated by its
management information systems, including: - its ability to manage its
inventory and accounts receivable collections; - its ability to purchase,
sell and ship its products efficiently and on a timely basis; - its ability
to maintain its operations. These systems require continual upgrades to most
effectively manage the Company's operations and customer data base.

CHANGES IN MANAGEMENT

         The Company has experienced several changes in its management over the
last year. Such changes could have a negative impact on the Company's ability to
conduct business effectively and to compete.

                                     9


<PAGE>


CONTROL BY MANAGEMENT

         The Company's executive officers and directors currently
beneficially own over 50% of the outstanding Common Stock of the Company.
Accordingly, the Company's management is able to exercise substantial control
over the election of directors and over the operations of the Company. This
concentration of ownership could also have the effect of delaying, deferring
or preventing a change in control of the Company or effecting a change in
control, which may not be favored by the Company's other shareholders.

VOLATILITY OF STOCK PRICE

         The technology sector of the United States stock market, and
particularly the group of Internet-related stocks within this sector, has
experienced substantial volatility in recent periods. The value of our common
stock is influenced by numerous conditions that impact the technology sector or
the stock market in general, whether or not such events relate to or reflect
upon our operating performance.

REDUCTIONS IN INCENTIVE PROGRAMS, SHIFTING OF INVENTORY RISK

         The Company acquires products for resale both directly from
manufacturers and indirectly through distributors and other sources. Many of
these manufacturers and distributors provide us with incentives such as
supplier reimbursements, price protection payments, rebates and other similar
arrangements. The increasingly competitive computer hardware market has
already resulted in reduction and/or elimination of some of these incentive
programs. For example, Apple has initiated a number of restrictions on
resellers, including: - more restrictive price protection and other terms;
and - reduced advertising allowances and incentives. Additionally,
manufacturers are limiting return rights and are also taking steps to reduce
their inventory exposure by supporting "build to order" programs authorizing
distributors and resellers to assemble computer hardware under the
manufacturers' brands. These trends reduce the costs to manufacturers and
shift the burden of inventory risk to resellers like the Company which could
negatively impact its business, financial condition and results of
operations. In addition, certain Wintel manufacturers including Compaq
Computer Corp. have recently expanded their direct sales efforts. The
continuing impact of these matters may adversely affect the Company's
business, financial condition and results of operations.

SEASONALITY

         Fluctuations in the Company's net sales from period to period can be
expected due to a number of factors, including the timing of new product
introductions by the Company's major vendors and their competitors, seasonal
cycles commonly seen in computer-related industries, and changes in product mix
and product pricing. As a result, the operating results for any particular
period are not necessarily indicative of the results of any future period.

Y2K RISKS

         The Company's computer system, and those of third parties with whom
it does business, will be affected by issues and problems related to changes
required as a result of the year 2000 problem ("Y2K"). The Company has
identified and is undertaking certain modifications or conversions to make
its systems Y2K compliant. While the Company has exercised its best efforts
to identify and remedy any potential Y2K exposures within its control,
certain risks exist with vendors and suppliers which, to a significant
extent, are beyond the immediate control of the Company. Failure to achieve
timely completion of required modifications or conversions or failure of the
third parties with whom the Company has relationships to be Y2K compliant
could have a material affect on the financial condition and operations of the
Company. In addition, customers may delay purchase decisions because of the
uncertainty about Y2K issues.

                                     10



<PAGE>

LACK OF LONG-TERM PURCHASING AGREEMENTS

         The Company does not maintain any long-term purchase or supply
contracts with any of its vendors instead purchasing primarily on a purchase
order basis. No assurance can be given that the Company will be able to purchase
needed inventory at favorable prices when needed to meet sales commitments.

RETURNS

         The Company's policies provide that some products may be returned
within 30 days for a full refund. The Company attempts to return all products
back to the manufacturer or distributor from which the product was purchased. If
the Company is unsuccessful in returning such products to the respective
manufacturer or distributor, the Company may incur a loss on such transaction.

RELIANCE ON APPLE/TRANSITION TO WINTEL

         The Company's sales of Apple computers accounted for 92% and 98% of the
total computer system sales in 1998 and 1997, respectively. The Company plans to
continue its efforts to expand its Wintel offerings in 1999. Notwithstanding the
Company's efforts to expand these offerings, the Company is still substantially
dependent on sales of Apple-related products and there is no assurance that the
Company will successfully transition enough sales to Wintel-related products to
offset any decline in the demand for Apple-related products. Also, while the
Company believes it could diversify its product offerings if its customers
desired alternatives, a decline in sales of Apple Macintosh computers or a
decrease in the supply of or demand for software and peripherals for such
computers could have a material adverse impact on the Company's business.

GOVERNMENT REGULATION

         The Company currently collects Minnesota sales tax on sales made within
the State of Minnesota. Various states have attempted to impose on direct
marketers, the burden of collecting use taxes on the sale of products shipped to
state residents. The United States Supreme Court affirmed its position that it
is unlawful for a state to impose use tax collection obligations on an out-of
state mail order company whose only contact with the state were the distribution
of catalogs and other advertising materials through the mail and subsequent
delivery of purchased goods by parcel post and interstate common carriers. If
legislation is passed to overturn the United States Supreme Court's decision,
the imposition of a use tax collection obligation on the Company in states to
which it ships products would result in additional administrative expenses to
the Company, could result in price increases to the customer, and could have a
material adverse effect on the Company.

         The United States Department of State and Department of Commerce
restrict the export of encrypting technology outside of the United States.
Although Digital River does not currently believe its method of conducting
business is impacted to any significant degree by these restrictions, any
significant change in these rules or interpretations or any failure by Digital
River

                                     11


<PAGE>

to comply with existing or future restrictions could have a material adverse
impact on the business of Digital River.

INCREASES IN POSTAGE, SHIPPING AND PAPER COSTS

Increases in postal or shipping rates and paper costs could significantly impact
the cost of producing and mailing our catalogs and shipping customer orders.
Postage prices and shipping rates increase periodically and we have no control
over future increases. The United States Postal Service recently increased
postal rates. Paper prices historically have been cyclical and we have
experienced substantial increases in the past. Significant increases in postal
or shipping rates and paper costs could adversely impact our business, financial
condition and results of operations, particularly if we cannot pass on such
increases to our customers or offset such increases by reducing other costs. In
addition, strikes or other service interruptions by the postal service or third
party couriers, such as Federal Express, could undermine our ability to deliver
products on a timely basis.


ITEM 2.           DESCRIPTION OF PROPERTY

         The Company's corporate headquarters are located at 5198 West 76th
Street, Edina, Minnesota 55439. The Company leases approximately 31,000 square
feet of office and warehouse space. The lease for the location expires on June
30, 1999 and the total monthly rent is approximately $18,000.

         Digital River currently occupies approximately 7,000 square feet of
warehouse space at the Company's corporate headquarters. Prior to August
1998, the offices of Digital River were also located in the Company's
facilities. The Company bills Digital River for the leased space, and prior
to 1999, certain related costs such as direct labor costs, phone services,
general liability insurance and janitorial services through an administrative
charge. Total charges by the Company to Digital River for administrative
expenses were approximately $207,000, $160,000 and $82,000 in 1998, 1997 and
1996, respectively.

         During 1997, the Company began performing fulfillment services for
Digital River on physical shipments of products, for which Digital River pays
the Company a fulfillment fee. The Company billed Digital River approximately
$246,000 and $8,000 for these services in 1998 and 1997, respectively.
Digital River has notified the Company that the fulfillment services the
Company is providing will be discontinued during the second quarter of 1999.

         The Company owns rights in certain non-operating mining properties
primarily in two locations. The Company disposed of a portion of its mining
property in December 1998. The total land area still either owned or leased
by the Company's Tabor subsidiary includes approximately 1,900 acres. The
property, which is in and around the Alder Gulch, near Virginia City,
Montana, includes a total of 58 unpatented lode-mining claims and 3 patented
lode claims. Tabor also owns a 51% interest in 56-1/2 lode mining claims
including 24-1/2 patented and 32 unpatented claims near Rimini, Montana
approximately 20 miles southwest of Helena, Montana. See "ITEM 1 Business--
Business of Issuer- Non Operating Assets."

ITEM 3.           LEGAL PROCEEDINGS

         Except as discussed below, there are no material pending legal,
governmental, administrative or other proceedings to which the Company is a
party or to which any of its property is subject.

                                     12

<PAGE>

HANOVER GOLD LITIGATION

         In 1996, the Company entered into an Asset Purchase Agreement for the
sale of substantially all of its mining properties and rights in the Alder Gulch
area (the "Property") in exchange for 525,000 shares of Hanover Gold Company,
Inc. ("Hanover") common stock (the "Hanover Shares") The Agreement, the Property
and 400,000 of the Hanover Shares were to be held in escrow pending completion
of a registration statement covering the resale of the Hanover Shares and
consent by the Company.

         In October 1996 Hanover filed a registration statement covering the
Hanover Shares and filed suit against the Company in the United States District
Court Eastern District of Washington. The complaint sought to force the Company
to break escrow and release title the Property in exchange for 400,000 Hanover
Shares held in escrow, along with certain other damages. The Company filed a
counter-claim, which included claims of fraud and violation of securities laws.

         In April 1998, both parties agreed to the dismissal of all claims,
counterclaims and cross-claims without prejudice. The Hanover Shares held by the
court were returned to Hanover, and the mining claims and rights were returned
to the Company.



ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the year ended December 31, 1998.


ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION FOR COMMON STOCK

         The Company's common stock is quoted on the local over-the-counter
market and is quoted on the OTC Bulletin Board quotation system under the Symbol
"TSQD". The following table sets forth, for each of the calendar periods
indicated, the quarterly high and low bid quotations for the Company's Common
Stock as reported by the OTC Bulletin Board. The prices in the table represent
prices between dealers, and do not include adjustments for retail mark-ups,
markdowns or commissions and may not represent actual transactions.

<TABLE>
<CAPTION>
                 YEAR                                HIGH        LOW
                 ----                                ----        ---
                 <S>    <C>                         <C>        <C>
                 1998   Fourth quarter              $3.78      $0.47
                        Third quarter                7.63       1.00
                        Second quarter               4.00       1.44
                        First quarter                2.44       1.38

                 1997   Fourth quarter              $3.88      $0.57
                        Third quarter                0.85       0.36
                        Second quarter               0.43       0.19
                        First quarter                0.69       0.30
</TABLE>

                                     13



<PAGE>

HOLDERS

         As of March 12, 1999, there were approximately 157 holders of record of
common stock. The Company believes the actual number of beneficial owners is
significantly greater than the 157 reported above.

DIVIDENDS

         Tech Squared Inc. has never declared cash dividends on its common stock
and management intends to retain any earnings for use in its operations and does
not anticipate declaring any cash dividends in the foreseeable future. The
Company has 160,000 shares of preferred stock outstanding. The holders of these
preferred shares may be entitled to a 12% cumulative dividend that has not been
paid since December 1994. The total dividend owing as of December 31, 1998 is
approximately $88,000.

         Pursuant to an Agreement and Plan of Merger effective as of May 9,
1995, a wholly-owned subsidiary of the immediate predecessor of the Company
merged with and into MacUSA (the "Merger"). Prior to the Merger, MacUSA declared
a dividend of $1,188,000 payable to the former shareholders of MacUSA in
connection with the conversion of MacUSA from a Subchapter S corporation to a C
corporation. The Company paid approximately $261,000 of this dividend during
1995, approximately $201,000 in 1996, approximately $201,000 in 1997 and
approximately $200,000 in 1998. The remainder of the dividend payable was paid
in February 1999.

SALES OF UNREGISTERED SECURITIES

         During the three-month period ended December 31, 1998 the Company did
not sell any of its securities in transactions not registered under the
Securities Act of 1933.

                                     14

<PAGE>

ITEM 6.           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                   FOR THE FISCAL YEARS ENDED:
                                                                 -------------------------------
         (IN THOUSANDS)                                          1998(2)      1997(1)       1996
                                                                 ---------    -------       ----
         <S>                                                     <C>          <C>        <C>
         Net Sales                                                 $38,800    $36,995    $37,387
         Gross Profit                                                4,971      4,467      3,911
         Income/(loss) from operations                               (864)        402      (849)
         Net loss applicable to common shares                        (567)    (1,032)      (651)

         Net income/(loss) excluding Digital River (3)(4)            1,294        344      (203)

         Total assets                                              117,444      7,600      8,620
         Long term debt & long term portion of dividend
           payable to officer / shareholder                             84        298        298
         Redeemable    preferred    stock   12%   cumulative
           Convertible                                                 248        217        198
         Stockholders' equity                                       70,457      2,190      1,214
</TABLE>

(1)      Beginning January 1, 1997, the Company began to account for its
         investment in Digital River using the equity method of accounting (see
         Item 7. Management's Discussion and Analysis of Financial Condition).
         Prior to 1997 Digital River was consolidated with the Company's
         results.

(2)      Beginning August 12, 1998, the Company began to account for its
         investment in Digital River as "available-for-sale" securities.

(3)      Reflects operating results of the Company excluding Digital River.

(4)      The fiscal year ended 1998 includes investment income of $4,047,000 on
         the sale of 200,000 shares of Digital River stock.


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS

         Certain statements contained in this annual report are forward-looking
statements within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934 that involve a number of risks and uncertainties. Such
forward-looking information may be identified by words such as "will," "maybe,"
"expects" or "anticipates." In addition to the factors discussed in this annual
report, among the other factors that could cause actual results to differ
materially are the following: business conditions and growth in the personal
computer industry and the general economy; significant changes in the consumers
demand for computers and requirements related to relative platforms such as
Apple vs. Wintel, competitive factors such as rival computer and peripheral
product sellers and price pressures; availability of vendor products at
reasonable prices; inventory risks due to shifts in market demand; and other
risks presented from time to time in reports filed by the Company with the
Securities and Exchange Commission, including this Form 10-K.

         The Company sells computer and peripheral products. The Company's
business has historically been targeted primarily at the graphic arts market,
which currently includes primarily Macintosh related products. More recently,
the Company's business has also been targeted at the intranet and external
Internet network markets.

                                     15



<PAGE>


         Prior to 1997, the consolidated financial statements included the
accounts of Tech Squared Inc. and its wholly owned subsidiaries (the "Company"),
and Digital River, Inc. ("Digital River"), which the Company controlled through
its bargain purchase option. As a result of private placements of Digital River
common stock in 1997, the Company's ownership percentage of Digital River was
reduced from 60% at December 31, 1996 to approximately 35% at December 31, 1997.
During 1998, Digital River completed various private placements and an initial
public offering of its common stock which resulted in net proceeds to Digital
River of approximately $36,300,000 and issuance of 6,500,000 new shares of
Digital River common stock. Through August 11, 1998, the date of Digital River's
initial public offering, the Company recorded gain on issuance of stock by
Digital River of approximately $4,374,000, net of deferred income taxes, which
was recorded as an adjustment to stockholders' equity. In December 1998, Digital
River completed a follow-on public offering in which Digital River sold
2,200,000 additional shares of common stock and received net proceeds totaling
$48,100,000. The Company participated in the follow-on as a selling shareholder
by exercising a portion of the Digital River Option and selling 200,000 shares
of the Digital River Common Stock. The impact of the issuance of additional
shares by Digital River and the exercise and sale of a portion of the Digital
River Option by the Company resulted in a reduction in the Company's effective
ownership of Digital River from approximately 35% at December 31, 1997 to
approximately 15% as of December 31, 1998. As a result, beginning August 12,
1998, the Company is accounting for its investment in Digital River as
"available-for-sale" securities, which, as of December 31, 1998 are valued at
$35.50 per share, the closing market price on such date.

     The following is a summary of the operating results of Tech Squared Inc.
including Digital River for the year ended December 31, 1998, 1997 and 1996,
respectively (in 000's, except per share information).

<TABLE>
<CAPTION>
                                                             TECH SQUARED INC.,
                                                          INCLUDING DIGITAL RIVER
                                                        ---------------------------
                                                        1998       1997        1996
                                                        ----       ----        ----
     <S>                                                <C>      <C>           <C>
     Net loss applicable to common shares               $(567)   $(1,032)       $(651)
     Net loss per share applicable to common share     $(0.05)    $(0.10)      $(0.06)

</TABLE>

     Summarized condensed consolidated financial information for Tech Squared
Inc. excluding Digital River operations is as follows (In 000's, except per
share information):

       BALANCE SHEET INFORMATION

<TABLE>
<CAPTION>                                                         DECEMBER 31,
                                                      ----------------------------------
                                                          1998        1997        1996
                                                          ----        ----        ----
       <S>                                             <C>          <C>         <C>
       Current assets                                  $10,254      $5,465      $6,171
       Total assets                                    117,444       6,761       7,490
       Current liabilities                               6,841       4,895       5,945
       Stockholders' equity                             70,457       1,351       1,254
</TABLE>

       OPERATING INFORMATION

<TABLE>
<CAPTION>                                                    YEAR ENDED DECEMBER 31,
                                                      ------------------------------------
                                                         1998        1997        1996
                                                         -----       ----        ----
       <S>                                             <C>         <C>         <C>
       Net sales                                       $38,800     $36,995     $37,276
       Operating expenses                                5,835       4,065       4,047
       Net income/(loss)(1)                              1,294         344       (203)
       Per share                                         $0.12       $0.03     $(0.02)
</TABLE>

(1)      The fiscal year ended 1998 includes investment income of $4,047,000 on
         the sale of 200,000 shares of Digital River stock.

                                     16


<PAGE>

(a)      RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

         The following discussion sets forth information with regard to the
results of operations of the Company, not including the results of operation of
Digital River. In some prior reports, results of operations included a portion
of the operations of Digital River. In August 1998, the Company's deemed
ownership percentage of Digital River was reduced below 20% and, since such
date, the Company has accounted for its investment in Digital River as
available-for-sale securities.

NET SALES

         Net sales for 1998 totaled $38,800,000 compared to $36,995,000 for
1997. The 4.9% increase in sales was mainly attributable to a 5.9% increase in
sales to DTP Direct catalog customers through the addition of an outbound sales
group and the addition of the Net Direct catalog, which contributed $1,342,000
to net sales. The increases were partially offset by an 8.7% decrease in sales
to the Company's distribution customers, which was primarily due to the
elimination of Macintosh clone system sales. The Company also experienced a
14.4% reduction in product returns in 1998 compared to 1997 largely due to
continued focus and attention Company-wide to product returns and awareness.

         Fluctuations in the Company's net sales from period to period can be
expected due to a number of factors, including the timing of new product
introductions by the Company's major vendors and their competitors, seasonal
cycles commonly seen in computer-related industries, and changes in product mix
and product pricing. As a result, the operating results for any particular
period are not necessarily indicative of the results of any future period.

GROSS PROFIT

         Gross profit for 1998 was $4,971,000 or 12.8% of net sales compared to
$4,467,000 or 12.1% of net sales in 1997. Gross profit as a percentage of sales
increased in 1998 due to an increase in fulfillment fee revenue and a reduction
in variable overhead expenses. The Company expects ongoing competitive pressure
on gross margins in 1999 and beyond.

SELLING AND MARKETING EXPENSES

         Selling and marketing expenses totaled $3,101,000 or 8.0% of net sales
in 1998 compared to $1,883,000 or 5.1% of net sales in 1997. The increase was
primarily due to an increase in the number of outbound sales consultants from 3
to 12, an increase in net marketing costs related to the development, production
and distribution of DTP Direct catalogs, and the costs related to the
development, production and distribution of a new catalog, Net Direct. Although
the Company believes the potential target market for the Net Direct catalog is
substantially larger than that for the DTP Direct catalog, and that the Net
Direct catalog could provide significant opportunity for revenue growth, there
are significant costs and risks associated with the launch and maintenance of a
new catalog including: a completely new target audience, lack of any historical
direct marketing data on which to base mailing decisions, competitive forces and
new product lines. The launch of the Net Direct catalog had a negative impact on
the profitability of the Company in 1998, and will probably continue to have a
negative impact on profitability in 1999 and possibly beyond.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses for 1998 were $2,734,000 compared
to $2,182,000 for 1997. The increase was attributable to several factors
including the reallocation of certain payroll and employee-related expenses,
consulting fees related to the enhancement of the

                                     17



<PAGE>


Company's accounting and computer systems, and transaction processing fees
and charges from third-party credit card and similar providers.

INVESTMENT INCOME/(LOSS)

         The Company recorded investment income of $3,781,000 in 1998 compared
to $27,000 in 1997. In December 1998, the Company recognized investment income
of $4,048,000 when it exercised an option to purchase 200,000 shares of Digital
River Common Stock and sold such shares in Digital River's follow-on public
offering.

         During 1998, the Company recorded net investment loss of
$267,000 on available-for-sale securities of Cam Designs Inc. due to Cam
Designs Inc. announcing that it had agreed to have its operations placed in
receivership because of its inability to secure adequate banking facilities.

LOSSES ON MINING ASSETS

         In December 1998, the Company sold a portion of its mining assets and
reduced the book value of the remaining assets by $538,000 to management's best
estimate based on the value of consideration received upon such partial sale and
an independent appraisal performed in the fourth quarter.

INTEREST EXPENSE, NET

         Net interest expense for 1998 was approximately $97,000 compared to
approximately $85,000 in 1997. The increase in interest expense is primarily due
to an increase in the average outstanding balance on the Company's line of
credit.

INCOME TAXES

         The Company recorded an income tax provision in 1998 of $988,000. There
was no income tax provision recorded in 1997.

                                     18

<PAGE>

     YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET SALES

         Net sales for 1997 totaled $36,995,000 compared to $37,387,000 for
1996. The decline in sales was mainly attributable to a 13.5% decline in the
Company's distribution sales due to a significant decline in sales of hard
drives, optical drives, scanners and media. The decline in sales to the
Company's distribution customers was partially offset by an increase in DTP
Direct catalog sales of $1,205,000 or 5.2% compared to 1996 levels. Sales from
the DTP Direct catalog increased primarily due to an increase in Mac systems
sales, printers and graphics software. The Company also experienced a 20%
reduction in product returns in 1997 compared to 1996 primarily due to increased
focus and attention Company-wide to product returns and awareness.

         Fluctuations in the Company's net sales from period to period can be
expected due to a number of factors, including the timing of new product
introductions by the Company's major vendors and their competitors, seasonal
cycles commonly seen in computer-related industries, and changes in product mix
and product pricing. As a result, the operating results for any particular
period are not necessarily indicative of the results of any future period.

GROSS PROFIT

         Gross profit for 1997 was $4,467,000 or 12.1% of net sales compared to
$3,911,000 or 10.5% of net sales in 1996. Gross profit as a percentage of net
sales increased in 1997 due to a reduction in inventory obsolescence and to an
increase in DTP Direct catalog sales, which generally have a higher margin, as a
percentage of total sales. DTP Direct catalog sales gross margins increased from
17.2% in 1996 to 18.1% in 1997.

SELLING AND MARKETING EXPENSES

         Selling and marketing expenses totaled $1,883,000 or 5.1% of net sales
in 1997 compared to $2,016,000 or 5.4% of net sales in 1996 excluding Digital
River selling and marketing expense of $68,000.

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses for 1997 were $2,182,000
compared to $2,031,000 for 1996. The increase in 1997 was primarily due to an
increase in payroll and related costs including the addition of a new
President and COO in late 1996.

GAIN ON SALE OF SECURITIES

         Gain on sale of securities for 1997 was approximately $27,000. There
was no gain on sale of securities in 1996.

INTEREST EXPENSE, NET

         Net interest expense for 1997 was approximately $85,000 compared to
approximately $43,000 in 1996. The increase in interest expense was primarily
due to an increase in the average outstanding balance on the Company's line
of credit.

INCOME TAXES

         The Company recorded no income tax provision in 1997 or in 1996 due to
the availability of net operating loss carryforwards from prior years to offset
any tax expense.

                                     19



<PAGE>


(b)      LIQUIDITY AND CAPITAL RESOURCES

         The Company's principal sources of liquidity at December 31, 1998,
consisted of liquid funds, a revolving line of credit agreement with US Bancorp
National Association ("US Bank"), and vendor trade credit lines.

         As of December 31, 1998 the Company had working capital of $3,413,000.
At December 31, 1998, such working capital reflected the current portion of a
dividend declared but not yet paid to the Company's majority shareholder and
Chairman, in the amount of approximately $200,000. The remaining balance of the
dividend was paid in February 1999. In December 1998, the Company received
proceeds of $4,430,000 on the exercise and sale of 200,000 shares of its Digital
River Option.

                  The Company has a Revolving Line of Credit Agreement with
US Bank through June 1999. Borrowings under the $2,500,000 line of credit
with US Bank are payable on demand, limited by eligible percentages of
accounts receivable and inventory and bear interest at the prime rate plus
1.75%. In December 1998, the Company paid down the line of credit, and
obtained from US Bank a release of the guarantee by the Chairman. As of
December 31, 1998 the Company had unused availability under the discretionary
revolving line of credit of approximately $1,685,000 and outstanding
borrowings of $7,000.

         The Company has a flooring program with a financing company covering up
to $633,000 in inventory purchases. The flooring program is secured by a standby
letter of credit in the amount of $560,000 issued pursuant to the Company's line
of credit with US Bank. The Company uses the flooring program to take advantage
of better programs with its major distributors.

         As of December 31, 1998, inventory levels decreased slightly to
$1,784,000 compared to $1,890,000 at December 31, 1997. Capital expenditures
totaled $345,000 in 1998 compared to $168,000 in 1997. The increase in capital
expenditures in 1998 was primarily due to computer system upgrades and
modifications and office renovation.

         The Company believes that funds generated from management of
receivables and inventory levels, advances under its discretionary line of
credit, further expansion of lines with trade creditors, cash on hand and
potential proceeds from the sale of its investments, will be sufficient to fund
its operations through the end of 1999. However, maintaining an adequate level
of working capital through the end of 1999, and thereafter depends in part on
the success of the Company's sales and marketing efforts, the Company's ability
to control operating expenses, and the Company's ability to maintain its
relationships with its bank and its suppliers. Furthermore, funding of the
Company's operations in future periods may require additional investments in the
Company in the form of equity or debt. There can be no assurance that the
Company will achieve desired levels of sales or profitability, or those future
capital infusions will be available on terms acceptable to the Company, if at
all.

YEAR 2000 COMPLIANCE

         The Company's computer system and those of third parties with whom it
does business will be affected by issues and problems related to changes
required as a result of the year 2000 problem ("Y2K"). The Company's three key
systems and assets that may be directly impacted by the Y2K issue are its
financial and data system, its telephone system and its voice mail system. The
financial and data system requirements have been assessed and are currently
being upgraded and modified to be Y2K compliant. Anticipated rollout and testing
of the Y2K compliant system is expected in April 1999. The telephone system is
believed to be Y2K compliant, and testing is scheduled for the second quarter of
1999. The voice mail system is currently being analyzed to determine the degree
of upgrade needed. The upgrade to the voice mail system will be rolled out and
tested during the second quarter of 1999. The Company incurred expenses to
modify its systems and the upgrading of its current system to be Y2K compliant
totaling

                                     20



<PAGE>

approximately $35,000 in 1998, and anticipates additional costs of
approximately $50,000 in 1999. Maintenance and modification costs incurred by
the Company specifically related to Y2K will be expensed as incurred and
costs of new software (whether purchased or internally developed) will be
capitalized and amortized over the useful life of the applicable software.

While the Company has exercised its best efforts to identify and remedy any
potential Y2K exposures within its control, certain risks exist with vendors and
suppliers which, to a significant extent, are beyond the immediate control of
the Company. To date, the Company has not identified any vendors or suppliers
who will not be Y2K compliant; however, this analysis is still in process. The
Company plans to develop appropriate contingency plans if non-compliant vendors
are identified. Failure to achieve timely completion of required modifications
or conversions or failure of the third parties with whom the Company has
relationships (e.g., vendors, clients, credit card processors) to be Y2K
compliant could have a material affect on the financial condition and operations
of the Company. The Company, however, is unable to assess disruption that may
occur as a result of supplier's and customer's non-compliance. Because the
Company markets products manufactured by multiple sources and typically sells
the products as `packages', Y2K problems affecting the Company's vendors may
have a significant affect on the Company. In addition, customers may delay
purchase decisions because of the uncertainty about Y2K issues.


ITEM 8.           FINANCIAL STATEMENTS

         The balance sheets of the Company as of December 31, 1998 and 1997,
and the related statements of operations, comprehensive income (loss),
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998 are included in this report on pages F-1 to
F-16. The index to the financial statements appears on page F-1. The
financial statements were audited by Arthur Andersen LLP, whose related
report of independent accountants appears on page F-2.

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

<PAGE>




                       TECH SQUARED INC. AND SUBSIDIARIES
                         Index To Financial Statements

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                          <C>
Report of Independent Public Accountants                                      F-2
Consolidated Balance Sheets                                                   F-3
Consolidated Statements of Operations                                         F-4
Consolidated Statements of Comprehensive Income (loss)                        F-5
Consolidated Statements of Stockholders' Equity                               F-6
Consolidated Statements of Cash Flows                                         F-7
Notes to Consolidated Financial Statements                                    F-8
</TABLE>

                                     F-1



<PAGE>

                 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Tech Squared Inc.:

We have audited the accompanying consolidated balance sheets of Tech Squared
Inc. (a Minnesota corporation) and Subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, comprehensive
income (loss), stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1998.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements 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 financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Tech Squared Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


                                               ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
 February 19, 1999

                                     F-2

<PAGE>

                      TECH SQUARED INC. AND SUBSIDIARIES

                         Consolidated Balance Sheets

                               As of December 31
<TABLE>
<CAPTION>
                                                                               1998              1997
                                                                          -------------      -----------
<S>                                                                       <C>                <C>
                               ASSETS

Current Assets:
   Cash and cash equivalents                                              $  4,436,276       $      300
   Restricted cash                                                             229,466          143,623
   Available-for-sale securities                                                     -          467,438
   Trade accounts receivable, less allowance
      for doubtful accounts of $365,000 and $180,000, respectively           3,387,907        2,727,883
   Inventories                                                               1,783,905        1,890,480
   Prepaids and other current assets                                           416,666          234,936
                                                                          ------------       ----------
               Total current assets                                         10,254,220        5,464,660

Property and Equipment, net                                                    499,874          346,419

Receivable From Officer/Stockholder                                                  -          201,512

Mining Assets                                                                  190,000          748,276

Investment in Digital River                                                106,500,000          839,202
                                                                          ------------       ----------
                                                                          $117,444,094       $7,600,069
                                                                          ------------       ----------
                                                                          ------------       ----------

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Revolving line of credit                                               $      7,395       $  765,728
   Current maturities of long-term debt                                         15,000           80,000
   Accounts payable                                                          5,008,449        2,816,959
   Accrued compensation and benefits                                           205,156          239,748
   Other accrued expenses                                                    1,404,776          791,743
   Dividend payable to officer/shareholder                                     200,000          200,721
                                                                          ------------       ----------
               Total current liabilities                                     6,840,776        4,894,899

Dividend Payable to Officer/Shareholder                                         83,857          283,136

Long-Term Debt, less current maturities                                              -           15,000

Deferred Income Taxes                                                       39,815,000                -

Redeemable Preferred Stock, 12% cumulative convertible, $1 par value,
   1,000,000 shares authorized; 160,000 shares issued and outstanding          247,744          216,700
                                                                          ------------       ----------
Commitments and Contingencies (Note 7)

Stockholders' Equity:
   Common stock, no par value, 25,000,000 shares authorized;
       11,603,075 and 10,375,037  shares issued and outstanding,
       respectively                                                          3,990,200        3,189,436
   Stock subscription receivable                                              (284,000)               -
   Retained earnings (accumulated deficit)                                   2,894,345         (912,539)
   Unrealized gain (loss) on available-for-sale securities                  63,856,172          (86,563)
                                                                          ------------       ----------
               Total stockholders' equity                                   70,456,717        2,190,334
                                                                          ------------       ----------
                                                                          $117,444,094       $7,600,069
                                                                          ------------       ----------
                                                                          ------------       ----------

</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

                                     F-3
<PAGE>

                      TECH SQUARED INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations

                        For the Years Ended December 31

<TABLE>
<CAPTION>
                                                                 1998              1997                1996
                                                              -----------      -----------        -----------
<S>                                                           <C>              <C>                <C>
Net sales                                                     $38,800,270      $36,995,277        $37,386,715

Cost of sales                                                  33,829,265       32,527,878         33,475,525
                                                              -----------      -----------        -----------
               Gross profit                                     4,971,005        4,467,399          3,911,190
                                                              -----------      -----------        -----------
Selling and marketing expenses                                  3,101,205        1,882,729          2,083,961

General and administrative expenses                             2,734,190        2,182,458          2,676,190
                                                              -----------      -----------        -----------
               Total operating expenses                         5,835,395        4,065,187          4,760,151
                                                              -----------      -----------        -----------
Income (loss) from operations                                    (864,390)         402,212           (848,961)

Gain on sale of securities                                      3,780,872           26,646                  -

Loss on mining assets                                            (538,276)               -                  -

Interest expense, net                                             (96,677)         (85,078)           (43,068)

Equity in loss from Digital River                              (1,829,207)      (1,356,370)                 -
                                                              -----------      -----------        -----------
    Income (loss) before income taxes and
      minority interest in losses of Digital
      River                                                       452,322       (1,012,590)          (892,029)

Provision for income taxes                                        988,000                -                  -
                                                              -----------      -----------        -----------
    Loss before minority interest                                (535,678)      (1,012,590)          (892,029)

Minority interest in losses of Digital River                            -                -            275,634
                                                              -----------      -----------        -----------
    Net loss                                                      (535,678)      (1,012,590)         (616,395)

Preferred stock dividends                                          31,045           19,200             35,000
                                                              -----------      -----------        -----------
    Net loss applicable to common shares                      $  (566,723)     $(1,031,790)       $  (651,395)
                                                              -----------      -----------        -----------
                                                              -----------      -----------        -----------
Net loss per common share, basic and diluted                  $     (0.05)     $      (.10)       $      (.06)
                                                              -----------      -----------        -----------
                                                              -----------      -----------        -----------
Weighted average common shares outstanding,
     basic and diluted                                         11,050,724       10,374,870         10,374,870
                                                              -----------      -----------        -----------
                                                              -----------      -----------        -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                     F-4

<PAGE>



                     TECH SQUARED INC. AND SUBSIDIARIES

            Consolidated Statements of Comprehensive Income (Loss)

                         For the Years Ended December 31

<TABLE>
<CAPTION>
                                                                           1998               1997             1996
                                                                       -----------        -----------       ---------
<S>                                                                    <C>                <C>               <C>
Net loss                                                               $  (535,678)       $(1,012,590)      $(616,395)
                                                                       -----------        -----------       ---------
Other comprehensive income, net of tax:
   Unrealized gains (losses) on securities-
      Unrealized holding gains (losses) arising during the year         67,723,607           (199,917)       (260,000)

      Less- Reclassification adjustment for gains included in
         net loss                                                       (3,780,872)           (26,646)              -
                                                                       -----------        -----------       ---------
Other comprehensive income (loss)                                       63,942,735           (226,563)       (260,000)
                                                                       -----------        -----------       ---------
Comprehensive income (loss)                                            $63,407,057        $(1,239,153)      $(876,395)
                                                                       -----------        -----------       ---------
                                                                       -----------        -----------       ---------
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                     F-5
<PAGE>



                       TECH SQUARED INC. AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                         For the Years Ended December 31

<TABLE>
<CAPTION>
                                                                                                                  Retained
                                                                          Common Stock              Stock         Earnings
                                                                     -----------------------    Subscription    (Accumulated
                                                                       Shares      Amount        Receivable       Deficit)
                                                                     ----------   ----------    ------------   -------------
<S>                                                                  <C>          <C>           <C>            <C>
Balance, December 31, 1995                                           10,374,870   $3,302,066    $       -      $(1,463,569)
   Net loss                                                                   -            -            -         (616,395)
   Payment for shares to effect Jaguar Group, Ltd. merger                     -     (193,485)           -                -
   Preferred stock dividends                                                  -            -            -          (35,000)
   Final allocation of purchase price to effect Jaguar Group,
      Ltd. merger                                                             -       80,522            -                -
   Net change in unrealized loss on available-for-sale securities             -            -            -                -
                                                                     ----------   ----------    ----------    ------------
Balance, December 31, 1996                                           10,374,870    3,189,103            -       (2,114,964)
   Net loss                                                                   -            -            -       (1,012,590)
   Gain on sale of stock by Digital River                                     -            -            -        2,234,215
   Preferred stock dividends                                                  -            -            -          (19,200)
   Warrants exercised                                                       167          333            -                -
   Net change in unrealized loss on available-for-sale securities             -            -            -                -
                                                                     ----------   ----------    ----------    ------------
Balance, December 31, 1997                                           10,375,037    3,189,436            -         (912,539)
   Net loss                                                                   -            -            -         (535,678)
   Preferred stock dividends                                                  -            -            -          (31,045)
   Payment for options exercised                                      1,228,038      800,764     (284,000)               -
   Gain on sale of stock by Digital River                                     -            -           -         4,373,607
   Net change in unrealized gain on available-for-sale securities             -            -           -                 -
                                                                     ----------   ----------    ----------    ------------
Balance, December 31, 1998                                           11,603,075   $3,990,200    $(284,000)     $ 2,894,345
                                                                     ----------   ----------    ----------    ------------
                                                                     ----------   ----------    ----------    ------------
</TABLE>

<TABLE>
<CAPTION>
                                                                       Unrealized
                                                                     Gain (Loss) on
                                                                       Securities         Total
                                                                   -----------------  ------------
<S>                                                                <C>                <C>
Balance, December 31, 1995                                         $   400,000        $ 2,238,497
   Net loss                                                                  -           (616,395)
   Payment for shares to effect Jaguar Group, Ltd. merger                    -           (193,485)
   Preferred stock dividends                                                 -            (35,000)
   Final allocation of purchase price to effect Jaguar Group,
      Ltd. merger                                                            -             80,522
   Net change in unrealized loss on available-for-sale securities     (260,000)          (260,000)
                                                                   -----------        -----------
Balance, December 31, 1996                                             140,000          1,214,139
   Net loss                                                                  -         (1,012,590)
   Gain on sale of stock by Digital River                                    -          2,234,215
   Preferred stock dividends                                                 -            (19,200)
   Warrants exercised                                                        -                333
   Net change in unrealized loss on available-for-sale securities     (226,563)          (226,563)
                                                                   -----------        -----------
Balance, December 31, 1997                                             (86,563)         2,190,334
   Net loss                                                                  -           (535,678)
   Preferred stock dividends                                                 -            (31,045)
   Payment for options exercised                                             -            516,764
   Gain on sale of stock by Digital River                                    -          4,373,607
   Net change in unrealized gain on available-for-sale securities   63,942,735         63,942,735
                                                                   -----------        -----------
Balance, December 31, 1998                                         $63,856,172        $70,456,717
                                                                   -----------        -----------
                                                                   -----------        -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                     F-6

<PAGE>


                       TECH SQUARED INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                         For the Years Ended December 31
<TABLE>
<CAPTION>
                                                                                       1998              1997              1996
                                                                                   ----------        -----------       ----------
<S>                                                                                <C>               <C>               <C>
Operating Activities:
   Net loss                                                                        $ (535,678)       $(1,012,590)      $ (616,395)
   Adjustments to reconcile net loss to net cash provided by (used in)
         operating activities-
         Depreciation and amortization                                                174,931            191,737          244,599
         Equity in losses of Digital River                                          1,829,207          1,356,370                -
         Gain on sale of securities                                                (3,780,872)           (26,646)               -
         Minority interest in Digital River                                                 -                  -         (275,634)
         Loss on mining assets                                                        538,276                  -                -
         Change in operating assets and liabilities:
            Trade accounts receivable                                                (660,024)           151,317         (573,104)
            Inventories                                                               106,575             16,066        1,612,822
            Prepaids and other current assets                                        (181,730)           110,787          173,297
            Accounts payable                                                        2,191,490         (1,457,016)        (511,199)
            Accrued compensation and benefits                                         (34,592)            52,098           44,804
            Other accrued expenses                                                    730,033            280,090          (32,865)
                                                                                   ----------        -----------       ----------
               Net cash provided by (used in) operating activities                    377,616           (337,787)          66,325
                                                                                   ----------        -----------       ----------
Investing Activities:
   Change in restricted cash                                                          (85,843)          (143,623)               -
   Purchase of property and equipment                                                (345,012)          (168,016)        (244,047)
   Patents and organization costs                                                           -                  -          (27,964)
   Proceeds from sale of securities                                                 4,709,272            272,646                -
   Proceeds from sale of mining assets                                                 20,000                  -                -
   Decrease in cash due to deconsolidation of Digital River                                 -           (799,721)               -
   Change in officer/stockholder receivable                                           201,512                  -            4,288
                                                                                   ----------        -----------       ----------
               Net cash provided by (used in) investing activities                  4,499,929           (838,714)        (267,723)
                                                                                   ----------        -----------       ----------
Financing Activities:
   Net borrowings (payments) on revolving line of credit                             (758,333)           486,363         (377,277)
   Issuance of common stock, net                                                      516,764                  -                -
   Stock repurchase                                                                         -                  -          (37,500)
   Dividends paid                                                                    (200,000)          (208,120)        (200,730)
   Proceeds from issuance of Digital River long-term debt, net                              -                  -          848,093
                                                                                   ----------        -----------       ----------
               Net cash provided by (used in) financing activities                   (441,569)           278,243          232,586
                                                                                   ----------        -----------       ----------
Increase (decrease) in cash and cash equivalents                                    4,435,976           (898,258)          31,188

Cash and cash equivalents, beginning of year                                              300            898,558          867,370
                                                                                   ----------        -----------       ----------
Cash and cash equivalents, end of year                                             $4,436,276        $       300       $  898,558
                                                                                   ----------        -----------       ----------
                                                                                   ----------        -----------       ----------
Supplemental cash flow information:
   Cash paid for interest                                                          $  112,770        $    93,970       $   50,375
   Cash paid for income taxes                                                               -                  -                -

Noncash Financing Activities:
   Dividends accrued                                                                   31,045             19,200           35,000
   Noncash repurchase of shares                                                             -                  -          178,485
   Stock subscription receivable                                                      284,000                  -                -

Decrease in various accounts upon deconsolidation of Digital River:
   Prepaids and other current assets                                                        -             (8,934)               -
   Property and equipment                                                                   -           (106,617)               -
   Debt issuance costs                                                                      -           (147,413)               -
   Patents and organization costs                                                           -           (133,488)               -
   Convertible debentures                                                                   -           (998,750)               -
   Accounts payable                                                                         -           (142,445)               -
   Other accrued liabilities                                                                -            (93,621)               -
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                     F-7

<PAGE>



                       TECH SQUARED INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1998 and 1997


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS AND OPERATIONS

Tech Squared Inc. and its wholly owned subsidiaries (the Company) is a
national direct marketer and distributor of microcomputer hardware and
software products primarily for users of Apple Macintosh-Registered
Trademark- personal computers and IBM-compatible personal computers. The
Company's sales and marketing efforts are currently targeted at desktop
publishing, graphic arts and prepress industries through its catalog, "DTP
Direct," to computer dealers and value-added resellers through its
distribution business, and to developers of internal corporate intranet and
external Internet sites and managers of local area networks and wide area
networks through its "Net Direct" catalog.

Prior to January 1, 1997, the consolidated financial statements included the
accounts of the Company and Digital River, Inc. (Digital River), an on-line
distributor of software products via the Internet. In December 1995, the Company
obtained a bargain purchase option to acquire 3,200,000 shares of Digital River
common stock from the Company's majority stockholder and Chairman, representing
at the time a 60% ownership in Digital River. The option is not transferable and
is exercisable at any time through December 31, 2000 for a total exercise price
of $1. During 1997, Digital River converted all of its outstanding debentures
and issued additional common stock pursuant to private placements which reduced
the Company's effective control from 60% at December 31, 1996 to approximately
35% at December 31, 1997. As a result of the reduction in the Company's
ownership percentage, the financial results of Digital River are no longer
consolidated with those of the Company. Beginning January 1, 1997, the Company
accounted for its investment in Digital River using the equity method of
accounting. Digital River sold additional shares of common stock in 1998 through
private placements and its initial public offering of common stock. The
following amounts were recorded as credits to retained earnings in the
accompanying statement of stockholders' equity as a result of the 1997 and 1998
sales of stock by Digital River:

<TABLE>
<CAPTION>
                                                                             Year Ended December 31
                                                                           ---------------------------
                                                                              1998              1997
                                                                           ----------       ----------
            <S>                                                            <C>              <C>
            Increase to investment in Digital River                        $6,964,607       $2,234,215
            Deferred income taxes                                           2,591,000                -
                                                                           ----------       ----------
            Gain on sale                                                   $4,373,607       $2,234,215
                                                                           ----------       ----------
                                                                           ----------       ----------
</TABLE>

On August 11, 1998, Digital River completed an initial public offering of
3,000,000 shares of common stock. This caused the Company's ownership to
decrease to approximately 19%. As of August 12, 1998, the Company began
accounting for its investment in Digital River as an available-for-sale security
in accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which is

                                     F-8



<PAGE>

valued at $35.50 per share, the closing market price at December 31, 1998. In
December 1998, the Company participated in Digital River's follow-up offering by
selling 200,000 shares, further reducing the Company's ownership to
approximately 15% as of December 31, 1998.

Digital River had total assets of $80,328,000 and $3,405,000 as of December 31,
1998 and 1997, respectively. For the years ended December 31, 1998, 1997 and
1996, Digital River recorded a net loss of $13,798,000, $3,485,000 and $689,000
on net sales of $20,911,000, $2,472,000 and $111,000, respectively.

Digital River currently occupies approximately 7,000 square feet of warehouse
space at the Company's corporate headquarters. Prior to August 1998, the
offices of Digital River were also located in the Company's facilities. The
Company bills Digital River for the leased space, and prior to 1999, certain
related costs such as direct labor costs, phone services, general liability
insurance and janitorial services through an administrative charge. Total
charges by the Company to Digital River for administrative expenses were
approximately $207,000, $160,000 and $82,000 in 1998, 1997 and 1996,
respectively.

During 1997, the Company began performing fulfillment services for Digital River
on physical shipments of products, for which Digital River pays the Company a
fulfillment fee. The Company billed Digital River $246,000 and $8,000 for these
services in 1998 and 1997, respectively.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market value.

RESTRICTED CASH

Restricted cash represents amounts held in escrow by certain financial service
providers.

INVENTORIES

Inventories, consisting primarily of products held for resale, are stated at the
lower of cost or market, as determined by the first-in, first-out inventory
method.

                                     F-9


<PAGE>


PROPERTY AND EQUIPMENT

Property and equipment, consisting of furniture, equipment and leasehold
improvements, are stated at cost. For financial reporting purposes, depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, generally five years, or for leasehold improvements, over the length
of the lease.

Property and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                         1998              1997
                                                                      ----------        ----------
        <S>                                                           <C>               <C>
        Furniture and equipment                                       $1,551,112        $1,224,304
        Leasehold improvements                                           159,134           140,929
                                                                      ----------        ----------
                                                                       1,710,246         1,365,233
        Less- Accumulated depreciation
           and amortization                                           (1,210,372)       (1,018,814)
                                                                      ----------        ----------
                                                                      $  499,874        $  346,419
                                                                      ----------        ----------
                                                                      ----------        ----------
</TABLE>

REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment to the customer. Certain
product sales to end users are made pursuant to a 30-day cash back refund
policy. A reserve for returns is established based on historical trends.

ADVERTISING COSTS

Advertising costs related to mailed direct-response advertising are deferred and
charged to expense over the period during which the related sales are expected
to occur. The cost of nondirect-response advertising is charged to expense the
first time the advertising takes place. The Company uses an accelerated
amortization schedule for its "DTP Direct" catalog whereby approximately 90% of
the costs are amortized in the first four months and fully amortized by the
sixth month. Direct-response-related advertising expense was $1,000,000,
$371,000 and $491,000 in 1998, 1997 and 1996, respectively.

INCOME TAXES

Deferred income tax assets and liabilities are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using currently enacted tax rates in effect for the years in which
the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to amounts expected to be realized.

NET LOSS PER COMMON SHARE

Basic loss per common share is computed by dividing net loss applicable to
common shares by the weighted average number of shares of common stock
outstanding during the year. The computation of diluted earnings per common
share is similar to the computation of basic loss per common share, except that
the denominator is increased for the assumed conversion of convertible
securities and the exercise of dilutive options using the treasury stock method.
The shares used in computing basic and diluted earnings per share were the same
for the years ended December 31, 1998, 1997 and 1996. Options and warrants
totaling 4,452,974, 5,661,484

                                     F-10


<PAGE>


and 6,201,958 were excluded from dilutive earnings per share in 1998, 1997
and 1996, respectively, as their effect is antidilutive.

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.
Ultimate results could differ from those estimates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company adopted SFAS No. 130, "Reporting Comprehensive Income," on January
1, 1998. SFAS No. 130 establishes standards for reporting and display in the
financial statements of net income and the components of all other nonowner
changes in equity, referred to as comprehensive income. The Company has elected
to present comprehensive income (loss) as a separate statement in the
accompanying consolidated financial statements.

The Company also adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in 1998. SFAS No. 131 requires disclosure
of business and geographic segments in the consolidated financial statements of
the Company. The adoption of the disclosure requirements of SFAS No. 131 had no
impact on the Company's consolidated financial statements as there is only one
reportable segment.

2.   INVESTMENTS:

The Company acquired the following assets in a merger in 1995 that are not
related to its current operations or to its future operating plans.

CAM DESIGNS, INC.

Cam Designs, Inc. (Cam Designs), a Delaware corporation, is the parent company
of MGA Holdings Ltd., a United Kingdom corporation which designs, engineers and
prototypes tools for the automobile and aerospace industries. During 1998, the
Company sold a portion of its holdings of Cam Designs stock, resulting in
realized gains of approximately $5,000. In October 1998, Cam Designs announced
that its United Kingdom companies were placed in receivership because Cam
Designs could not secure adequate bank financing. Due to Cam Designs distressed
financial situation, the Company wrote off the balance of the Cam Designs stock
during 1998.

During 1997, the Company sold shares resulting in realized gains on sale of Cam
Designs common stock of $27,500, less commissions and fees. As part of a
settlement agreement, the Company is required to hold shares of Cam Design stock
with an escrow agent. The number of escrow shares will be adjusted downward and
released from escrow as payments, set forth in the agreement, are made. These
shares remain in escrow at December 31, 1998.

MINING ASSETS

The Company holds certain mining properties and rights in the Alder Gulch area
of the Virginia City Mining District in southwest Montana, and also near Rimini,
Montana. These properties and rights were obtained in a 1995 merger. In December
1998, the Company sold a

                                     F-11



<PAGE>

portion of these assets and reduced the remaining assets to the estimated
fair value based upon an independent appraisal performed on the properties.

3. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT:

The Company has a revolving credit agreement with a bank which expires in June
1999. Borrowings under the $2,500,000 line are payable on demand, limited by
eligible percentages of accounts receivable and inventory, as defined, and bear
interest at the prime rate plus 1.75%. Borrowings under the agreement are
secured by substantially all the Company's assets. Borrowings on the line
averaged $751,000, $642,000 and $638,000 at average interest rates of 10.10%,
10.25% and 10.25% in 1998, 1997 and 1996, respectively.

Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                           1998         1997
                                                          -------      -------
            <S>                                           <C>          <C>
            Note payable, with interest at 7.5%           $15,000      $95,000
            Less- Current portion                         (15,000)     (80,000)
                                                          -------      -------
                                                          $     -      $15,000
                                                          -------      -------
                                                          -------      -------
</TABLE>

The Company has a flooring program with a financing company covering up to
$633,000 in inventory purchases. As of December 31, 1998, the flooring program
is secured by a standby letter of credit in the amount of $560,000 issued
pursuant to the Company's line of credit with the bank.

4.   INCOME TAXES:

As of December 31, 1998, the Company had net operating loss carryforwards
[NOL's] of approximately $2.0 million. Certain restrictions caused by the
change in ownership could limit annual utilization of the net operating loss
carryforwards. The NOL's expire in various years from 1999 to 2007. The Company
recorded a full valuation allowance in 1998 and 1997 due to the uncertainty
associated with the Company's ability to realize the benefits related to net
operating losses generated.


A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                               1998       1997        1996
                                                             ------       -----      -----
            <S>                                              <C>          <C>        <C>
            U.S. statutory rate                                34.0%      (34.0)%    (34.0)%
            State taxes, net of federal benefit                 3.2        (3.2)      (3.2)
            Digital River net losses                          181.2        49.7       20.0
            Increase (decrease) in valuation allowance          -         (12.5)      17.2
                                                              -----       ----        ----
            Effective income tax rate                         218.4%       -   %        -  %
                                                              -----       ----        ----
                                                              -----       ----        ----
</TABLE>

                                     F-12



<PAGE>


Significant components of the Company's deferred tax assets and liabilities are
as follows as of December 31:

<TABLE>
<CAPTION>
                                                                             1998               1997
                                                                         ------------       ----------
            <S>                                                          <C>                <C>
            Deferred tax assets:
               Inventories                                               $    114,000       $  159,000
               Accrued expenses and reserves                                  292,000          184,000
               Net operating loss carryforwards
                  and credits                                                 853,000          999,000
               Investments                                                    664,000          684,000
                                                                         ------------       ----------
                                                                            1,923,000        2,026,000
               Deferred tax valuation allowance                            (1,183,000)      (1,183,000)
                                                                         ------------       ----------
            Total deferred tax assets                                         740,000          843,000
                                                                         ------------       ----------
            Deferred tax liabilities:
               Depreciation and other                                        (106,000)         (12,000)
               Investment in Digital River                                (40,449,000)        (831,000)
                                                                         ------------       ----------
            Total deferred tax liabilities                                (40,555,000)        (843,000)
                                                                         ------------       ----------
            Net deferred tax liability                                   $(39,815,000)      $        -
                                                                         ------------       ----------
                                                                         ------------       ----------
</TABLE>

5.       STOCK OPTIONS AND WARRANTS:

MACUSA PLAN

In 1995, the Company's stockholders approved the MacUSA 1995 Stock Option Plan
(the MacUSA Plan), reserving and granting options for 2,870,016 shares of the
Company's common stock. Options granted under the MacUSA Plan have been granted
at the current market price on the date of grant. Such options generally vest
six years from the date of grant and may vest earlier in the event certain
targeted net income is achieved. At December 31, 1998, 199,996 of these options
remain outstanding.

TECH SQUARED INC. 1995 STOCK OPTION PLAN

In December 1995, the Company's board of directors approved the Tech Squared
Inc. 1995 Stock Option Plan (the 1995 Plan) and reserved 2,500,000 shares for
future grant. In July 1997, the Company's board of directors approved an
increase to the maximum number of shares available for grant under the 1995 Plan
to 4,000,000 shares, subject to shareholder approval. Options granted under the
1995 Plan are granted at not less than the current market price on the date of
grant, cannot remain outstanding for over ten years and generally become
exercisable over a period of four years. Options outstanding under the 1995 Plan
totaled 2,642,000, 3,600,500 and 2,425,000 in 1998, 1997 and 1996, respectively.
As of December 31, 1998, 373,857 options in the Plan remain to be granted.

1995 NON-EMPLOYEE DIRECTOR OPTION PLAN

Also in December 1995, the Company's board of directors approved the Tech
Squared Inc. 1995 Non-Employee Director Option Plan (the Plan), reserving
350,000 shares of stock for future

                                     F-13



<PAGE>


grant. The Plan allows each director to be granted options for up to 60,000
shares, exercisable at the share price on the date of issuance. These options
vest over a two-year period and remain exercisable for a period of seven
years. Of previously granted shares, 140,000 remain outstanding pursuant to
the Plan as of December 31, 1998.

A summary of the Company's various stock option plans at year-end, with changes
during the year then ended, is as follows (see Notes 10 and 12):

<TABLE>
<CAPTION>
                                       1998                     1997                     1996
                                -------------------      -------------------      --------------------
                                           Weighted                 Weighted                 Weighted
                                           Average                   Average                 Average
                                           Exercise                 Exercise                 Exercise
                                  Shares     Price        Shares     Price         Shares     Price
                                --------- ---------      --------- ----------     --------- ---------
<S>                            <C>        <C>           <C>        <C>           <C>        <C>
Outstanding, beginning
   of year                      5,661,484   $0.89        6,201,958   $1.18        6,974,468   $1.27
      Granted                   1,561,500    1.54        1,354,000    0.75        1,602,500    0.75
      Exercised                (1,228,038)   0.78                -    -                   -    -
      Forfeited/
         canceled              (1,541,972)   1.08       (1,894,474)   1.72       (2,375,010)   0.75
                               ----------   -----        ---------   -----       ----------   -----
Outstanding,
   end of year                  4,452,974   $1.06        5,661,484   $ .89        6,201,958   $1.18
                               ----------   -----        ---------   -----       ----------   -----
                               ----------   -----        ---------   -----       ----------   -----

Exercisable,
   end of year                  2,784,838   $0.83        2,002,366   $ .99        3,066,958   $1.51
                               ----------   -----        ---------   -----       ----------   -----
                               ----------   -----        ---------   -----       ----------   -----

Weighted average fair
   value of employee
   options granted                          $1.54                    $ .50                    $ .22
                                            -----                    -----                    -----
                                            -----                    -----                    -----
</TABLE>

The Company accounts for these plans under Accounting Principles Board Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost for these plans been determined consistent with SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company's net loss and net loss per share
would have been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
                                               1998              1997              1996
                                           ----------        -----------       ---------
<S>                                        <C>               <C>               <C>
Net loss:
   As reported                             $ (535,678)       $(1,012,590)      $(616,395)
   Pro forma                               (2,425,937)        (1,453,394)       (884,399)

Basic and diluted loss per share:
   As reported                             $     (.05)       $      (.10)      $    (.06)
   Pro forma                                     (.22)              (.14)           (.09)
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

                                     F-14



<PAGE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for employee option grants: risk-free interest rate from 4.22%
to 5.50% in 1998, 6.11% in 1997 and 6% in 1996; no expected dividend yield;
expected lives of five years; and expected volatility of 162% to 195% in 1998,
and 206% in 1997. No volatility was used for 1996 as trading was limited.

6.   STOCKHOLDERS' EQUITY:

The Company's redeemable preferred stock carries a 12% cumulative dividend
payable quarterly, is convertible into common stock at any time for $12.50 per
share, carries a preference on liquidation or dissolution of the Company, and
has equal voting rights with the Company's outstanding common stock. The
preferred shares are callable by the Company at any time with 60 days' written
notice, and all outstanding shares must be redeemed by 2002. The Company has no
obligation to redeem the preferred stock prior to 2002. In 1996, the Company
redeemed 25,000 shares of preferred stock for total consideration of $22,500.

The dividend payable to officer/shareholder is evidenced primarily by a note
payable to the Company's majority stockholder and Chairman. The Company paid
approximately $200,000 of this dividend during 1998 and approximately $200,000
in 1997. The note is noninterest-bearing, due on demand and subordinated to the
revolving line of credit. Pursuant to the debt subordination agreement, the
Company can only make payments up to $200,000 in a calendar year.

STOCK SUBSCRIPTION RECEIVABLE

The Company advanced $469,500 to an employee which was used to purchase shares
of common stock. The balance is due in full by September 2000. During 1998, the
employee repaid $185,500 of the loan, and 142,000 shares of common stock are
held by the Company as collateral on the note at December 31, 1998.

WARRANTS

In 1995, the Company granted a warrant to purchase 150,000 shares of stock for
$1.00 per share as compensation for investment banking services and a warrant to
purchase 50,000 shares for $1.00 per share as partial settlement of a note
payable. Both warrants were exercised in 1998.

In connection with a 1995 merger, the Company acquired the Jaguar Group, Ltd.
options and warrants outstanding. These options and warrants allow the holders
to purchase 1,114,354 shares of stock at prices between $2.00 and $15.00 per
share. At December 31, 1997, 1,098,076 of these shares expired and were
forfeited. The remaining 16,278 options and warrants will expire at various
dates from May 1999 through July 2000.

7.   COMMITMENTS AND CONTINGENCIES:

LITIGATION

The Company has been named as a defendant in lawsuits in the normal course of
business. Management believes that the ultimate resolution of these matters will
not have a material adverse effect on the Company's financial position or
results of operations.

                                     F-15



<PAGE>

EMPLOYEE RETIREMENT SAVINGS PLAN

The Company maintains an employee retirement savings plan (the Plan) which
qualifies under Section 401(k) of the Internal Revenue Code. The Plan is
designed to provide eligible employees with an incentive to make regular
contributions into a long-term investment and savings program. The Company
contributed $3,000 in 1998 and $0 in 1997 and 1996.

OPERATING LEASES

The Company leases all of its warehouse and office space and certain equipment
under operating lease agreements. The Company recorded operating lease rental
expense totaling $209,000, $193,000 and $184,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Future minimum lease payments of
$110,000, including estimated common area maintenance, are due by December 31,
1999.

GOVERNMENT REGULATION

The Company presently collects Minnesota sales tax on sales made within the
state of Minnesota. Various states have attempted to impose on direct marketers
the burden of collecting use taxes on the sale of products shipped to state
residents. The United States Supreme Court affirmed its position that it is
unlawful for a state to impose use tax collection obligations on an out-of-state
mail order company whose only contact with the state was the distribution of
catalogs and other advertising materials through the mail and subsequent
delivery of purchased goods by parcel post and interstate common carriers. If
legislation is passed to overturn the United States Supreme Court's decision,
the imposition of a use tax collection obligation on the Company in states to
which it ships products would result in additional administrative expenses to
the Company, could result in price increases to the customer and could have a
material adverse effect on the Company.

8.   RELATED-PARTY TRANSACTIONS:

In December 1995, the Company entered into a consulting agreement with Jaguar
Ventures, Limited, an entity owned by one of the Company's board members and by
two significant stockholders who were principals of Jaguar Group, Ltd. Pursuant
to the agreement, the Company agreed to issue warrants to acquire 300,000 shares
of the Company's common stock at $1.75 per share with certain registration
rights, and paid $50,000 in cash. In September 1996, the Company repriced these
warrants to $1.01 per share. In September 1997, the Company agreed to extend the
term by one year to December 1999, subject to certain restrictions.

The Company has agreed to indemnify its majority stockholder and Chairman for
any tax liability resulting from any challenges to the Company's S corporation
tax returns from 1994 through the date of the Company's conversion to a C
corporation in 1995.

                                     F-16


<PAGE>

                                    PART III




ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth certain information about each of the
Company's directors and executive officers:

<TABLE>
<CAPTION>

NAMES OF DIRECTORS, OFFICERS       AGE         PRINCIPAL OCCUPATION                DIRECTOR SINCE
----------------------------       ---         --------------------                --------------
<S>                                <C>         <C>                                 <C>
Joel A. Ronning                     42         Chairman of the Board                    1995
Charles E. Reese, Jr.               45         President, Chief Executive               1996
                                               Officer and Chief Operating
                                               Officer
Jeffrey F. Martin                   43         Chief Financial Officer                  N/A
Richard J. Runbeck                  53         Director                                 1996
Perry W. Steiner                    33         Director                                 1998

</TABLE>

         JOEL A. RONNING has been Chairman of the Company's Board of
Directors since May 1995. From May 1995 to July 1998, Mr. Ronning served as
the Chief Executive Officer of the Company. From May 1995 to September 1996,
Mr. Ronning also served as the Company's President. From July 1996 to July
1998, Mr. Ronning also served as the Company's Chief Financial Officer. Mr.
Ronning is the founder of MacUSA, Inc. ("MacUSA"), a wholly-owned subsidiary
of the Company, and has served as a member of the MacUSA Board of Directors
since April 1990. From April 1990 to July 1998, Mr. Ronning also served as
the Chief Executive Officer of MacUSA, Inc. Mr. Ronning is also the Chief
Executive Officer and a director of Digital River, Inc., a Minneapolis,
Minnesota-based company specializing in electronic software distribution, in
which the Company holds a 15.3% beneficial ownership interest as of April 23,
1999. Mr. Ronning also serves as a director of the Software Publishers
Association and JASC, Inc.

         CHARLES E. REESE, JR. has served as a director of the Company since
June 1996, has served as President and Chief Operating Officer of the Company
since September 1996 and has served as Chief Executive Officer of the Company
since February 1999. Mr. Reese is also a member of the Board of Directors of
Digital River, Inc., a publicly-held Minneapolis, Minnesota-based company
specializing in electronic software distribution. Mr. Reese is also a member
of the Board of directors of MacUSA, Inc., a wholly-owned subsidiary of the
Company. From April 1995 to August 1996, he was Vice President of Sales and
Marketing of The Weidt Group, a custom software and internet site developer
based in Minnetonka, Minnesota. Mr. Reese served as Vice President of Sales
from July 1987 to April 1995 for LaserMaster Technologies, Inc., an Eden
Prairie, Minnesota based developer, manufacturer and marketer of digital
color printers and chemical-free filmsetters.

         JEFFREY F. MARTIN has served as Chief Financial Officer and
Secretary of the Company since November 1998. From March 1996 to October
1998, Mr. Martin served as a Vice President and Chief Financial Officer of
Andersen Consulting (Enterprise Group), a management company based in
Minneapolis, Minnesota. From February 1988 to March 1996, Mr. Martin served
as a Vice President and Chief Financial Officer of Addco Holding Company, a
manufacturing and distribution company based in St. Paul, Minnesota.

                                      21
<PAGE>

         RICHARD J. RUNBECK has served as a director of the Company since
July 1996. Since December 7, 1998, Mr. Runbeck has been a director of MacUSA,
a wholly-owned subsidiary of the Company. Since October 1985, he has been the
President of Runbeck & Associates, P.A., an accounting firm located in
Brooklyn Center, Minnesota. Mr. Runbeck is a member of the Board of Directors
of Ontrack Data International, Inc., a provider of data recovery services
based in Eden Prairie, Minnesota.

         PERRY W. STEINER has served as a director of the Company since
December 1998. Since July 1998, Mr. Steiner has been President of Digital
River, Inc., a publicly-held, Minneapolis, Minnesota-based company
specializing in electronic software distribution, and has served as a
director of Digital River, Inc., since April 1998. From January 1997 to July
1998, Mr. Steiner served as Vice President of Wasserstein Perella & Co.,
Inc., an investment banking firm, and as Vice President of Wasserstein
Perella Ventures, Inc., the general partner of Wasserstein Adelson Ventures,
L.P., a venture capital fund. From June 1993 to December 1996, Mr. Steiner
was a principal of TCW Capital, a group of leveraged buyout funds managed by
Trust Company of the West.

SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 - BENEFICIAL OWNERSHIP AND
COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires executive officers and directors of the Company, and persons
who beneficially own more than 10 percent of the Company's outstanding shares
of Common Stock or Preferred Stock, to file initial reports of ownership and
reports of changes in ownership of securities of the Company with the
Securities and Exchange Commission. Officers, directors and persons owning
more than 10 percent of the Company's outstanding Common Stock or Preferred
Stock are required by Securities and Exchange Commission regulation to
furnish the Company with copies of all Section 16(a) forms filed. Based
solely on a review of the copies of such reports and amendments thereto
furnished to or obtained by the Company or written representations that no
other reports were required, the Company believes that during the fiscal year
ended December 31, 1998, the Company's directors, officers and beneficial
owners of more than 10 percent of the Company's shares of Common Stock or
Preferred Stock complied with all applicable filing requirements except Joel
A. Ronning and Richard J. Runbeck each filed late one Statement of Changes in
Beneficial Ownership and Perry W. Steiner filed late one Initial Statement of
Beneficial Ownership.

                                      22
<PAGE>

ITEM 11.   EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth certain cash and non-cash
compensation awarded to or earned during the Company's fiscal years ended
December 31, 1996, 1997 and 1998 by the Chief Executive Officer and each
executive officer of the Company who earned or was awarded total compensation
in excess of $100,000 in the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>

                                                                                     LONG TERM
                                                ANNUAL COMPENSATION ($)           COMPENSATION (#)
                                          -----------------------------------    ------------------
                                                                 OTHER ANNUAL        SECURITIES           ALL OTHER
NAME AND POSITION             YEAR        SALARY      BONUS      COMPENSATION    UNDERLYING OPTIONS    COMPENSATION ($)
-----------------             ----        ------      -----      ------------    ------------------    ----------------
<S>                           <C>         <C>        <C>         <C>             <C>                   <C>
Joel A. Ronning (1)(2)        1998            16     201,512       4,100(3)            1,000,000          19,600(4)
   Chairman of the Board      1997            16       --         13,250(3)                   --          19,600(4)
                              1996           298       --         13,250(3)                   --           9,800(4)

Charles E. Reese, Jr.         1998       135,000       --             --                      --             --
   President and Chief        1997       132,014       --             --               1,000,000             --
   Operating Officer

Richard J. Apple(5)           1998       126,250       2,219          --                      --             --

</TABLE>
-----------------------
(1)    Prior to July 1998, Mr. Ronning was also Chief Executive Officer and
       Chief Financial Officer of the Company. The Company currently accrues and
       pays Mr. Ronning a nominal monthly amount relating primarily to his
       health insurance and other employee benefits.
(2)    Does not include compensation paid to Mr. Ronning by Digital River, Inc.
(3)    Compensation relates to an automobile owned by the Company and used by
       Mr. Ronning.
(4)    Represents compensation resulting from a loan to Mr. Ronning on which
       interest was payable at an annual rate of 5%, 0% and 0% for 1996, 1997
       and 1998, respectively, which is below the market rate, assumed for
       purposes of determining compensation, to be 10%. Such loan was repaid in
       full in December 1998. See "CERTAIN TRANSACTIONS."
(5)    Mr. Apple was Chief Executive Officer of the Company from July 1998 to
       February 1999. Mr. Apple was employed by the Company in other capacities
       prior to his election as Chief Executive Officer. The compensation shown
       includes compensation received in all capacities.

                                      23
<PAGE>

OPTION GRANTS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1998

         The following table sets forth information with respect to each
option granted to the executive officers named in the Summary Compensation
Table during the fiscal year ended December 31, 1998:

<TABLE>
<CAPTION>
                                                                                            Potential Realizable
                                                                                              Value at Assumed
                                                                                            Annual Rates of Stock
                                         Percentage of Total                               Price Appreciation for
                                          Options Granted to                                    Option Term(1)
                            Options           Employees         Exercise    Expiration    ------------------------
         Name               Granted          Fiscal Year          Price        Date            5%          10%
-----------------------    ---------     -------------------    --------    ----------    ----------- ------------
<S>                        <C>           <C>                    <C>         <C>           <C>         <C>
                              (#)               (%)               ($)                          ($)         ($)
Joel A. Ronning(2)         1,000,000             64               1.50        9/1/2004      340,096      771,561
Charles E. Reese              --                 --                 --              --           --           --
Richard J. Apple              --                 --                 --              --           --           --

</TABLE>
--------------------------
(1)      The compounding assumes all options are exercised at the end of their
         six-year term. These amounts represent certain assumed rates of
         appreciation, required to be set forth pursuant to Securities and
         Exchange Commission rules. Actual gains, if any, on stock option
         exercises are dependent on the future performance of the Common Stock,
         overall stock market conditions, and continued employment of the option
         holder through the vesting period. The amounts reflected in this table
         may not necessarily be achieved.
(2)      In April 1995, MacUSA granted to Mr. Ronning, pursuant to the MacUSA,
         Inc. 1995 Stock Option Plan (the "MacUSA Plan"), options to purchase
         1,099,990 shares, 1,370,010 shares and 199,996 shares of Common Stock,
         respectively, at an exercise price of $1.01 per share. The ability to
         exercise some of such options was delayed until 2001, subject to
         acceleration if the Company met certain profitability goals or under
         certain other circumstances. Effective as of January 12, 1998, the
         Company granted to Mr. Ronning, in connection with his cancellation of
         2,470,000 of such options, options to purchase 1,000,000 shares of
         Common Stock at an exercise price of $1.50 per share, exercisable for
         six years commencing on September 1, 1998.

AGGREGATE OPTIONS EXERCISED IN THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND
OPTION VALUES AT DECEMBER 31, 1998

         The following table sets forth certain information regarding options
to purchase shares of Common Stock exercised during the Company's fiscal year
ended December 31, 1998, and the number and value of options to purchase
shares of Common Stock held as of December 31, 1998, by the executive
officers named in the Summary Compensation Table:

<TABLE>
<CAPTION>
                                                                                          Value of Unexercised
                           Number of                       Number of Options                  In-the-Money
                            Shares                        at December 31, 1998       Options at December 31, 1998(2)
                           Acquired        Value      -----------------------------  -------------------------------
        Name             on Exercise     Realized(1)  Exercisable    Unexercisable   Exercisable       Unexercisable
---------------------   ---------------  ----------   -----------    -------------   -----------       -------------
<S>                     <C>              <C>          <C>            <C>             <C>               <C>
                             (#)            ($)          (#)               (#)           ($)                 ($)
Joel A. Ronning               --            --         1,199,996               0      1,897,992                   0
Charles E. Reese              --            --           675,000         375,000      1,518,750             843,750
Richard J. Apple            50,000        112,500        175,000         775,000        393,750           1,743,750

</TABLE>
--------------------------
(1)    Value Realized is the difference between the closing price per share on
       the date of exercise, and the option price per share, multiplied by the
       number of shares acquired upon exercise of the option.
(2)    Value of Unexercised In-the-Money Options is the difference between the
       closing price per share of $3.00 at December 31, 1998, and the exercise
       price per share multiplied by the number of shares subject to options.


DIRECTOR COMPENSATION

         Upon initial election to the Board of Directors, each non-employee
director automatically receives an option to purchase 50,000 shares of Common
Stock under the Tech Squared Inc. 1995 Non-

                                      24
<PAGE>

Employee Director Option Plan (the "Director Plan"). The Director Plan was
amended in December 1998 to allow the Board of Directors to vary the number
of Shares issuable upon exercise of the option granted to each new director
and to vary other terms of such options. Options granted under the Director
Plan, unless otherwise detained by the Board of Directors, have an exercise
price equal to the fair market value of one share of Common Stock on the date
of grant. Unless otherwise determined by the Board of Directors, the options
become exercisable in three equal installments on each of the date of initial
election to the Board of Directors and the first two anniversaries of the
date of such election. Options vest and become exercisable only if the
director is a member of the Board of the Directors on the vesting date.
Options granted under the Director Plan expire seven years from the date of
grant. Upon his election as a director of the Company in June 1996, Mr. Reese
was granted an option to purchase 50,000 shares under the Director Plan. All
of such options have vested. Upon his election as a director of the Company
in July 1996, Mr. Runbeck was granted an option to purchase 50,000 shares
under the Director Plan, all of such options have vested. Additionally, in
December 1998, Mr. Runbeck was granted an option to purchase an additional
50,000 shares under the Director Plan at an exercise price of $2.25 per
share. Such options vested immediately upon grant. Upon his election as a
director of the Company in December 1998, Mr. Steiner was granted an option
to purchase 60,000 shares under the Director Plan at an exercise price of
$2.25 per share. Such option vested immediately upon grant.

         The Company generally reimburses non-employee directors for
out-of-pocket expenses incurred to attend the Board of Directors meetings.
The Company does not pay director fees to members of the Board of Directors
who are full-time employees of the Company and does not reimburse such
persons for out-of-pocket expenses in connection with attending Board of
Director meetings.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

         INTRODUCTION. During the fiscal year ended December 31, 1998, the
Board of Directors was responsible for matters relating to the compensation
of the Company's executive officers named in the Summary Compensation Table,
namely Joel A. Ronning, the Company's Chairman of the Board, Charles E.
Reese, Jr., the Company's President, Chief Executive Officer and Chief
Operating Officer, and Richard J. Apple who served as Chief Executive
Officer, from July 1998, to February 1999.

         COMPENSATION PROGRAM. The Company's current executive compensation
program involves a combination of base salary, performance-based bonuses and
long-term incentive awards. Base salaries are intended to attract and retain
highly-qualified executives. Bonuses to executive officers are intended to
reward short-term performance of the executive officer and the Company.
Grants of stock options by the Company are intended to encourage and reward
executive officers based upon the Company's long-term performance and to
provide executive officers with a financial interest in the success of the
Company, which aligns the executive officers' interests with the interests of
the Company's shareholders.

         BASE SALARY. The philosophy of the Board of Directors is to set base
salaries for each of the executive officers of the Company at appropriate
levels for the relative positions of the officer and the duties of the
position. The Board of Directors has the authority to determine the salaries
of the Company's Chief Executive Officer and other executive officers,
subject to the terms of pre-existing employment agreements. The Board of
Directors believes that there should be little change from year to year in
the base salary of the executive officers other than increases due to: (i)
growth of the Company's sales; (ii) growth in responsibility of the position;
or (iii) cost of living increases. The Board of Directors believes that
additional compensation above base levels should be by bonus based on
individual performance and the financial performance of the Company.

         PERFORMANCE-BASED BONUSES. Payment of bonuses to officers of the
Company is determined by the Board of Directors based upon the executive
officer's performance and the Company's financial results.

         LONG-TERM INCENTIVE AWARDS. The Company's long-term incentive
program consists of stock option grants which encourage achievement of
long-term goals and objectives consistent with enhancing

                                      25
<PAGE>

shareholder value. Awards of stock options provide executives with increased
motivation and incentive to exert their best efforts on behalf of the Company
by increasing their personal stake in the Company's success through the
opportunity to acquire a greater equity interest in the Company and to
benefit from appreciation in the value of the Company's stock. All stock
options granted to executive officers have an exercise price of not less than
the market value of the Company's Common Stock on the date of grant, thereby
ensuring that any value derived from such options is dependent upon
subsequent increases in share value which will be realized by shareholders
generally. Executives generally must be continually employed in order for
stock options to vest and become exercisable.

         COMPENSATION OF THE CHAIRMAN OF THE BOARD. The Company has not
entered into an employment agreement with Mr. Ronning. Mr. Ronning is
currently being paid a nominal monthly amount which is applied directly to
his health insurance and other employee benefits.

         COMPLIANCE WITH SECTION 162(m) OF THE TAX CODE. Section 162(m) of
the Tax Code, generally disallows a tax deduction to public companies for
compensation over $1,000,000 to the chief executive officer and the four
highest compensated officers, with certain exceptions. The Company did not
pay cash compensation to any employee during the fiscal year ending December
31, 1998 in excess of the deduction limit of Section 162(m), and does not
anticipate doing so during the fiscal year ending December 31, 1998.

         The foregoing Report will not be deemed incorporated by reference by
any statement incorporating by reference this Proxy Statement, or any portion
thereof, into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 and shall not otherwise be deemed filed under
such Acts.

                                       Joel A. Ronning
                                       Richard J. Runbeck
                                       Richard J. Runbeck
                                       Perry W. Steiner
                                       Board Members

EMPLOYMENT AGREEMENTS

         On August 20, 1996, the Company entered into an employment agreement
with Mr. Reese, as President and Chief Operating Officer of the Company, at
an annual salary of $135,000, with a bonus plan based on the Company's
quarterly profit and growth in sales levels. The plan requires an increase in
both profit and growth in sales, with a cap of $5,000 bonus pay for profit
increase and a minimum of .5% net profits and 20% sales growth before any
bonus is available. In addition, Mr. Reese was granted options to purchase a
total of 1,000,000 shares the Company's Common Stock at $.75 per share,
625,000 of which have vested as of December 31, 1998.

                                     26
<PAGE>

COMPARATIVE STOCK PERFORMANCE

         The following graph compares the cumulative total shareholder
return, assuming $100 invested on May 12, 1995, as if such amount had been
invested in each of: (i) the Company's Common Stock; (ii) the stocks
comprising the Nasdaq Retail Trade Index; and (iii) the stocks included in
the Nasdaq Stock Market Index. The graph assumes the reinvestment of all
dividends, if any. The prices for the Company's Common Stock are closing bid
prices as reported by the Nasdaq OTC Bulletin Board.

                                [GRAPH]

<TABLE>
<CAPTION>

                                                ----------- ------------ ----------- ----------- ------------
                                                 5/12/95     12/29/95     12/31/96    12/31/97    12/31/98
                                                ----------- ------------ ----------- ----------- ------------
<S>                                             <C>         <C>          <C>         <C>         <C>
Tech Squared, Inc.                                 100           67          17         130          160
----------------------------------------------- ----------- ------------ ----------- ----------- ------------
Nasdaq Retail Trade Stocks                         100          109         130         153          186
----------------------------------------------- ----------- ------------ ----------- ----------- ------------
Nasdaq Stock Market (US Companies)                 100          124         152         186          262
----------------------------------------------- ----------- ------------ ----------- ----------- ------------
</TABLE>

                                      27
<PAGE>

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information regarding the beneficial
ownership of Common Stock and Preferred Stock of the Company as of the close
of business on April 23, 1999, unless otherwise indicated, by each director,
by each executive officer named in the Summary Compensation Table and by all
directors and executive officers (regardless of compensation level) of the
Company as a group.


<TABLE>
<CAPTION>

                                                                SHARES OF PREFERRED
                                   SHARES OF COMMON STOCK       STOCK BENEFICIALLY          TOTAL VOTING SHARES
                                    BENEFICIALLY OWNED(1)             OWNED(1)             BENEFICIALLY OWNED(2)
                                   ----------------------      --------------------       -----------------------
                                                 PERCENT                    PERCENT                       PERCENT
NAME OF BENEFICIAL OWNER             AMOUNT     OF CLASS       AMOUNT      OF CLASS         AMOUNT       OF TOTAL
------------------------           ----------   --------       ------      --------       ---------      --------
<S>                                <C>          <C>            <C>         <C>            <C>            <C>
Joel A. Ronning(3)                  6,574,022     49.4%          --           --          6,574,022        48.8%
Charles E. Reese, Jr.(4)              625,000      4.9%          --           --            625,000         4.8%
Richard J. Runbeck(5)                 100,000       *            --           --            100,000          *
Perry W. Steiner(6)                    60,000       *            --           --             60,000          *
Rick Apple(7)                         225,000      1.8%          --           --            225,000         1.8%
All Directors and                   7,584,022     53.7%          --           --          7,584,022        52.4%
Executive Officers as a Group
(5 persons)(8)

</TABLE>

-------------------------------
*        Less than 1% of the outstanding shares.
(1)      Unless otherwise noted, all of the shares are held by individuals
         possessing sole voting and dispositive power with respect to the shares
         owned. Shares not outstanding, but deemed beneficially owned by virtue
         of the right of a person or member of a group to acquire them within 60
         days, are treated as outstanding only when determining the amount and
         percentage owned by such person or group.
(2)      Each share of Preferred Stock of the Company has the right to vote on
         all matters voted upon by the holders of Common Stock. Accordingly, the
         Preferred Stock and Common Stock have been considered to be one voting
         class to show Total Voting Shares Beneficially Owned. The percentage of
         outstanding shares is calculated based upon 12,102,950 shares of Common
         Stock and 160,000 shares of Preferred Stock outstanding as of the close
         of business on April 23, 1999.
(3)      Includes 1,199,996 shares that Mr. Ronning has the right to acquire
         pursuant to the exercise of stock options within 60 days of April 23,
         1999.

(4)      Includes 625,000 shares that Mr. Reese has the right to acquire
         pursuant to the exercise of stock options within 60 days of April 23,
         1999.

(5)      Includes 100,000 shares that Mr. Runbeck has the right to acquire
         pursuant to the exercise of stock options within 60 days of April 23,
         1999.
(6)      Includes 60,000 shares that Mr. Steiner has the right to acquire
         pursuant to the exercise of stock options within 60 days of April 23,
         1999.

(7)      According to the best information available to Tech Squared, Richard
         J. Apple, former chief executive officer of the Company, owns
         directly 225,000 shares. Mr. Apple has filed a lawsuit against the
         Company and others in which he claims he has the right to exercise
         options covering an additional 775,000 shares. The Company denies
         this claim. The number of shares and percent of class listed on the
         accompanying table does not include the contested 775,000 shares.
(8)      Includes 1,800,996 shares that all directors and executive officers as
         a group have the right to acquire pursuant to the exercise of stock
         options within 60 days of April 23, 1999.


                                      28
<PAGE>

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The following table sets forth information regarding the beneficial
ownership of Common Stock and Preferred Stock of the Company as of the close
of business on April 23, 1999, unless otherwise indicated, by each person
known by the Company to be the owner of more than five percent of the
Company's outstanding Common Stock or Preferred Stock.

<TABLE>
<CAPTION>

                                                               SHARES OF PREFERRED
                                  SHARES OF COMMON STOCK              STOCK              TOTAL VOTING SHARES
                                   BENEFICIALLY OWNED(1)      BENEFICIALLY OWNED(1)     BENEFICIALLY OWNED(2)
                                  -----------------------     ---------------------     ---------------------
NAME AND ADDRESS                                 PERCENT                    PERCENT                  PERCENT
OF BENEFICIAL OWNER                AMOUNT        OF CLASS      AMOUNT      OF CLASS      AMOUNT      OF TOTAL
-------------------               --------       --------     --------     --------     --------     --------
<S>                               <C>            <C>          <C>          <C>          <C>          <C>
Ginger Elliot                        --             --          60,000       37.5%       60,000         *
P.O. Box 1036
Kirtland, NM  87417
Betty Plattner                       --             --          50,000       31.3%       50,000         *
1414 Highland Dr.
Solana Beach, CA 92075
Lela D. McCauley                     --             --          20,000       12.5%       20,000         *
P.O. Box 574
Okmulgee, OK 74447
Marianne M. Long, as Trustee         --             --          20,000       12.5%       20,000         *
for Lauren A. Long and
Kathryn W. Long
Zelmay Long                          --             --          10,000        6.3%       10,000         *
1733 S. Florence Av.
Tulsa, OK  74104

</TABLE>
-------------------------------
*        Less than 1% of the outstanding shares.
(1)      Unless otherwise noted, all of the shares are held by individuals
         possessing sole voting and dispositive power with respect to the shares
         shown. Shares not outstanding, but deemed beneficially owned by virtue
         of the right of a person or member of a group to acquire them within 60
         days, are treated as outstanding only when determining the amount and
         percentage owned by such person or group.
(2)      Each share of Preferred Stock of the Company has the right to vote on
         all matters voted upon by the holders of Common Stock. Accordingly, the
         Preferred Stock and Common Stock have been considered to be one voting
         class to show Total Voting Shares Beneficially Owned. The percentage of
         outstanding shares is calculated based upon 12,102,950 shares of Common
         Stock and 160,000 shares of Preferred Stock outstanding as of the close
         of business on April 23, 1999.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         LOAN TO MR. RONNING. In 1993, MacUSA loaned $200,000 to Mr. Ronning.
In consideration of Mr. Ronning's guarantee of a portion of the Company's
bank debt, the interest rate on the note was reduced to 0%, effective as of
January 1, 1997. Such agreement also provided that when the guaranty was
terminated, the interest rate would return to the original amount of 5%. The
note, including the accrued and unpaid interest, was paid in full in December
1998.

                                      29
<PAGE>

         DIVIDEND TO MR. RONNING; REIMBURSEMENT OF TAXES. In 1995, MacUSA
declared a dividend of $1,188,000 payable to the former shareholders of
MacUSA in connection with the conversion of MacUSA from a Subchapter S
corporation to a Subchapter C corporation. The Company paid approximately
$200,731 of this dividend during 1996, approximately $200,731 during 1997,
and $200,000 during 1998 of which Mr. Ronning received $200,000 in 1996,
$200,000 in 1997 and $199,268 in 1998. The remainder of the dividend payable
to Mr. Ronning was evidenced by a note payable to Mr. Ronning (the "Note") in
the principal amount, as of December 31, 1998, of $283,857. The Note did not
bear interest, was due on demand and, under the terms of a Debt Subordination
Agreement dated June 27, 1997 between the Company, Mr. Ronning and First Bank
Minnesota, National Association, now US Bank, National Association ("US
Bank"), was subordinated to indebtedness owed by the Company to US Bank
pursuant to the terms of the Financing and Security Agreement with US Bank
dated June 27, 1997. The Company was limited to making dividend payments of
not more than $200,000 to Mr. Ronning in the aggregate in any calendar year,
provided that the Company was in compliance with the Financing Agreement with
US Bank before and after making such dividend payments. Apart from the
foregoing, the Company was not allowed to make dividend payments without the
prior written consent of US Bank. In March 1996, the Company agreed to
reimburse Mr. Ronning for any personal tax he was required to pay as a result
of the non-interest bearing status of the Note. The balance of such note was
paid in February 1999.

         PERSONAL GUARANTY BY MR. RONNING. Borrowings under the Revolving
Line of Credit Agreement with US Bank were personally guaranteed by Mr.
Ronning up to a maximum of $500,000. Such guarantee was released in December
1998.

         GRANT FROM MR. RONNING OF AN OPTION TO ACQUIRE A SUBSTANTIAL
INTEREST IN DIGITAL RIVER, INC. In December 1995, MacUSA was granted an
option by Mr. Ronning to acquire 3,200,000 shares (after adjustment for an
August 1998 2-for-3 reverse split) of common stock (the "Digital River
Shares") owned by Mr. Ronning. The option (the "Digital River Option")
provided that it was exercisable at any time through December 31, 2000 for
total consideration of one dollar.

         The Digital River Shares are subject to the provisions of the
Fujitsu Modification Agreement dated December 11, 1997 (the "Fujitsu
Agreement") between Mr. Ronning, Fujitsu Limited, a company organized under
the laws of Japan ("Fujitsu"), Digital River, and MacUSA (collectively, the
"Parties"). Pursuant to the terms of the Modification Agreement, the Parties
agreed to terminate previous agreements entered into in connection with an
investment by Fujitsu in Digital River. Under the terms of the Modification
Agreement, MacUSA remains a party to the agreement to the extent that Mr.
Ronning may transfer all shares of Digital River he owns, along with any and
all rights related thereto pursuant to the agreement or otherwise to MacUSA
or the Company. Digital River is engaged in the business of electronic
software distribution. Mr. Ronning is the President and a director of Digital
River.

           In December 1998, the Company participated in Digital River's
secondary offering by exercising and selling 200,000 shares (post-split) of
the Digital River Option realizing net proceeds of $4,430,000. The Company
continues to hold an option to purchase 3,000,000 shares (post-split), which
would represent ownership of approximately 15% of Digital River as of April
23, 1999. The option is not transferable and the balance is exercisable at
any time through December 31, 2000 for total consideration of $0.93
(ninety-three cents). During the term of the option, Mr. Ronning has agreed
to vote the Digital River Shares at the direction of the Company's Board of
Directors. As additional consideration, the Company has agreed to reimburse
Mr. Ronning for any tax liability incurred in connection with the transfer of
the Option or the shares of Digital River stock issuable upon the exercise
thereunder.

         TAX INDEMNIFICATION AGREEMENT WITH MR. RONNING. In December 1995,
the Company entered into a Tax Indemnification Agreement with Mr. Ronning
whereby the Company agreed to indemnify Mr. Ronning for the amount of any
penalties or interest resulting from the redetermination of Mr. Ronning's
share of taxable income attributable to MacUSA and the amount of any
additional taxes

                                      30
<PAGE>

due from Mr. Ronning, to the extent such tax adjustment results in a future
decrease in the taxable income of MacUSA. In 1995, Mr. Ronning owned
approximately 95% of MacUSA, which was a Subchapter S corporation within the
meaning of Section 1361 of the Internal Revenue Code. MacUSA's Subchapter S
status was terminated in 1995, and MacUSA is now a wholly-owned subsidiary of
the Company.

         DIGITAL RIVER LEASE AND FULFILLMENT SERVICES During 1998 and until
April 1999, Digital River occupied up to approximately 7,000 square feet of
warehouse space at the Company's corporate headquarters. Prior to August
1998, the offices of Digital River were also located in the Company's
facilities. The Company billed Digital River for the leased space and certain
related costs such as direct labor costs, phone services, general liability
insurance and janitorial services through an administrative charge. Total
charges by the Company to Digital River for administrative expenses were
approximately $207,000, $160,000 and $82,000 in 1998, 1997 and 1996,
respectively.

         During 1997, the Company began performing fulfillment services for
Digital River on physical shipments of products, for which Digital River paid
the Company a fulfillment fee. The Company billed Digital River approximately
$246,000 and $8,000 for these services in 1998 and 1997, respectively. Such
fulfillment services by the Company were discontinued in April 1999.

ITEM 14.    EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

         Only exhibits filed with this Amendment to Form 10K are listed.

<TABLE>
<CAPTION>

Item
No.      Description
----     -----------
<S>      <C>
23.1     Consent of Arthur Andersen LLP.

</TABLE>

(b)      REPORTS ON FORM 8-K

         None.

                                      31
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                       TECH SQUARED INC.



Date:  July 21, 1999                  By: /s/ Charles E. Reese, Jr.
                                           -----------------------------------
                                           Charles E. Reese, Jr.
                                           President, Chief Executive Officer,
                                           Chief Operation Officer



                                       By: /s/ Jeffrey F. Martin
                                           -----------------------------------
                                           Jeffrey F. Martin
                                           Chief Financial Officer
                                           and Principal Accounting Officer

     In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and
on the dates indicated.


           Signature and Title                           Date Executed
           -------------------                           --------------

           /s/ Joel A. Ronning                           July 21, 1999
           --------------------------------              --------------
           Joel A. Ronning, Director

           /s/ Charles E. Reese, Jr.                     July 21, 1999
           --------------------------------              --------------
           Charles E. Reese, Jr., Director


           -------------------------------               --------------
           Richard J. Runbeck, Director

           /s/ Perry W. Steiner                          July 21, 1999
           -------------------------------               --------------
           Perry W. Steiner, Director


                                      32