<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K


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

    For the fiscal year ended June 30, 1999

                                       or

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

    For the transition period from _________________ to __________________

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

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

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

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

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

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

       Title of each class             Name of each exchange on which registered

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

____________________________________   _________________________________________

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

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

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

                              [COVER PAGE 1 OF 2]
<PAGE>

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

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

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


DOCUMENTS INCORPORATED BY REFERENCE:

None.

                              [COVER PAGE 2 OF 2]

                                       2
<PAGE>

Cautionary Statement

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


                                    PART I
                                    ------

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

General Business

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

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

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

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

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


Segment Information

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

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

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

                                                                               3
<PAGE>

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

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

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


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

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

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

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

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

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

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

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

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

Companies that subscribe to B2BXchange will be able to receive:

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

                                                                               4
<PAGE>

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

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

The objective of these commerce-enabled business-to-business Web sites is to
create online trading communities within a targeted vertical market and to
provide information and access to individuals who share a common interest and
thus can benefit from subscribing to B2BXchange.

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

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

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


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

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

                                                                               5
<PAGE>

applications within B2BXchange, enable solutions that can give customers around
the clock access to mission-critical applications and data at lower costs than
maintaining in-house technical staff, systems and networks.

B2BXnetwork, Inc., was formed in December 1998 through VirtualFund.com, Inc.'s
acquisition of K&R Technical Services, Inc. (d/b/a TEAM Technologies) in a
business combination accounted for as a purchase. B2BXnetwork is a Web hosting,
information technology consulting and systems integration company that has been
in business since 1955. B2BXnetwork is a provider of Internet solutions for
businesses including Internet content development, management, security, Web
hosting and site management. In addition, it has a number of long-term client
relationships (including several Fortune 500 companies) for which it provides
systems and network integration services and professional support services such
as onsite training and staffing.

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

B2BXnetwork provides the following advantages to its customers:

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

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

Customer Service. B2BXnetwork is dedicated to providing the highest quality
customer service and seeks to provide rapid and accurate responses through
customer service personnel who can answer questions over the telephone or via e-
mail. B2BXnetwork has invested in advanced customer service software and call
routing technology to streamline the customer service process. In addition,
B2BXnetwork's customer service organization in Cedar Falls can address technical
problems around the clock.


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

The ISBU's other subsidiary, VFND@Ventures II, Inc., is comprised of development
stage projects that require project management, software developers and product
marketing managers, but are not yet ready for product launch. These are early-
stage research and development products that require few senior management
resources. These projects take advantage of the efficiencies gained by having an
organization that provides a development environment and corporate resources
that can be shared by the entire ISBU.  It is expected that these ventures will
be initially released to the market in the form of applications made available
for use within B2BXchange and will benefit from the growth that is anticipated
from that product.

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

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

                                                                               6
<PAGE>

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

XchangeERP(TM)
Enterprise resources are the goods and services required to operate a company,
ranging from items such as information technology, telecommunications equipment
and professional services, to recurring items, such as office equipment,
supplies, travel and entertainment expenses, maintenance and repairs. Today,
most businesses use paper-based methods to acquire and manage operating
resources, although some of these processes are semi-automated. Much of the
process is costly and time consuming and often requires someone to re-enter
data. It can become an administrative logjam as various individuals and
departments are involved in the approval cycle.

Enterprise Resource Planning (ERP) software, which is usually installed in a
company's Information Systems department and is accessed through the company's
internal network, addresses the issues of procuring goods and services and
tracking them through a system. ERP software, which provides a modern,
electronic infrastructure that allows corporations to manage resources
strategically, is generally very costly and is a difficult expenditure for
small- to mid-sized companies to justify. XchangeERP, which is currently in
development, is expected to offer traditional ERP functions but to leverage
Internet technology, to make the software available inexpensively through a
secure connection to the World Wide Web. When released, companies would pay a
monthly subscription fee to use XchangeERP and lower transaction costs through
electronic commerce, automation, and use of decision support techniques to
identify opportunities to rationalize the supply chain. XchangeERP is intended
to be more than just e-procurement because we expect it to help streamline the
management of all operating resources, including capital equipment, services,
and travel and entertainment expenses, and other items requiring approvals
through internal business processes. XchangeERP is intended to provide a
comprehensive system for managing all items requiring approval within one
integrated and secure system accessible via the Internet.

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

Using XchangeEDI through B2BXchange means having access to timely information at
every point in the supply chain. Trading partners can take control of their
inventory and incoming goods, receive purchase orders directly into their
accounting and back office systems, and generate and transmit EDI order
confirmations, shipping notices and invoices. This truly automated streamlined
transaction system allows "just-in-time" inventory control and makes invoicing
faster and more accurate. Document tracking reports can become a part of the
total system so that information is available online in real-time. Once
businesses become electronically enabled with XchangeEDI, they can share
information with other EDI-enabled companies, transact online business
efficiently through B2BXchange, and take advantage of the global reach of the
Internet.

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

                                                                               7
<PAGE>

DataQuarry.com(TM)
Web-based data mining. DataQuarry.com is intended to be an Internet-based data
mining system that helps businesses understand customer buying patterns that can
lead to strong strategic and tactical product and sales decisions. The system is
designed to help companies gather, store, sort and analyze large quantities of
product and sales data with the goal of understanding their customers'
purchasing habits. DataQuarry.com is expected to keep track of multiple customer
purchases and uses MarketBasket technology to determine which products are
typically purchased together, which are rarely purchased, and which are
purchased more often in a particular geographical area. When paired with
customer demographic information, companies can use DataQuarry.com's
MasterProfile feature to quickly determine which types of customers purchase
particular items based on psychographic marketing profiles -- the sum total of
the psychological, economic, educational and socioeconomic background of an
individual.

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

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

netIntersection(TM)
Communities based on geographical area or common interests. netIntersection is
intended to allow Internet users to create their own online "communities of
interest" populated by people and organizations with similar interests. These
virtual communities can be based on unlimited themes, from geographic areas to
vertical industries to specific popular themes such as music, education or
politics. These communities are expected to be global, supporting multilingual
character sets and hosted at high-bandwidth facilities with fast international
data connections. Internet users of like minds come together on a community site
to share ideas, interests, expertise, and to publish content, files and software
accessible to other users with common interests. netIntersection will offer
members free disk space to set up the new community, along with free e-mail
accounts, web site design tools, content management tools, customized threaded
discussion groups, live real-time chat boards, personal planners, and more.
After creating an initial community of interest, a "subscriber" can upgrade to
"customer" status and receive fee-based premium features and enhancements. These
upgrades are expected to include a unique domain name, increased disk space,
electronic commerce capabilities, automatic submission of the site to search
engines, aggregation of topically-focused third-party content, enhanced content
management tools, secure digital file delivery, and collaborative workgroup
software. netIntersection expects to allow members and subscribers to create and
maintain their own targeted and focused virtual space where they can interact
with others of similar interests and create their own growing community on the
Internet. An example of netIntersection software in use on the Internet is at
http://cv.commonline.net  This geographically-defined community of interest has
more than 5,000 users who regularly visit the site to learn about and discuss
local issues.

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

                                                                               8
<PAGE>

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

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

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


Strategy

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

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

The key elements of our strategy for the DGBU are:

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

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

                                                                               9
<PAGE>

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

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

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

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

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

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

The key elements of the strategy for ISBU are:

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

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

Expand Subscriber Growth. B2BXchange reaches subscribers through multiple
methods including Web-based marketing, direct contact at tradeshows, indirect
contact through referrals, and inbound and outbound telephone contact.
B2BXchange intends to continue expanding these methods to further enhance its
ability to attract customers of all sizes. As an example, B2BXchange recently
launched a strategic program to partner with Digital Subscriber Line (DSL)
providers and Competitive Local Exchange Carriers (CLECs) so that they may offer
its free basic B2BXchange products to their current and potential customers as a
way to increase sales of broadband Internet connections and to increase
bandwidth usage.

                                                                              10
<PAGE>

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

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


Market

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

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

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

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

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

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

Growth of the Internet. The Internet is experiencing significant growth and is
emerging as a global medium for communications and commerce. International Data
Corporation (IDC) estimates that the number of global World Wide Web users will
increase from about 97 million at the end of 1998 to about 320 million by the
end of 2002, a 34.6% compounded annual growth rate. IDC also estimates that the
number of Web users in the United States will increase from approximately 53
million at the end of 1998 to about 136 million by the end of 2002, a 27.4%
compounded annual growth rate. During this same period, the number of business
Web sites in the United States is projected by Forrester Research, Inc. to
increase from approximately 650,000 in 1998 to approximately 2.6 million in
2002, a 41.1% compounded annual growth rate. This growth in the number of Web
users and number of Web sites is being driven by a number of factors including:

                                                                              11
<PAGE>

     .    the large and growing installed base of personal computers;

     .    easier and less expensive alternatives for Internet access;

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

     .    electronic commerce-enabling technologies;

     .    higher quality and more diverse content on Web sites;

     .    an increase in the number of networked applications; and

     .    the proliferation of broadband technologies that promise faster, more
          convenient access to the Internet.

Growth in Business-to-Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet an
increasingly attractive medium for businesses to:

     .    disseminate information;

     .    engage in e-commerce;

     .    build customer relationships;

     .    streamline and automate data-intensive processes; and

     .    communicate more efficiently with dispersed employees.

A September 1999 Goldman Sachs Investment Research Report estimates that total
business-to-business (B2B) revenue will grow from $114 billion in 1999 to $1.5
trillion in 2004, a 67.5% compounded annual growth rate.

In the last several years, a large number of businesses have emerged with
operating models that are exclusively dependent on the Internet, while
traditional businesses of all sizes are working quickly to establish a Web
presence and conduct B2B e-commerce on the Internet. Many of these businesses
established their initial Web-based presence with a simple, static electronic
"brochure" for marketing purposes. As they become more familiar with the
Internet as a communications platform, an increasing number of businesses are
implementing a more complex, mission-critical B2B-centered presence on the Web
that encompass sales, customer service, customer acquisition and retention,
employee communications and e-commerce between suppliers and business partners.

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

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

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

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

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

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

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

                                                                              12
<PAGE>

fault-tolerant and scalable network infrastructure. Small- to medium-sized
businesses typically lack the skilled technical resources and capital to design
their own Web sites and install, maintain and monitor their own Web servers and
Internet connectivity. Large businesses typically require state-of-the-art
facilities and networks that are monitored and managed around the clock by
experts in Internet technology and that can be upgraded and scaled to meet the
needs of mission-critical Internet applications. As a result, enterprises of all
sizes are seeking outsourcing arrangements to help build effective Web sites,
improve the sites' reliability and performance, provide continuous monitoring of
their Internet operations and reduce costs.

Trend Toward Application Hosting Outsourcing. Businesses increasingly face
competitive demands to automate business processes. This problem has been
exacerbated by a shortage of skilled technical professionals. Until recently,
implementation of Internet applications required development of customized
in-house software applications or the customization of existing prepackaged
software. This made each implementation unique and costly. It also made
implementation time frames and costs unpredictable. Because of this, businesses
of all sizes are expected to continue to outsource the hosting of these and
other software applications to improve core business processes, reduce costs and
enhance their global competitive position.


Products

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

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

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

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

                                                                              13
<PAGE>

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

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

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

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

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

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

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

B2BXchange software tools and applications include:

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

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

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

                                                                              14
<PAGE>

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

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

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

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

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

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

B2BXNetwork Professional Services. B2BXnetwork provides professional services on
both a "fixed fee" and "time and materials" basis under short-term and long-term
contracts. Services include design, development, implementation, support and
maintenance of information technology solutions with an emphasis on Internet
solutions. B2BXnetwork provides Web hosting for $95 to $1,990 per month.
B2BXnetwork offers Remote Enterprise Management that uses its employees to
monitor customer systems from its Network Operations Center. Fees for this
service start at $1,125 per month and increase with the size and complexity of
the assignment. B2BXnetwork also provides staff augmentation services that
supply its employees to customers on a contract basis. Billing rates for
professional services vary with the degree of complexity of the assignment and
the experience of the required professionals. Standard billing rates range from
$21 per hour to $150 per hour.


Product Development

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

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

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

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

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

                                                                              15
<PAGE>

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


Sales and Marketing

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

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

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

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

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

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

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

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

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

                                                                              16
<PAGE>

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

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

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

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


Manufacturing

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

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

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

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

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

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

                                                                              17
<PAGE>

Service and Support

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

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

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

As of June 30, 1999, B2BXnetwork had 74 professionals and support staff offering
technology solution customization, development, maintenance, installation, and
support services on a fee basis. The B2BXnetwork customers retain the services
of these professionals on a fixed-fee or time and materials basis under short-
term and long-term contracts.

Support for B2BXchange and related tools and applications is performed via
online help, via telephone or through B2BXchange's e-mail support. Support staff
are located in Cedar Falls, Iowa, and Eden Prairie, Minnesota, and are available
to help customers around the clock. With the launch of B2BXchange in October
1999, B2BX expects to hire more support staff to allow B2BXnetwork to meet
customer demands.


Competition

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

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

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

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

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

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

                                                                              18
<PAGE>

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

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

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

B2BX products and services are being developed for business-to-business
transactions on the Internet. B2BX believes the principal competitive factors in
this market are brand recognition, performance, ease of use, variety of value-
added services, functionality and features, and quality of support. Competitors
include a wide variety of companies and organizations, including Internet
software, content, service and technology companies, telecommunication
companies, cable companies, and equipment suppliers. In the future, B2BX may
encounter competition from providers of Web browser software, Web Server
software and other Internet products and services that incorporate competing
features into their offerings. The current and potential competitors of B2BX
include:

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

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

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

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

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

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

Many of B2BX's competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than B2BX
does. As a result, some of these competitors may be able to develop and expand
their network infrastructures and service offerings more rapidly than B2BX can.
They may be able to adapt to new or emerging technologies and changes in
customer requirements more quickly than B2BX can. They may be able to take
advantage of acquisition and other opportunities more readily, devote greater
resources to the marketing and sale of their services and adopt more aggressive
pricing policies than B2BX can. In addition, these competitors have entered and
will likely continue to enter into joint ventures or other partnering programs
to provide additional services that compete with those provided by B2BX.

B2BXnetwork consulting and systems integration services compete for projects and
staff with many competitors who have more experience and resources than
B2BXnetwork. Substantially all of the Big 5 Accounting firms, Cambridge
Technology Partners, Diamond Technology Partners, USWeb/CKS, Whitman-Hart and a
large number of smaller firms compete to locate, hire or purchase resources in
this area.


Proprietary Rights

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

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

                                                                              19
<PAGE>

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

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

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

We currently have no patented technology in the ISBU that would preclude or
inhibit competitors from entering the market. The steps we have taken to protect
the ISBU's intellectual property may not prove sufficient to prevent
misappropriation of the ISBU's technology or to deter independent third-party
development of similar technologies. We also rely on certain technologies that
we license from third parties. These third-party technology licenses may not
continue to be available to us on commercially reasonable terms. The loss of the
ability to use such technology could require the ISBU to obtain the rights to
use substitute technology, which could be more expensive or offer lower quality
or performance, and therefore have an adverse effect on its business.

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


Licenses and Strategic Relationships

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

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

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

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

                                                                              20
<PAGE>

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

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

Employees

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

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

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

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

Environmental Matters

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

We believe that we are in compliance with all material aspects of applicable
federal, state and local laws regarding the discharge of materials into the
environment with respect to both the ISBU and the DGBU. We do not believe that
we will be required to spend any material amount in compliance with these laws.

Other Matters

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

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


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

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

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

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

                                                                              21
<PAGE>

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


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

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

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

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

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

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

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

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

     There were no Broker non-votes.

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

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

                                                                              22
<PAGE>

                                    PART II
                                    -------

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

Dividends

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

Market Information

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

<TABLE>
<CAPTION>
                                             Common Stock
                                            --------------
                                             High    Low
                                            ------  ------
<S>                                         <C>     <C>
Fiscal Year 1998
  First Quarter............................  $3.63   $1.69
  Second Quarter...........................   5.00    2.63
  Third Quarter............................   5.25    3.50
  Fourth Quarter...........................   5.25    3.75

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

Fiscal Year 2000
  First Quarter (September 30, 1999).......   4.13    1.25
</TABLE>

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

                                                                              23
<PAGE>

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

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

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

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

</TABLE>

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

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

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

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

                                                                              24
<PAGE>

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

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

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


Liquidity and Capital Resources

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

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

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

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

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

                                                                              25
<PAGE>

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

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

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

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

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


Results of Operations

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

                                                                              26
<PAGE>

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

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

Net Sales

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

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

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

Total net sales...................     $4,138         100.0%
                                       ======         =====
</TABLE>

Sales Outlook

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

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

                                                                              27
<PAGE>

Gross Margin

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

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


Sales and Marketing

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


Research and Development

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


General and Administrative

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

Goodwill Amortization

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


Interest Expense

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

                                                                              28
<PAGE>

Income Taxes

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

Discontinued Operations

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

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

Foreign Currencies

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

Year 2000

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

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

                                                                              29
<PAGE>

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

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

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


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

See Financial Statements and Supplementary Data attached.


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

None

                                                                              30
<PAGE>

                                   PART III
                                   --------

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

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

<TABLE>
<CAPTION>
                                                                                       Year
                                                                                       Became
Name, Age, Positions, Principal Occupations, Directorships                             Director
----------------------------------------------------------                             --------
<S>                                                                                    <C>
                     Directors whose terms expire in 2000

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



                      Directors whose terms expire in 2001

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

                      Directors whose terms expire in 2002

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

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

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

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

                                                                              31
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                                                              32
<PAGE>

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

Summary Compensation Table

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

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

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


Stock Options

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

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

                                                                              33
<PAGE>

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

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

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

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

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

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


Long-Term Incentive Plan Awards

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


Director Compensation

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

                                                                              34
<PAGE>

Employment Agreements

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

Compensation Committee Interlocks and Insider Participation

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

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

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

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

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

Stephen Fisher (3)                              488,758                *

Robert J. Wenzel (4)                             89,300                *

James H. Horstmann (5)                           45,000                *

Thomas D. Ryan (6)                               87,000                *

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

*  Less than 1%

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

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

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

                                                                              35
<PAGE>

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

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

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

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


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

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

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

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

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

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

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

                                                                              36
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                                                              37
<PAGE>

                                    PART IV
                                    -------

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

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

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

               Independent Auditors' Report

               Consolidated Balance Sheets as of June 30, 1999 and 1998

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

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

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

               Notes to Consolidated Financial Statements

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

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

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

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

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

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

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

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

                                                                              38
<PAGE>

                                  SIGNATURES

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

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

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

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

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

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

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

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

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

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

                                                                              39
<PAGE>


                                  SIGNATURES

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

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

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

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


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

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

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

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

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

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

                                                                              40

<PAGE>

INDEPENDENT AUDITORS' REPORT



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

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

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

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

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


Deloitte & Touche LLP
Minneapolis, Minnesota
October 21, 1999

                                      F-1
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       June 30, 1999             June 30, 1998
                                                                       -------------             -------------
<S>                                                                  <C>                     <C>
ASSETS

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

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

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

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

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

COMMITMENTS AND CONTINGENCIES (Notes 2, 12 and 17)

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

                See notes to consolidated financial statements.

                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Years Ended June 30,
                                                              -------------------------------------------------------------
                                                                   1999                    1998                   1997
                                                              -------------           -------------           -------------
<S>                                                           <C>                     <C>                     <C>
CONTINUING OPERATIONS
   NET SALES                                                  $   4,138,211

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

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

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

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

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


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


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

                              See notes to consolidated financial statements.

                                      F-3
<PAGE>

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

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

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

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


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

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


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

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

                See notes to consolidated financial statements.

                                      F-4
<PAGE>

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

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

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

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

                See notes to consolidated financial statements.

                                      F-5
<PAGE>

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

1.       BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

         Business

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

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

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

         Liquidity/Discontinued Operations

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

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

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

         Credit Risk

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

         Consolidation

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

         Revenue recognition and warranties

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

                                      F-6
<PAGE>

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

         Cash equivalents

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

         Inventories

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

         Property and equipment

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

         Goodwill

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

         Research and Development Costs and Capitalized software

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

         Acquired technology, patents, and licenses

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

         Fair value of Financial instruments

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

         Income taxes

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

                                      F-7
<PAGE>

         Advertising

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

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

         Foreign Currency

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

         Net earnings (loss) per common share

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

         Stock-Based Compensation

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

         Use of Estimates

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

         Comprehensive Income

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

         New Accounting Standards

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

         Reclassifications

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


2.       BUSINESS COMBINATIONS

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

                                      F-8
<PAGE>

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


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

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

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

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

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

3.       DISCONTINUED OPERATIONS

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

                                      F-9
<PAGE>

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


4.   RESTRUCTURING AND OTHER SPECIAL CHARGES

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

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


5.   INVENTORY

     DGBU inventory consists of the following:

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

6.   PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

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

                                      F-10
<PAGE>

         Property and equipment includes assets under capital leases as follows:

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


7.       NOTES PAYABLE

         Notes payable consists of the following:

<TABLE>
<CAPTION>
                                                                           June 30, 1999    June 30, 1998
                                                                           -------------    -------------
         <S>                                                               <C>              <C>
         Note payable under revolving
         line of credit (1)                                                $   1,489,011

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

         Note payable to a bank (3)                                              630,167

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

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

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

         Weighted average interest rate                                             8.04%             6.39%
                                                                           =============     =============
</TABLE>

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

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

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

                                      F-11
<PAGE>

8.       LONG-TERM DEBT

         Long-term debt consists of the following:

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

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

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

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

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

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

         Year ending June 30:

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

9.       CONVERTIBLE SUBORDINATED DEBENTURE

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



10.      STOCKHOLDERS' EQUITY

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

                                      F-12
<PAGE>

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

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


11.      STOCK OPTIONS AND WARRANTS

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


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


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

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

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

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

                                      F-13
<PAGE>

<TABLE>
         <S>                               <C>             <C>                <C>              <C>
         Exercisable, June 30, 1997        3,049,953       $      6.90          779,308        $   2.65
         Exercisable, June 30, 1998        3,034,953              6.91        1,034,513            2.71
         Exercisable, June 30, 1999        3,034,953              6.91        1,160,889            2.76
</TABLE>

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

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


         Pro Forma Information:

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

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

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

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

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

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

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

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

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

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

                                      F-14
<PAGE>

12.      COMMITMENTS

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

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

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

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

         Rent expense under all equipment and facilities operating leases
         (including property taxes, insurance, and maintenance costs) was as
         follows:
<TABLE>
<CAPTION>
                                                                     Year Ended June 30
                                                     ---------------------------------------------
                                                         1999             1998             1997
                                                     ------------     -----------     ------------
               <S>                                   <C>              <C>             <C>
               GRAMPI                                $  1,682,000     $ 1,547,000     $  1,525,000
               TEAM Property Management                   113,000
               Other parties                            1,390,000       1,037,000        1,104,000
                                                     ------------    ------------     ------------
               Total                                 $  3,185,000    $  2,584,000     $  2,629,000
                                                     ============    ============     ============
</TABLE>

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

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

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

                                      F-15
<PAGE>

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

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

13.      INCOME TAXES

         The provision for income taxes consists of the following:

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

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

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

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

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

            Discontinued operations                         $  (1,424,000)      $    (920,000)     $           -
                                                            =============       =============      =============
</TABLE>

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

                                      F-16
<PAGE>

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

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

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

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

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

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


14.      EARNINGS PER SHARE CALCULATION

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

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

                                      F-17
<PAGE>

15.      RELATED PARTY TRANSACTIONS

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

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

         Balances outstanding with related parties are as follows:

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

         Amounts related to continuing operations:

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

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

                                      F-18
<PAGE>

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

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

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

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

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

         Amounts related to discontinued operations:

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



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

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

         Financing transactions not affecting cash:

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

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

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

             Note payable converted to convertible
             subordinated debenture                                                                        859,516

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

             Note payable to related party offset against note
             receivable from related party                                                               1,765,000
</TABLE>

                                      F-19
<PAGE>

<TABLE>
             <S>                                                           <C>             <C>             <C>
             Accrued interest offset against note receivable
             from related party and interest receivable                                                     53,715

             Common stock issued for services                                                              100,000

             Litigation settlement in exchange for common stock                                            636,000

             Capital lease obligations                                     178,856         160,171
</TABLE>

17.      LITIGATION

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

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

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


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


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

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

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

                                      F-20
<PAGE>

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

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

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

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

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

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

                                      F-21
<PAGE>

VIRTUALFUND.COM, INC. AND SUBSIDIARIES                                Schedule I

CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT (PARENT ONLY)

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

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

PROPERTY AND EQUIPMENT, NET                              475,528         648,396

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

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

LIABILITIES AND STOCKHOLDERS' EQUITY

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

LONG-TERM DEBT, less current maturities                                   66,746

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

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

                                      F-22
<PAGE>

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

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

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

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

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

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

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

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

OTHER                                                                          (118,301)

DISTRIBUTIONS TO KILBORN S CORPORATION SHAREHOLDERS                                                               (62,815)

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

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

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

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

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

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

                                      F-23
<PAGE>

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

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

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

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

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

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

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


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

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

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

                                      F-24
<PAGE>

VIRTUALFUND.COM, INC. AND SUBSIDIARIES                               Schedule II

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

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

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

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

                                      F-25
<PAGE>

                                 EXHIBIT INDEX

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

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

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

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

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

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

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




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



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



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



10.5          Twelfth Amendment and Consent to Credit Agreement,
</TABLE>

                                      E-1
<PAGE>

<TABLE>
<S>           <C>                                                           <C>
              dated August 31, 1999, between ColorSpan Corporation and
              General Electric Capital Corporation. ...................     Filed herewith electronically.

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

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

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

99.1          Cautionary Factors Under Private Securities Litigation
              Reform Act of 1995.......................................     Filed herewith electronically.
</TABLE>

                                      E-2