<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

For the Quarter Ended October 3, 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 No.: 0-18114

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

Minnesota                                             41-1612861
--------------------------------------------------------------------------------
(State or other jurisdiction of          (IRS Employer Identification No.)
incorporation or organization)

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

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


--------------------------------------------------------------------------------
                    (Former name, former address and former
                   fiscal year, if changed since last report)

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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____  No _____

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Class                                          Outstanding at 10/29/99
-----                                          -----------------------

Common Stock, $.01 par value                          15,810,116
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     VIRTUALFUND.COM, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
                                     ASSETS
                                     ------
                                                                        October 3,         June 30,
                                                                          1999               1999
                                                                       ------------      ------------
<S>                                                                    <C>               <C>
CURRENT ASSETS:
      Cash and cash equivalents                                        $     97,823      $    250,792
      Accounts receivable, less allowance for
        doubtful accounts and sales returns of
        $1,096,000 and $1,234,000, respectively                          10,852,983        12,858,200
      Receivable - related parties                                        1,627,446         1,378,749
      Inventory                                                           7,618,447         8,630,576
      Other current assets                                                2,231,582         2,094,433
                                                                       ------------      ------------
          TOTAL CURRENT ASSETS                                           22,428,281        25,212,750

PROPERTY AND EQUIPMENT, NET                                               3,492,038         3,632,243

GOODWILL, less accumulated amortization
    of $1,911,780 and $1,338,246, respectively                            9,558,889        10,132,423

OTHER ASSETS                                                                408,494           223,676
                                                                       ------------      ------------
                                                                       $ 35,887,702      $ 39,201,092
                                                                       ============      ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------

CURRENT LIABILITIES:
      Notes payable                                                    $  3,165,068      $  3,868,002
      Notes payable - related parties                                     2,250,037         2,235,766
      Current maturities of long-term debt                                  682,517           720,830
      Accounts payable                                                   11,190,326        12,737,616
      Accrued payroll and payroll taxes                                   2,326,910         2,380,492
      Other current liabilities                                           1,950,307         1,757,822
      Deferred revenue                                                    1,829,401         1,442,288
                                                                       ------------      ------------
          TOTAL CURRENT LIABILITIES                                      23,394,566        25,142,816

LONG-TERM DEBT, less current maturities                                     463,138           614,245

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
      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         7,500,000
      Common stock, $.01 par value; authorized
         50,000,000 shares; 15,810,116 and 15,803,866
         shares issued and outstanding, respectively                        158,101           158,039
      Additional paid in capital                                         33,047,921        33,040,170
      Accumulated deficit                                               (28,676,024)      (27,254,178)
                                                                       ------------      ------------
          TOTAL STOCKHOLDERS' EQUITY                                     12,029,998        13,444,031
                                                                       ------------      ------------
                                                                       $ 35,887,702      $ 39,201,092
                                                                       ============      ============
</TABLE>


                 See notes to consolidated financial statements

                                       2
<PAGE>

                     VIRTUALFUND.COM, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


                                                      Three Months Ended
                                                  ----------------------------
                                                  October 3,      October 4,
                                                      1999           1998
                                                  -----------     -----------
CONTINUING OPERATIONS
    NET SALES                                     $ 1,900,943

    COST OF GOODS SOLD                              1,548,194
                                                  -----------     -----------
         GROSS PROFIT                                 352,749


    OPERATING EXPENSES:
         Sales & Marketing                            567,584     $   111,426
         Research & Development                       453,925         233,585
         General & Administrative                   1,371,047         748,016
         Goodwill Amortization                        573,534
                                                  -----------     -----------
                                                    2,966,090       1,093,027
                                                  -----------     -----------
    OPERATING LOSS                                 (2,613,341)     (1,093,027)

    OTHER INCOME (EXPENSE):
         Interest Expense                            (100,256)         (8,754)
         Interest Income                               26,290          13,681
         Other Income                                   7,223
                                                  -----------     -----------
                                                      (66,743)          4,927
                                                  -----------     -----------

    LOSS FROM CONTINUING OPERATIONS
         BEFORE INCOME TAXES                       (2,680,084)     (1,088,100)
    INCOME TAX BENEFIT                                466,000         155,000
                                                  -----------     -----------
    LOSS FROM CONTINUING OPERATIONS               (2,214,084)        (933,100)
EARNINGS FROM DISCONTINUED OPERATIONS, net of
   income tax provision of $466,000 and
   $155,000, respectively                             792,238         264,428
                                                  -----------     -----------

NET LOSS                                          $(1,421,846)    $  (668,672)
                                                  ===========     ===========

BASIC AND DILUTIVE NET (LOSS)
   EARNINGS PER COMMON SHARE
        LOSS FROM CONTINUING OPERATIONS           $      (.14)    $      (.06)
        EARNINGS FROM DISCONTINUED OPERATIONS     $       .05     $       .02
                                                  -----------     -----------
        NET LOSS PER COMMON SHARE                 $      (.09)    $      (.04)
                                                  ===========     ===========


Weighted average common shares outstanding         15,804,524      15,778,866


                 See notes to consolidated financial statements.

                                       3
<PAGE>

                     VIRTUALFUND.COM, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)


<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                              --------------------------
                                                               October 3,     October 4,
                                                                 1999           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Loss                                                 $(1,421,846)   $  (668,672)
     Adjustments to reconcile net loss to net
          cash provided by (used in) operating activities:
              Depreciation and amortization                       501,011        473,737
              Amortization of goodwill                            573,534
              Loss (gain) on sale of property and equipment           419         (2,379)
          Change in current assets and current liabilities:
              Accounts receivable                               1,986,093      3,597,478
              Inventory                                         1,012,129     (2,586,828)
              Other current assets                               (137,149)      (483,227)
              Accounts payable                                 (1,547,290)      (343,300)
              Accrued payroll and payroll taxes                   (53,582)      (774,108)
              Other current liabilities                           206,756       (755,563)
              Deferred revenue                                    387,113         32,509
                                                              -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES             1,507,188     (1,510,353)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Loans to related parties                                    (229,573)      (175,000)
     Collection of notes receivable - related party                              175,000
     Additions to property and equipment                         (303,172)      (315,684)
     Proceeds from sale of property and equipment                     509         10,315
     Additions to other assets                                   (218,340)        (5,285)
     Other                                                                      (425,580)
                                                              -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                            (750,576)      (736,234)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payment of related party note payable                                    (1,798,588)
     Net payments under revolving credit lines                   (727,974)      (547,065)
     Payments on long-term debt                                  (189,420)      (335,925)
     Issuance of common stock                                       7,813
                                                              -----------    -----------
NET CASH USED IN FINANCING ACTIVITIES                            (909,581)    (2,681,578)
                                                              -----------    -----------

DECREASE IN CASH AND CASH EQUIVALENTS                            (152,969)    (4,928,165)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                  250,792      5,436,761
                                                              -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                    $    97,823    $   508,596
                                                              ===========    ===========
</TABLE>

                 See notes to consolidated financial statements.

                                       4
<PAGE>

                     VIRTUALFUND.COM, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of presentation -

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles for
     interim financial information and with the instructions to Form 10-Q and
     Rule 10-01 of Regulation S-X. They do not include all information and
     footnotes required by generally accepted accounting principles for complete
     financial statements. However, except as disclosed herein, there has been
     no material change in the information disclosed in the notes to
     consolidated financial statements included in the Annual Report on Form
     10-K of VirtualFund.com, Inc. and subsidiaries (the "Company") for the year
     ended June 30, 1999. In the opinion of management, all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     presentation have been included. Operating results for the quarter ended
     October 3, 1999, are not necessarily indicative of the results that may be
     expected for the year ending June 30, 2000.

2.   Business Combinations

     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. 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 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 three months ended October 3, 1999 and October 4, 1998 assume the
     acquisition occurred as of July 1, 1997:


                                            Oct. 3, 1999    Oct. 4, 1998
                                            ------------    ------------

     Net sales                              $ 1,900,943      $ 1,940,481
     Net loss                                (2,214,084)      (1,554,960)
     Loss per common share                         (.14)            (.10)

3.   Discontinued Operations

     Management has indicated its intent to sell the Digital Graphics Business
     Unit (DGBU) and as a result, all DGBU operations are disclosed herein as
     discontinued operations.

     Net sales from discontinued operations were $17,755,060 and $15,355,294 in
     the three months ended October 3, 1999 and October 4, 1998, 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
     October 3, 1999 and June 30, 1999 are as follows:

                                       5
<PAGE>

                                          Oct. 3, 1999     June 30, 1999
                                          ------------     -------------

     Accounts and notes receivable         $9,580,326       $12,374,195
     Inventory                              7,618,447         8,630,576
     Other current assets                   2,006,997         1,976,591
     Property and equipment, net            2,013,750         2,109,494
     Other assets                             163,637           107,659
     Notes payable                          2,687,068         3,237,835

4.   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 loss per share because to do so would have been antidilutive
     for the periods presented:

                                                 Quarter Ended
                                          ----------------------------
                                          October 3,        October 4,
                                             1999              1998
                                          ----------        ----------

      Stock options                       5,197,389         3,775,539
      Warrants                            3,034,953         3,034,953
                                          ---------         ---------
                                          8,232,342         6,810,492
                                          =========         =========

5.   Inventory -

     DGBU inventory consists of the following:

                                           October 3,            June 30,
                                              1999                 1999
                                           ----------           ----------

     Raw materials                         $4,024,566           $4,372,616
     Work in process                          353,752              204,451
     Finished goods:
         Consumables                        2,231,518            2,509,904
         Hardware                           1,008,611            1,543,605
                                           ----------           ----------
                                           $7,618,447           $8,630,576
                                           ==========           ==========

6.   Supplemental disclosure of cash flow information and non-cash financing
     activities -

                                                           Quarter Ended
                                                     ------------------------
                                                     October 3,    October 4,
                                                        1999          1998
                                                     ----------    ----------
     The Company paid and received cash
     for the following items:

          Interest paid                                $257,901      $105,109

          Financing transactions not affecting cash:
            Capital lease obligations                    25,040

                                       6
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This Management's Discussion and Analysis contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"). These forward looking statements are subject to a number of risks,
including the Company's continuing need for additional cash, sensitivity of the
Company to technology changes and intense competition, the Company's dependence
on sales of newer products with untested market acceptance, dependence on
numerous product components that are available from single sources, fluctuations
in quarterly operating performance, the strength of the Company's intellectual
property protection, the risks associated with the acquisition and integration
of new businesses, the outcome of litigation, and the size of the Company's
international operations. These and other factors, which are set forth in
Exhibit 99 to this Form 10-Q have caused wide fluctuations in the market price
of the Company's common stock and can be expected to cause similar fluctuations
in the future. Refer to Exhibit 99 of this Form 10-Q for certain important
cautionary factors, risks and uncertainties related to forward-looking
statements.

Liquidity and Discontinued Operations

Management has indicated its intent to sell the Digital Graphics Business Unit
(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.

Net cash provided by operating activities during the quarter ended October 3,
1999 was $1.5 million compared to net cash used in operating activities of $1.5
million in the same period one year ago. Cash flow in the quarter ended October
3, 1999 was positively affected by a decrease in accounts receivable of $2.0
million, and a decrease in inventory of $1.0 million. Cash flow was negatively
affected by a $1.5 million decrease in accounts payable.

Net cash used in investing activities was $751,000 during the quarter ended
October 3, 1999 compared to $736,000 in the same period one year ago. Investment
in capital equipment was $303,000 in the quarter ended October 3, 1999 compared
to $316,000 in the same period one year ago. Investment in intellectual property
was $218,000 and loans to related parties were $230,000 during the quarter ended
October 3, 1999.

Net cash used in financing activities was $910,000 in the quarter ended October
3, 1999 compared to $2.7 million in the same period one year ago. Net repayments
under revolving credit lines were $728,000 in the quarter ended October 3, 1999
compared to $547,000 in the same period one year ago. As a result of the Kilborn
acquisition, we assumed a liability for a note payable to one of the Kilborn
shareholders. The note in the amount of $1.8 million was paid in full during the
quarter ended October 4, 1998.

During the quarter ended October 3, 1999 we incurred a net loss of $1.4 million.
During fiscal 1999, we incurred a net loss of $7.8 million, including a special
tax adjustment of $4.8 million. As of October 3, 1999, we had an accumulated
deficit in stockholders' equity of $28.7 million. In addition, CSC's revolving
credit facility with our senior lender, General Electric Capital Corporation
(GECC), expired in January 1999 and has been extended to December 1999. We are
negotiating to extend the termination of this agreement to more closely align
with the anticipated sale of the DGBU. The assets of the DGBU are pledged as
security for this loan. As of October 3, 1999, $1,029,000 was outstanding on
this credit facility. The ISBU's revolving credit facility has also expired and
we were able to negotiate an extension through November 22, 1999. Currently,
approximately $360,000 is outstanding on this loan.

                                       7
<PAGE>

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 Corporation revolving credit facility to
provide further liquidity sources for the business.

Our longer-term financing needs will depend on the results of our B2BXchange
product, which was rolled out 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

ISBU net sales, which represent continuing operations, were $1.9 million for the
quarter ended October 3, 1999. ISBU net sales are the result of the December
1998 acquisition of K&R Technical Services, Inc. therefore there are no
comparable net sales for the same period one year ago. ISBU net sales for the
quarter ended June 30, 1999 were $1.6 million. Net loss from continuing
operations for the quarter ended October 3, 1999 was $2.2 million or $.14 per
share compared to a net loss of $933,000 or $.06 per share for the same period
one year ago.

The following table sets forth certain items from the Company's Consolidated
Statements of Operations expressed as a percentage of net sales:

                                                         Quarter Ended
                                                          Oct. 3, 1999
                                                         -------------
Net sales                                                     100.0%
Cost of goods sold                                             81.4
                                                             ------
     Gross profit                                              18.6
Operating expenses:
     Sales and marketing                                       29.9
     Research and development                                  23.9
     General and administrative                                72.1
     Goodwill amortization                                     30.2
                                                             ------
     Total operating expenses                                 156.1
                                                             ------
Operating loss                                               (137.5)
Other income (expense):
     Interest expense                                          (5.3)
     Other                                                      1.8
                                                             ------
Loss from continuing operations before income taxes          (141.0)
Income tax benefit                                             24.5
                                                             ------
Loss from continuing operations                              (116.5)
Earnings from discontinued operations                          41.7
                                                             ------
Net loss                                                      (74.8)%
                                                             ======

                                       8
<PAGE>

Net Sales. The following table sets fourth net sales by product line expressed
in thousands and as a percent of net sales:

                                       Quarter Ended      Quarter Ended
                                      October 3, 1999     June 30, 1999
                                      ---------------     -------------
Net Sales
Internet Services Business Unit:
    VAR Product Sales...........      $  323   17.0%     $  235   14.4%
    Hosting/Access Revenue......         211   11.1         250   15.3
    Remote Support..............         231   12.1         123    7.5
    Staff Augmentation..........         504   26.5         616   37.8
    Internet Services...........         482   25.4         371   22.8
    Consulting and Other........         150    7.9          36    2.2
                                      ------  -----      ------   ----

Total net sales.................      $1,901  100.0%     $1,631   100.0%
                                      ======  =====      ======   =====

We anticipate sales to increase in future quarters as we are able to convert
free subscribers of B2BXchange into paying customers who use storage, bandwidth
and applications associated with adopting B2BXchange.

Gross Profit. Gross profit expressed as a percent of net sales, was 18.6% in the
quarter ended October 3, 1999, compared to 17.6% in the quarter ended June 30,
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.
Revenue in the ISBU during the quarter ended October 3, 1999 was primarily from
professional services.

Operating Expenses. Sales and Marketing expenses for the quarter ended October
3, 1999 were $568,000, compared to $111,000 in the same period one year ago and
$466,000 in the quarter ended June 30, 1999. The increase over the comparable
period in the prior year includes $368,000 as a result of the acquisition of K&R
Technical Services, Inc. in December 1998. The increase in expense over the June
quarter is related to additional sales and marketing staff in preparation of the
launch and continued roll out of the B2BXchange.

Research and Development expenses were $454,000 in the quarter ended October 3,
1999, compared to $234,000 in the same period one year ago, and $266,000 in the
quarter ended June 30, 1999. The increases in research and development expenses
are directly related to the B2BXchange product development.

General and Administrative expenses were $1.4 million for the quarter ended
October 3, 1999, compared to $1.2 million in the quarter ended June 30, 1999.
General and administrative expenses include corporate overhead costs, which are
not allocated to discontinued operations. We expect some of these costs will be
eliminated when the DGBU is sold.

Goodwill Amortization relating to the acquisition of K&R Technical Services,
Inc. was $574,000 for the quarter ended October 3, 1999. 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.

Other. Interest expense was $100,000 for the quarter ended October 3, 1999.

                                       9
<PAGE>

Discontinued Operations

Net sales of the DGBU, which is being treated as discontinued operations, were
$17.8 million in the quarter ended October 3, 1999, compared to $15.4 million
for the same period one year ago. Hardware sales were $5.7 million in the
quarter ended October 3, 1999 compared to $4.1 million in the same period one
year ago. The improvement in hardware sales over the prior year, in our
traditionally slow first quarter, is primarily the result of the continuing
success of the DGBU's DisplayMaker Series XII high quality color printers.
Consumable sales, consisting primarily of ink, media, film, maintenance
contracts and spare parts, were $12.1 million in the quarter ended October 3,
1999 compared to $11.3 million in the same period one year ago. The increase in
consumable sales over the comparable period in the prior year 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 printer.

Net income from discontinued operations was $792,000 for the quarter ended
October 3, 1999 compared to $264,000 for the same period one year ago.

Year 2000

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

Our exposure to potential Year 2000 problems exists in two general areas:
technological operations in our sole control, and technological operations
dependent in some way on one or more third parties. The majority of our exposure
in potential Year 2000 problems is in the latter area where the situation is
much less within our ability to predict or control. Our business is heavily
dependent on third parties, many of which are themselves heavily dependent on
technology. We cannot control the Year 2000 readiness of those parties. In some
cases, our third-party dependence is on vendors of technology who are themselves
working towards solutions to Year 2000 problems. We have initiated projects to
identify and correct the potential problem in all of our enterprise systems.
Most of these projects have been completed or are in the final testing stage.
The costs incurred to date for projects specifically related to 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

                                       10
<PAGE>

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.

                           PART II. OTHER INFORMATION

ITEM 1: 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.

The Company is also involved in various legal proceedings related to customer
credit and product warranty and performance issues in the normal course of
business. In certain proceedings the claimants have alleged claims for exemplary
or punitive damages which may or may not bear a direct relationship to the
alleged actual incurred damages, and therefore could have a material adverse
effect on the Company. At this time the Company is not aware of any proceedings
or claims which are expected to have a material effect on the Company's
operations or financial position.

See Exhibit 99, attached, for additional discussion of risks factors related to
legal proceedings.

ITEM 2: CHANGES IN SECURITIES

Nothing to report

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Nothing to report.

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

Nothing to report

ITEM 5: OTHER INFORMATION

Nothing to report.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

                                       11
<PAGE>

(a)  Listing of Exhibits

     99.  Cautionary Factors Under Private Securities Litigation Reform Act of
          1995.

(b)  Reports on Form 8-K

     On August 31, 1999 and September 10, 1999, the Company filed Form 8-K and
     Form 8-KA indicating the addition of Tim Duoos as a director and his
     subsequent appointment to the Audit Committee.

                                       12
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


VIRTUALFUND.COM, INC.



/s/ Melvin L. Masters
------------------------------------
Melvin L. Masters
Chief Executive Officer


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


Dated:  November 15, 1999

                                       13
[{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q", "secsgml_size_bytes": 41567}]
{"company-data": {"conformed-name": "VIRTUALFUND COM INC", "cik": "0000857470", "assigned-sic": "3555", "irs-number": "411612861", "state-of-incorporation": "MN", "fiscal-year-end": "0630"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-18114", "film-number": "99755890"}, "business-address": {"street1": "7156 SHADY OAK ROAD", "city": "EDEN PRAIRIE", "state": "MN", "zip": "55344", "phone": "6129418687"}, "mail-address": {"street1": "7090 SHADY OAK RD", "city": "EDEN PRAIRIE", "state": "MN", "zip": "55344"}, "former-company": [{"former-conformed-name": "LASERMASTER TECHNOLOGIES INC", "date-changed": "19920703"}, {"former-conformed-name": "RASTER DEVICES CORP", "date-changed": "19900708"}]}
SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

For the Quarter Ended October 3, 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 No.: 0-18114

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

Minnesota                                             41-1612861
--------------------------------------------------------------------------------
(State or other jurisdiction of          (IRS Employer Identification No.)
incorporation or organization)

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

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

--------------------------------------------------------------------------------
                    (Former name, former address and former
                   fiscal year, if changed since last report)

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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____  No _____

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Class                                          Outstanding at 10/29/99
-----                                          -----------------------

Common Stock, $.01 par value                          15,810,116
PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     VIRTUALFUND.COM, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
                                     ------
                                                                        October 3,         June 30,
                                                                          1999               1999
                                                                       ------------      ------------
CURRENT ASSETS:
      Cash and cash equivalents                                        $     97,823      $    250,792
      Accounts receivable, less allowance for
        doubtful accounts and sales returns of
        $1,096,000 and $1,234,000, respectively                          10,852,983        12,858,200
      Receivable - related parties                                        1,627,446         1,378,749
      Inventory                                                           7,618,447         8,630,576
      Other current assets                                                2,231,582         2,094,433
                                                                       ------------      ------------
          TOTAL CURRENT ASSETS                                           22,428,281        25,212,750

PROPERTY AND EQUIPMENT, NET                                               3,492,038         3,632,243

GOODWILL, less accumulated amortization
    of $1,911,780 and $1,338,246, respectively                            9,558,889        10,132,423

OTHER ASSETS                                                                408,494           223,676
                                                                       ------------      ------------
                                                                       $ 35,887,702      $ 39,201,092
                                                                       ============      ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------

CURRENT LIABILITIES:
      Notes payable                                                    $  3,165,068      $  3,868,002
      Notes payable - related parties                                     2,250,037         2,235,766
      Current maturities of long-term debt                                  682,517           720,830
      Accounts payable                                                   11,190,326        12,737,616
      Accrued payroll and payroll taxes                                   2,326,910         2,380,492
      Other current liabilities                                           1,950,307         1,757,822
      Deferred revenue                                                    1,829,401         1,442,288
                                                                       ------------      ------------
          TOTAL CURRENT LIABILITIES                                      23,394,566        25,142,816

LONG-TERM DEBT, less current maturities                                     463,138           614,245

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
      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         7,500,000
      Common stock, $.01 par value; authorized
         50,000,000 shares; 15,810,116 and 15,803,866
         shares issued and outstanding, respectively                        158,101           158,039
      Additional paid in capital                                         33,047,921        33,040,170
      Accumulated deficit                                               (28,676,024)      (27,254,178)
                                                                       ------------      ------------
          TOTAL STOCKHOLDERS' EQUITY                                     12,029,998        13,444,031
                                                                       ------------      ------------
                                                                       $ 35,887,702      $ 39,201,092
                                                                       ============      ============
See notes to consolidated financial statements

                                       2
VIRTUALFUND.COM, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                      Three Months Ended
                                                  ----------------------------
                                                  October 3,      October 4,
                                                      1999           1998
                                                  -----------     -----------
CONTINUING OPERATIONS
    NET SALES                                     $ 1,900,943

    COST OF GOODS SOLD                              1,548,194
                                                  -----------     -----------
         GROSS PROFIT                                 352,749

    OPERATING EXPENSES:
         Sales & Marketing                            567,584     $   111,426
         Research & Development                       453,925         233,585
         General & Administrative                   1,371,047         748,016
         Goodwill Amortization                        573,534
                                                  -----------     -----------
                                                    2,966,090       1,093,027
                                                  -----------     -----------
    OPERATING LOSS                                 (2,613,341)     (1,093,027)

    OTHER INCOME (EXPENSE):
         Interest Expense                            (100,256)         (8,754)
         Interest Income                               26,290          13,681
         Other Income                                   7,223
                                                  -----------     -----------
                                                      (66,743)          4,927
                                                  -----------     -----------

    LOSS FROM CONTINUING OPERATIONS
         BEFORE INCOME TAXES                       (2,680,084)     (1,088,100)
    INCOME TAX BENEFIT                                466,000         155,000
                                                  -----------     -----------
    LOSS FROM CONTINUING OPERATIONS               (2,214,084)        (933,100)
EARNINGS FROM DISCONTINUED OPERATIONS, net of
   income tax provision of $466,000 and
   $155,000, respectively                             792,238         264,428
                                                  -----------     -----------

NET LOSS                                          $(1,421,846)    $  (668,672)
                                                  ===========     ===========

BASIC AND DILUTIVE NET (LOSS)
   EARNINGS PER COMMON SHARE
        LOSS FROM CONTINUING OPERATIONS           $      (.14)    $      (.06)
        EARNINGS FROM DISCONTINUED OPERATIONS     $       .05     $       .02
                                                  -----------     -----------
        NET LOSS PER COMMON SHARE                 $      (.09)    $      (.04)
                                                  ===========     ===========

Weighted average common shares outstanding         15,804,524      15,778,866

                 See notes to consolidated financial statements.

                                       3
VIRTUALFUND.COM, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended
                                                              --------------------------
                                                               October 3,     October 4,
                                                                 1999           1998
                                                              -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net Loss                                                 $(1,421,846)   $  (668,672)
     Adjustments to reconcile net loss to net
          cash provided by (used in) operating activities:
              Depreciation and amortization                       501,011        473,737
              Amortization of goodwill                            573,534
              Loss (gain) on sale of property and equipment           419         (2,379)
          Change in current assets and current liabilities:
              Accounts receivable                               1,986,093      3,597,478
              Inventory                                         1,012,129     (2,586,828)
              Other current assets                               (137,149)      (483,227)
              Accounts payable                                 (1,547,290)      (343,300)
              Accrued payroll and payroll taxes                   (53,582)      (774,108)
              Other current liabilities                           206,756       (755,563)
              Deferred revenue                                    387,113         32,509
                                                              -----------    -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES             1,507,188     (1,510,353)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Loans to related parties                                    (229,573)      (175,000)
     Collection of notes receivable - related party                              175,000
     Additions to property and equipment                         (303,172)      (315,684)
     Proceeds from sale of property and equipment                     509         10,315
     Additions to other assets                                   (218,340)        (5,285)
     Other                                                                      (425,580)
                                                              -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                            (750,576)      (736,234)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Payment of related party note payable                                    (1,798,588)
     Net payments under revolving credit lines                   (727,974)      (547,065)
     Payments on long-term debt                                  (189,420)      (335,925)
     Issuance of common stock                                       7,813
                                                              -----------    -----------
NET CASH USED IN FINANCING ACTIVITIES                            (909,581)    (2,681,578)
                                                              -----------    -----------

DECREASE IN CASH AND CASH EQUIVALENTS                            (152,969)    (4,928,165)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                  250,792      5,436,761
                                                              -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                    $    97,823    $   508,596
                                                              ===========    ===========
See notes to consolidated financial statements.

                                       4
VIRTUALFUND.COM, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of presentation -

     The accompanying unaudited consolidated financial statements have been
     prepared in accordance with generally accepted accounting principles for
     interim financial information and with the instructions to Form 10-Q and
     Rule 10-01 of Regulation S-X. They do not include all information and
     footnotes required by generally accepted accounting principles for complete
     financial statements. However, except as disclosed herein, there has been
     no material change in the information disclosed in the notes to
     consolidated financial statements included in the Annual Report on Form
     10-K of VirtualFund.com, Inc. and subsidiaries (the "Company") for the year
     ended June 30, 1999. In the opinion of management, all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     presentation have been included. Operating results for the quarter ended
     October 3, 1999, are not necessarily indicative of the results that may be
     expected for the year ending June 30, 2000.

2.   Business Combinations

     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. 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 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 three months ended October 3, 1999 and October 4, 1998 assume the
     acquisition occurred as of July 1, 1997:

                                            Oct. 3, 1999    Oct. 4, 1998
                                            ------------    ------------

     Net sales                              $ 1,900,943      $ 1,940,481
     Net loss                                (2,214,084)      (1,554,960)
     Loss per common share                         (.14)            (.10)

3.   Discontinued Operations

     Management has indicated its intent to sell the Digital Graphics Business
     Unit (DGBU) and as a result, all DGBU operations are disclosed herein as
     discontinued operations.

     Net sales from discontinued operations were $17,755,060 and $15,355,294 in
     the three months ended October 3, 1999 and October 4, 1998, 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
     October 3, 1999 and June 30, 1999 are as follows:

                                       5
Oct. 3, 1999     June 30, 1999
                                          ------------     -------------

     Accounts and notes receivable         $9,580,326       $12,374,195
     Inventory                              7,618,447         8,630,576
     Other current assets                   2,006,997         1,976,591
     Property and equipment, net            2,013,750         2,109,494
     Other assets                             163,637           107,659
     Notes payable                          2,687,068         3,237,835

4.   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 loss per share because to do so would have been antidilutive
     for the periods presented:

                                                 Quarter Ended
                                          ----------------------------
                                          October 3,        October 4,
                                             1999              1998
                                          ----------        ----------

      Stock options                       5,197,389         3,775,539
      Warrants                            3,034,953         3,034,953
                                          ---------         ---------
                                          8,232,342         6,810,492
                                          =========         =========

5.   Inventory -

     DGBU inventory consists of the following:

                                           October 3,            June 30,
                                              1999                 1999
                                           ----------           ----------

     Raw materials                         $4,024,566           $4,372,616
     Work in process                          353,752              204,451
     Finished goods:
         Consumables                        2,231,518            2,509,904
         Hardware                           1,008,611            1,543,605
                                           ----------           ----------
                                           $7,618,447           $8,630,576
                                           ==========           ==========

6.   Supplemental disclosure of cash flow information and non-cash financing
     activities -

                                                           Quarter Ended
                                                     ------------------------
                                                     October 3,    October 4,
                                                        1999          1998
                                                     ----------    ----------
     The Company paid and received cash
     for the following items:

          Interest paid                                $257,901      $105,109

          Financing transactions not affecting cash:
            Capital lease obligations                    25,040

                                       6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This Management's Discussion and Analysis contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"). These forward looking statements are subject to a number of risks,
including the Company's continuing need for additional cash, sensitivity of the
Company to technology changes and intense competition, the Company's dependence
on sales of newer products with untested market acceptance, dependence on
numerous product components that are available from single sources, fluctuations
in quarterly operating performance, the strength of the Company's intellectual
property protection, the risks associated with the acquisition and integration
of new businesses, the outcome of litigation, and the size of the Company's
international operations. These and other factors, which are set forth in
Exhibit 99 to this Form 10-Q have caused wide fluctuations in the market price
of the Company's common stock and can be expected to cause similar fluctuations
in the future. Refer to Exhibit 99 of this Form 10-Q for certain important
cautionary factors, risks and uncertainties related to forward-looking
statements.

Liquidity and Discontinued Operations

Management has indicated its intent to sell the Digital Graphics Business Unit
(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.

Net cash provided by operating activities during the quarter ended October 3,
1999 was $1.5 million compared to net cash used in operating activities of $1.5
million in the same period one year ago. Cash flow in the quarter ended October
3, 1999 was positively affected by a decrease in accounts receivable of $2.0
million, and a decrease in inventory of $1.0 million. Cash flow was negatively
affected by a $1.5 million decrease in accounts payable.

Net cash used in investing activities was $751,000 during the quarter ended
October 3, 1999 compared to $736,000 in the same period one year ago. Investment
in capital equipment was $303,000 in the quarter ended October 3, 1999 compared
to $316,000 in the same period one year ago. Investment in intellectual property
was $218,000 and loans to related parties were $230,000 during the quarter ended
October 3, 1999.

Net cash used in financing activities was $910,000 in the quarter ended October
3, 1999 compared to $2.7 million in the same period one year ago. Net repayments
under revolving credit lines were $728,000 in the quarter ended October 3, 1999
compared to $547,000 in the same period one year ago. As a result of the Kilborn
acquisition, we assumed a liability for a note payable to one of the Kilborn
shareholders. The note in the amount of $1.8 million was paid in full during the
quarter ended October 4, 1998.

During the quarter ended October 3, 1999 we incurred a net loss of $1.4 million.
During fiscal 1999, we incurred a net loss of $7.8 million, including a special
tax adjustment of $4.8 million. As of October 3, 1999, we had an accumulated
deficit in stockholders' equity of $28.7 million. In addition, CSC's revolving
credit facility with our senior lender, General Electric Capital Corporation
(GECC), expired in January 1999 and has been extended to December 1999. We are
negotiating to extend the termination of this agreement to more closely align
with the anticipated sale of the DGBU. The assets of the DGBU are pledged as
security for this loan. As of October 3, 1999, $1,029,000 was outstanding on
this credit facility. The ISBU's revolving credit facility has also expired and
we were able to negotiate an extension through November 22, 1999. Currently,
approximately $360,000 is outstanding on this loan.

                                       7
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 Corporation revolving credit facility to
provide further liquidity sources for the business.

Our longer-term financing needs will depend on the results of our B2BXchange
product, which was rolled out 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

ISBU net sales, which represent continuing operations, were $1.9 million for the
quarter ended October 3, 1999. ISBU net sales are the result of the December
1998 acquisition of K&R Technical Services, Inc. therefore there are no
comparable net sales for the same period one year ago. ISBU net sales for the
quarter ended June 30, 1999 were $1.6 million. Net loss from continuing
operations for the quarter ended October 3, 1999 was $2.2 million or $.14 per
share compared to a net loss of $933,000 or $.06 per share for the same period
one year ago.

The following table sets forth certain items from the Company's Consolidated
Statements of Operations expressed as a percentage of net sales:

                                                         Quarter Ended
                                                          Oct. 3, 1999
                                                         -------------
Net sales                                                     100.0%
Cost of goods sold                                             81.4
                                                             ------
     Gross profit                                              18.6
Operating expenses:
     Sales and marketing                                       29.9
     Research and development                                  23.9
     General and administrative                                72.1
     Goodwill amortization                                     30.2
                                                             ------
     Total operating expenses                                 156.1
                                                             ------
Operating loss                                               (137.5)
Other income (expense):
     Interest expense                                          (5.3)
     Other                                                      1.8
                                                             ------
Loss from continuing operations before income taxes          (141.0)
Income tax benefit                                             24.5
                                                             ------
Loss from continuing operations                              (116.5)
Earnings from discontinued operations                          41.7
                                                             ------
Net loss                                                      (74.8)%
                                                             ======

                                       8
Net Sales. The following table sets fourth net sales by product line expressed
in thousands and as a percent of net sales:

                                       Quarter Ended      Quarter Ended
                                      October 3, 1999     June 30, 1999
                                      ---------------     -------------
Net Sales
Internet Services Business Unit:
    VAR Product Sales...........      $  323   17.0%     $  235   14.4%
    Hosting/Access Revenue......         211   11.1         250   15.3
    Remote Support..............         231   12.1         123    7.5
    Staff Augmentation..........         504   26.5         616   37.8
    Internet Services...........         482   25.4         371   22.8
    Consulting and Other........         150    7.9          36    2.2
                                      ------  -----      ------   ----

Total net sales.................      $1,901  100.0%     $1,631   100.0%
                                      ======  =====      ======   =====

We anticipate sales to increase in future quarters as we are able to convert
free subscribers of B2BXchange into paying customers who use storage, bandwidth
and applications associated with adopting B2BXchange.

Gross Profit. Gross profit expressed as a percent of net sales, was 18.6% in the
quarter ended October 3, 1999, compared to 17.6% in the quarter ended June 30,
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.
Revenue in the ISBU during the quarter ended October 3, 1999 was primarily from
professional services.

Operating Expenses. Sales and Marketing expenses for the quarter ended October
3, 1999 were $568,000, compared to $111,000 in the same period one year ago and
$466,000 in the quarter ended June 30, 1999. The increase over the comparable
period in the prior year includes $368,000 as a result of the acquisition of K&R
Technical Services, Inc. in December 1998. The increase in expense over the June
quarter is related to additional sales and marketing staff in preparation of the
launch and continued roll out of the B2BXchange.

Research and Development expenses were $454,000 in the quarter ended October 3,
1999, compared to $234,000 in the same period one year ago, and $266,000 in the
quarter ended June 30, 1999. The increases in research and development expenses
are directly related to the B2BXchange product development.

General and Administrative expenses were $1.4 million for the quarter ended
October 3, 1999, compared to $1.2 million in the quarter ended June 30, 1999.
General and administrative expenses include corporate overhead costs, which are
not allocated to discontinued operations. We expect some of these costs will be
eliminated when the DGBU is sold.

Goodwill Amortization relating to the acquisition of K&R Technical Services,
Inc. was $574,000 for the quarter ended October 3, 1999. 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.

Other. Interest expense was $100,000 for the quarter ended October 3, 1999.

                                       9
Discontinued Operations

Net sales of the DGBU, which is being treated as discontinued operations, were
$17.8 million in the quarter ended October 3, 1999, compared to $15.4 million
for the same period one year ago. Hardware sales were $5.7 million in the
quarter ended October 3, 1999 compared to $4.1 million in the same period one
year ago. The improvement in hardware sales over the prior year, in our
traditionally slow first quarter, is primarily the result of the continuing
success of the DGBU's DisplayMaker Series XII high quality color printers.
Consumable sales, consisting primarily of ink, media, film, maintenance
contracts and spare parts, were $12.1 million in the quarter ended October 3,
1999 compared to $11.3 million in the same period one year ago. The increase in
consumable sales over the comparable period in the prior year 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 printer.

Net income from discontinued operations was $792,000 for the quarter ended
October 3, 1999 compared to $264,000 for the same period one year ago.

Year 2000

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

Our exposure to potential Year 2000 problems exists in two general areas:
technological operations in our sole control, and technological operations
dependent in some way on one or more third parties. The majority of our exposure
in potential Year 2000 problems is in the latter area where the situation is
much less within our ability to predict or control. Our business is heavily
dependent on third parties, many of which are themselves heavily dependent on
technology. We cannot control the Year 2000 readiness of those parties. In some
cases, our third-party dependence is on vendors of technology who are themselves
working towards solutions to Year 2000 problems. We have initiated projects to
identify and correct the potential problem in all of our enterprise systems.
Most of these projects have been completed or are in the final testing stage.
The costs incurred to date for projects specifically related to 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

                                       10
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.

                           PART II. OTHER INFORMATION

ITEM 1: 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.

The Company is also involved in various legal proceedings related to customer
credit and product warranty and performance issues in the normal course of
business. In certain proceedings the claimants have alleged claims for exemplary
or punitive damages which may or may not bear a direct relationship to the
alleged actual incurred damages, and therefore could have a material adverse
effect on the Company. At this time the Company is not aware of any proceedings
or claims which are expected to have a material effect on the Company's
operations or financial position.

See Exhibit 99, attached, for additional discussion of risks factors related to
legal proceedings.

ITEM 2: CHANGES IN SECURITIES

Nothing to report

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Nothing to report.

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

Nothing to report

ITEM 5: OTHER INFORMATION

Nothing to report.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

                                       11
(a)  Listing of Exhibits

     99.  Cautionary Factors Under Private Securities Litigation Reform Act of
          1995.

(b)  Reports on Form 8-K

     On August 31, 1999 and September 10, 1999, the Company filed Form 8-K and
     Form 8-KA indicating the addition of Tim Duoos as a director and his
     subsequent appointment to the Audit Committee.

                                       12
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

VIRTUALFUND.COM, INC.

/s/ Melvin L. Masters
------------------------------------
Melvin L. Masters
Chief Executive Officer

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

Dated:  November 15, 1999

                                       13