================================================================================
                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A
                                   AMENDMENT 1

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
             For the fiscal year ended   MARCH 31, 2000
                                         --------------

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
             For the transition period from                 to
                                            ---------------    ---------------

                  Commission file number          033-23138-D
                                                  -----------

                                 HEARTSOFT, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

             DELAWARE                                   87-0456766
  -------------------------------           ------------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
         or organization)

             3101 NORTH HEMLOCK CIRCLE, BROKEN ARROW, OKLAHOMA 74012
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (918) 362-3600
--------------------------------------------------------------------------------
                           (Issuer's Telephone Number)

Securities registered under Section 12(b) of the Exchange Act:

       Title of each class                            Name of each exchange
                                                       on which registered

             NONE                                             NONE
             ----                                             ----

Securities registered under Section 12(g) of the Exchange Act:

                                      NONE
                                      ----
                                (Title of class)
================================================================================
<PAGE>


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

The Company is amending its 10-KSB for the fiscal year ending March 31, 2000 as
a result of recently discovering two agreements for consulting services, one
dated September 20, 1998, which will have an impact on the Company's financial
statements and a second dated February 1, 1999, which will not affect the
Company's financial statements. Additionally, the Company is amending its 10-KSB
for sales of unregistered securities.

Part II, items 5, 6 and 7 and Part III, item 13 of the 10-KSB have been amended.

The issuer's revenue for the year ended March 31, 2000 was $315,557.

The aggregate market value of the voting stock held by non-affiliates at March
31, 2000 was $20,227,637. This amount was computed using the average bid and ask
price as of March 31, 2000. For purposes of this computation, all officers,
directors and 5% beneficial owners of Registrant are deemed to be affiliates.

As of March 31, 2000, the issuer had outstanding a total of 11,055,337 shares of
its $.0005 par value Common Stock.

Transitional Small Business Disclosure Format (Check one):  Yes  [ ]  No  [X]



                                       2
<PAGE>

                                 HEARTSOFT, INC.
                                   FORM 10-KSB
                                TABLE OF CONTENTS

ITEM NUMBER AND CAPTION                                                  PAGE
                                                                        NUMBER


PART II

Item 5.  Market for Common Equity and Related Stockholder Matters          4

Item 6.  Management's Discussion and Analysis or Plan of Operation         5

Item 7.  Financial Statements                                              8


PART III


Item 13.  Exhibits and Reports on Form 8-K                                 8

                                       3
<PAGE>

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information:

         Shares of the Company's Common Stock are traded in the over-the-counter
system, through the NQB Bulletin Board under the symbol "HTSF." The range of
high and low bid information for the Company's Common Stock during the last two
years, as reported by the NASDAQ Stock Market, Inc., was as follows:

Quarter Ended                        High Bid          Low Bid
-------------                        --------          -------
June 30, 1998                        $0.5313           $0.4063
September 30, 1998                   $0.4375           $0.1500
December 31, 1998                    $0.2500           $0.1250
March 31, 1999                       $5.9375           $0.1700
June 30, 1999                        $2.0000           $1.2188
September 30, 1999                   $1.7813           $1.2188
December 31, 1999                    $4.8438           $1.2500
March 31, 2000                       $5.0000           $1.7500

         The above quotes reflect inter-dealer prices without retail mark-up or
markdown or commissions, and may not represent actual transactions.

Holders:

          As of March 31, 2000, there were 454 holders of record, and according
to the Company's estimate approximately 3,000 beneficial owners, of the
Company's Common Stock.

Dividends:

         Since its inception, no cash dividends have been paid on the Company's
Common Stock and the Company does not anticipate paying cash dividends in the
foreseeable future.

Recent Sales of Unregistered Securities:

During the three months ended March 31, 2000, the Company has issued the
following securities without registering the securities under the Securities Act
of 1933:

Class of Persons             Consideration
--------------------------------------------------------------------------------
Individual             A total of 150,000 common shares were issued for cash
                       consideration.
---------------------- ---------------------------------------------------------
Individual             A total of 20,000 common shares were issued as
                       consideration for entering into a promissory note.
---------------------- ---------------------------------------------------------
Individuals            A total of 6,207 shares of common stock were issued in
                       lieu of dividends on convertible preferred stock.
---------------------- ---------------------------------------------------------
Employees              A total of 10,000 common shares were issued for services.
---------------------- ---------------------------------------------------------
Investment Group       Sold 775,000 hares of preferred stock, Series A, in a
                       private placement for $775,000 (see Note 6 to financial
                       statements).
---------------------- ---------------------------------------------------------
Investment Group       Series A preferred stock purchasers received warrants to
                       purchase 200,000 shares of common stock (see Note 6 to
                       financial statements).
--------------------------------------------------------------------------------

         The Company relied on the exemption set forth in Section 4(2) of the
Securities Act of 1933, as amended, in connection with the issuances of stock
set forth above. All parties listed above are sophisticated persons or entities,
performed services for the Company or had prior or existing relationships with
members of Company's management staff at the time of the transactions listed
above.

                                       4
<PAGE>

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

         The following discussion should be read in conjunction with the audited
financial statements as well as the associated Notes to the audited financial
statements.

GENERAL
-------

         The Company is a provider of proprietary educational computer software
products distributed to the education and consumer markets. Its products are
sold through an internal sales organization, national and international
resellers, United States based catalogers with an annual aggregate circulation
of approximately 5,000,000 catalogs and online through three corporate websites,
www.heartsoft.com, www.internet-safari.com, www.thinkology.com.

         Through the fiscal year ended March 31, 2000, the Company's product
line was comprised of approximately 40 educational software products that assist
young children in pre-kindergarten through the 6th grade to practice and learn
basic curriculum subjects. However, during fiscal 2001, the Company anticipates
the release of its new secure Internet browser for children, INTERNET
SAFARI(TM). The release of INTERNET SAFARI(TM) will broaden the Company's
product line to include an Internet-based software solution.

         The Company intends to continue to expand its traditional educational
software business through internal growth as well as by focusing a substantial
portion of its resources on the introduction and sale of INTERNET SAFARI(TM).
Beginning in fiscal 2001, the Company intends to use the Internet to expand its
geographic reach deeper into the consumer market both in the United States and
internationally.

         For the year ending March 31, 2000, the Company experienced a loss of
$1,620,448 and accumulated a total deficit of $4,901,959. These net losses and
accumulated deficit have been primarily caused by the Company's efforts in
positioning itself for the release of INTERNET SAFARI(TM) and are related, for
the most part, to marketing and general and administrative expenses. The Company
does not anticipate reaching profitability for at least 15 months.

         To reach profitability, the Company plans, among other things, to do
the following:

     o   introduce its secure Internet browser, INTERNET SAFARI(TM) during
         fiscal 2001;

     o   expand the marketing of all of the Company's products for the consumer
         and school markets by utilizing additional marketing resources such as
         direct mail, on-line purchasing, demonstration versions of key
         products, magazine advertising and more;

     o   establish strategic joint venture partners both in the United States
         and internationally.

         The Company plans to strengthen its brand name awareness and position
and to utilize its technological infrastructure and software development
capabilities to continue refining and upgrading its current and future products.
Accordingly, the Company intends to invest heavily in marketing and advertising,
new partnerships and strategic alliances, and its technology infrastructure. The
Company also anticipates that it will continue to experience losses similar to
or greater than those described above during the next 15 months. Significant
increases in the Company's advertising and marketing campaigns will contribute
to such loss. The Company believes that this program of expansion is necessary
to continue building its brand recognition and ability to generate revenues.

         Further, if the investments mentioned above are successful, the Company
anticipates that it will see an increase in revenues and a narrowing of losses
as percentage of revenues. The Company expects that the combination of increased

                                       5
<PAGE>

revenues and decreased expenses as percentage of revenues will lead to
profitability.

         The Company believes that its investment in the development of INTERNET
SAFARI(TM) and the secure browser's release represents a key element of its
future and that the Company can become a leading player in the children's
Internet market.

         Finally, while the Company's revenue has fluctuated significantly in
recent quarters as the Company shifted available resources between product
development and sales and marketing, there is no guarantee that such
fluctuations will cease nor that the Company will reach profitability.

RESULTS OF OPERATIONS
---------------------

YEAR ENDED MARCH 31, 2000 VS. YEAR ENDED MARCH 31, 1999

Net Revenue

         Revenue for the year ended March 31, 2000 decreased to $315,557 from
$527,915 for the year ended March 31, 1999, a decrease of 40%. The decrease is
primarily attributable to the implementation of a new long-term business plan
that included plans for internal reorganization of the Company's sales and
marketing division as well as the development of significant new software
products. In October, 1999, the Company hired Ms. Nita Seng, a veteran of the
educational software market as Vice President of Sales and Marketing.
Immediately upon joining the Company, Ms. Seng began an extensive analysis of
product sales, which included configuration, price and positioning. Ms. Seng
substantially reorganized the Company's education sales division and began
hiring and training additional sales personnel.


Cost of Production

         The Company includes in cost of production all costs associated with
the acquisition of components, assembly of the finished products, warehousing,
shipping and payroll for personnel associated with the production and shipping
of the finished product. Cost of production for the year ended March 31, 2000
was $158,988 compared to $102,600 for the year ended March 31, 1999. This
represents a 55% increase in cost of production.

         During the reorganization of the Sales and Marketing Division, which
began in October, 1999, the Company reduced the pricing of certain
configurations of its educational software. During ensuing months, the Company
saw an increase in the sale of the number of units shipped, but the revenue
received from each unit was lower causing an increase of cost of materials as a
percentage of total revenues.

         The Company anticipates that costs of production will decrease as a
percentage of sales as the internal reorganization positively impacts efficiency
of operations and revenues increase over the next 1-2 years. The Company also
anticipates that an increased focus on district-wide school purchases of the
Company's products and the ability to increase the purchase of raw materials
in bulk will further reduce cost of production as a percentage of sales.

General and Administrative

         Total general and administrative expenses for the year ended March 31,
2000 increased to $1,021,477 as compared to $602,518 for the same period in
1999, an increase of 70%. This increase in G&A expenses is again directly
attributable to the initial execution of a new business plan as described
elsewhere in this Form 10-KSB.

         In addition, G&A costs related to hiring additional staff Company-wide
combined with increased infrastructure costs related to the general expansion
impacted expenses, such as office space, office furnishings and computer and

                                       6
<PAGE>

telecommunication equipment. Costs related to legal and accounting fees rose by
369% as the Company resumed its fully reporting status and compliance to
expanding SEC guidelines.

         Expenses for consulting advisory services disclosed in Note 10 to the
financial statements totaled $96,315 for the year ended March 31, 2000 compared
to $50,803 for the year ended March 31, 1999.

Sales and Marketing

         Sales and Marketing expenses for the fiscal year ending March 31, 2000
were $462,643 compared to $239,756 for the year ending March 31, 1999. Expenses
for sales and marketing rose 93%. Again, implementation of the Company's
expanded business plan, as discussed above in General and Administrative,
contributed to this increase. The Company significantly expanded its Sales and
Marketing group during the last five months of fiscal year ended March 31, 2000
by hiring nine new personnel, including Ms. Nita Seng, Vice President of Sales
and Marketing.


         Other expenses associated with numerous direct mail campaigns targeted
to schools, new advertising print materials and a substantial increase in
expenses related to the attendance of industry trade-shows also contributed to
the increase in sales and marketing expenses. The Company utilizes a direct mail
approach to notify educators of the Company's planned presence at key
conferences throughout the year and for promotional purposes during school
funding cycles. Costs associated with direct mail campaigns are reflected in
advertising.

         Advertising costs for the fiscal year ended March 31, 2000 were
$171,701 compared to $125,686 for the fiscal year ended March 31, 1999, a 37%
increase.

         The costs associated with conferences include booth rental fees,
equipment and travel expenses. Expenses associated with conferences for fiscal
year ended March 31, 2000 were $83,352 compared to $29,710 in fiscal year ended
March 31, 1999, a 180% increase.

YEAR ENDED MARCH 31, 1999 VS. YEAR ENDED MARCH 31, 1998

Net Revenue

         Net Revenue for the year ended March 31, 1999 was $527,915 compared to
$560,128 for the year ended March 31, 1998, a decrease of 6%. Fluctuations in
advertising campaigns and turnover in internal sales staff contributed to the
small decrease in revenue.

Operating Expense

         Total general and administrative expenses decreased 13% for the year
ended March 31, 1999 when compared to the year ended March 31, 1998. Total
payroll expenses increased 3% when compared to payroll expenses for the year
ended March 31, 1998. With the completion of the Company's new critical thinking
skills product, THINKOLOGY(TM), the Company began to focus a substantial portion
of its resources to building an inside sales team. This enhanced focus on sales
is reflected in an increase in sales payroll expense, which rose 35% in the year
ended March 31, 1999 as compared to the year ended March 31, 1998. During the
year ending March 31, 1999, the Company decreased administrative payroll
expenses by 16% when compared to the earlier year's figures. This decrease was
attributable to increased efficiencies within the organization's administrative
office and the implementation of job cross-training, which allowed redundant
administrative positions to be eliminated.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         The Company's principal sources of liquidity include cash and accounts

                                       7
<PAGE>

receivable of $365,449. Total assets for the Company increased 53% to $1,221,635
for fiscal year ended March 31, 2000 compared to $798,310 for the fiscal year
ended March 31, 1999.

         The Company reduced total liabilities by 39% to $503,850 for the fiscal
year ended March 31, 2000 compared to $831,965 for the fiscal year ended March
31, 1999. During the year ended March 31, 2000, the Company received an
aggregate total of $2,083,521 from financing activities. This represents
proceeds received from private placements of convertible debt and Common Stock
as discussed in other sections of this Form 10-KSB.

         The Company believes that although it is incurring an on-going
operating loss it has sufficient operating capital to meet its obligations
through the end of the first fiscal quarter 2001. However, in order to maintain
current level of operations, the Company will need to draw upon additional
funding sources to meet its operating expenses. Such funding sources may
include, but are not limited to, additional private placements of common or
convertible equities, placement of debt with banks, private or public investors,
or other lending institutions and/or licensing agreements with strategic
partners.

         The Company believes that through a combination of outside sources of
capital and revenues generated from product sales it will have sufficient
sources of capital to meet its operating needs. However, any substantial delays
in receipt of or failure to obtain such capital may prevent the Company from
operating as a going concern, given its limited revenues and capital reserves.


ITEM 7.  FINANCIAL STATEMENTS.

         The Financial Statements of the Company are set forth on pages F-1
through F-14 inclusive, found at the end of this report.

                         INDEX TO FINANCIALS STATEMENTS

Independent Auditors' Report............................................... F-1

Balance Sheet.............................................................. F-2

Statements of Operations................................................... F-4

Statements of Changes in Stockholders' Equity.............................. F-5

Statements of Cash Flows................................................... F-6

Notes to Financial Statements.............................................. F-7



PART III

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   Exhibits:

       EXHIBIT NO.                            DESCRIPTION
--------------------------------------------------------------------------------

         *3.1          Articles of Incorporation of the Company.

         *3.2          By-Laws of the Company.

         *4.1          Specimen of Certificate for Heartsoft, Inc. Common Stock.

         *10.1         Corporate Note to Dale Hill dated October 21, 1998.

         *10.2         Corporate Note to Dale Hill dated February 10, 1998.

                                       8
<PAGE>

         *10.4         Promissory Note dated October 16, 1999 to Tulsa National
                       Bank.

         *10.5         Promissory Note dated December 16, 1999 to Bank of
                       Oklahoma.

         *10.6         Equipment Lease with Auto & Equipment Leasing by Flex,
                       Inc. dated February 12, 1998.

         *10.7         Software Agreement dated May 16, 1997 between Heartsoft,
                       Inc. and Heartsoft 1997 Limited Partnership.

         *10.8         Acquisition Note dated May 16, 1997 from Heartsoft 1997
                       Limited Partnership.

         *10.9         Assumption Agreement dated April 30, 1997 by and among
                       Heartsoft 1997 Limited Partnership, Heartsoft, Inc. and
                       Limited Partners.

         *10.10        Joint Venture Agreement dated May 16, 1997 between
                       Heartsoft, Inc. and Heartsoft 1997 Limited Partnership.

         *10.11        Software Agreement dated July 30, 1997 between Heartsoft,
                       Inc. and Heartsoft II 1997 Limited Partnership.

         *10.12        Acquisition Note dated July 30, 1997 from Heartsoft II
                       1997 Limited Partnership.

         *10.13        Assumption Agreement dated July 30, 1997 by and among
                       Heartsoft II Limited Partnership, Heartsoft, Inc. and
                       Limited Partners.


         *10.14        Joint Venture Agreement dated July 30, 1997 between
                       Heartsoft, Inc. and Heartsoft II 1997 Limited
                       Partnership.

         *10.15        Software Agreement dated October 28, 1997 between
                       Heartsoft, Inc. and Heartsoft III 1997 Limited
                       Partnership.

         *10.16        Acquisition Note dated October 28, 1997 from Heartsoft
                       III 1997 Limited Partnership.

         *10.17        Assumption Agreement dated July 30, 1997 by and among
                       Heartsoft III 1997 Limited Partnership, Heartsoft, Inc.
                       and Limited Partners.

         *10.18        Joint Venture Agreement dated October 28, 1997 between
                       Heartsoft, Inc. and Heartsoft III 1997 Limited
                       Partnership.

          10.19        Convertible Promissory Note dated August 30, 1999 between
                       Heartsoft, Inc. and Hi-Tel Group, Inc.

          10.20        Letter Agreement by and between Heartsoft, Inc. and the
                       Weather Channel Enterprises, Inc. dated September 1,
                       1999.

          10.21        Cobranding Program Agreement by and between Heartsoft,
                       Inc. and Ask Jeeves, Inc. dated September 16, 1999.

          10.22        Engagement Agreement by and between Heartsoft, Inc. and
                       Juanita Seng dated October 1, 1999.

          10.23        Lease dated November, 1999 for commercial office space in
                       Broken Arrow, Oklahoma.

                                       9
<PAGE>

          10.24        Lease dated January, 2000 for commercial office space in
                       Broken Arrow, Oklahoma.

          10.25        Stock Purchase Agreement by and between Heartsoft, Inc.
                       and Hi-Tel Group, Inc. dated March 1, 2000 with
                       Certificate of Designation of the Series A Convertible
                       Preferred Stock attached as Exhibit A and Common Share
                       Purchase Warrant between Heartsoft, Inc. and Hi-Tel
                       Group, Inc. attached as Exhibit B.

          10.26        Web Service Agreement by and between Heartsoft, Inc. and
                       Gaggle, Inc. dated June 9, 2000.

          10.27        Consulting Agreement by and between Heartsoft, Inc. and
                       Intercap Funding LTD dated September 20, 1998.
                       (Incorporated by reference to the Company's Form 10-QSB
                       for the period ended March 31, 2001, which was filed on
                       May 15, 2001.)

          10.28        Non Circumvention and Consulting Agreement by and between
                       Intercap Funding LTD dated February 1, 1999.
                       (Incorporated by reference to the Company's Form 10-QSB
                       for the period ended March 31, 2001, which was filed on
                       May 15, 2001.)

         *21.1         Subsidiaries of Heartsoft.

          23.1         Consent of Tullius Taylor Sartain & Sartain LLP.

-------------
*   Incorporated by reference to the Company's Form 10-KSB/A filed on January
    22, 2000

      (b) Reports on Form 8-K:

A.  Form 8-K filed on February 9, 2000

     During the beginning of the calendar year 2000, the Company discovered that
some reports that the Company believed had been previously filed with the
Securities and Exchange Commission were in fact not filed. One of these reports
was a Form 8-K for the period ended March 31, 1997. On February 9, 2000, the
Company filed this Form 8-K along with several other SEC reports. The Form 8-K
filed on February 9, 2000, included Unaudited Financial Statements of the
Company for the quarter ending March 31, 1997 and reported the following events
that occurred during the period ended March 31, 1997:

         1. Due to changes in personnel employed by the Company's Certifying
         Accountants, Cross & Robinson, Tulsa, Oklahoma, the Company's Board of
         Directors is currently considering a change in the Company's certifying
         accountants. The Board's consideration of this decision has delayed
         release of fiscal 1996's audited financial statement and related 10-K
         filing. The Company hopes to remedy this situation and to file its
         fiscal 1996 10-K within 90 days from March 31, 1997.

         2. During the fourth quarter of fiscal 1996, the Company's board of
         directors, by unanimous consent, agreed to discontinue the company's
         Advanced Technologies Division in Dallas, Texas. Although the division
         had been in existence for only 18 months, it was unable to reach
         profitability, and the Company's board of directors unanimously agree
         that continued investment in the division would not cause a turn around
         in the immediate future. The closing of the Advanced Technologies
         division will have a material affect on the Company's ongoing
         operations by reducing related expenses and reducing gross revenues.

                                       10
<PAGE>

         Subsequently, the Board also decided to re-focus all of the Company's
         resources into the promulgation of its core products division related
         to the development and sales of its proprietary educational software
         products for schools.

         3. During the fourth quarter of fiscal 1996, Charles R. Carlson agreed
         to and did resign from the Company's Board of Directors. Mr. Carlson's
         decision was related to the Board's unanimous consent to discontinue
         the operations of the Company's Advanced Technologies Division in
         Dallas, Texas.

B.  Form 8-K filed on April 10, 2000

         On April 10, 2000, the Company filed a Form 8-K reporting that on March
31, 2000, the Company issued a press release stating that the release of its
secure Internet browser for children, INTERNET SAFARI(TM), would be moved from
the first calendar quarter to the second calendar quarter of 2000. This Form 8-K
did not include any financial statements.


C.  Form 8-K filed on June 29, 2000

         On June 29, 2000, the Company filed a Form 8-K reporting that on June
21, 2000, the Company issued a press release stating that INTERNET SAFARI(TM),
Heartsoft's new secure Internet browser for children, is in final beta testing
prior to its release. The Form 8-K also reported that on June 27, 2000, the
Company issued a press release stating that Heartsoft is planning to have
INTERNET SAFARI(TM) available to meet its district-wide shipping schedule to
schools for the upcoming school year.

         Heartsoft had previously stated in reports filed with the Securities
and Exchange Commission and press releases that it expected to release INTERNET
SAFARI(TM) during second calendar quarter of 2000. Heartsoft now expects to
release INTERNET SAFARI(TM) during the third calendar quarter of 2000. This Form
8-K did not include any financial statements.

                                       11
<PAGE>

SIGNATURES

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

                                           HEARTSOFT, INC.
                                           (Registrant)


Date: July 13, 2001                        /s/ Benjamin P. Shell
                                           -------------------------------------
                                           Benjamin P. Shell, Chairman of the
                                           Board, President, and Chief Executive
                                           Officer

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


Date: July 13, 2001                        /s/ Benjamin P. Shell
                                           -------------------------------------
                                           Benjamin P. Shell, Chairman of the
                                           Board, President, and Chief Executive
                                           Officer (Executive Officer and
                                           Principal Financial Officer)


Date: July 13, 2001                        /s/ Jimmy L. Butler, Jr.
                                           -------------------------------------
                                           Jimmy L. Butler, Jr., Vice-President


Date: July 13, 2001                        /s/ Rodger Graham
                                           -------------------------------------
                                           Rodger Graham, Chief Financial
                                           Officer

                                       12
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Heartsoft, Inc.

We have audited the accompanying balance sheet of Heartsoft, Inc., as of March
31, 2000, and the related statements of operations, changes in stockholders'
equity, and cash flows for the years ended March 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Heartsoft, Inc. as of March 31,
2000, and the results of its operations and its cash flows for the two years
then ended, in conformity with accounting principles generally accepted in the
United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has experienced recurring operating losses and
negative cash flows from operating activities, which increased to $1,620,448 and
$1,244,884, respectively, in fiscal 2000. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 9. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.



TULLIUS TAYLOR SARTAIN & SARTAIN LLP

Tulsa, Oklahoma
July 13, 2001

                                       F-1
<PAGE>

                                 HEARTSOFT, INC.

                                  BALANCE SHEET

                                 March 31, 2000

ASSETS

Current assets:
   Cash                                                               $  334,794
   Accounts receivable, trade, net of allowance of $8,000                 30,655
   Inventories, at cost                                                   45,694
   Other                                                                   9,219
                                                                      ----------

Total current assets                                                     420,362

Property and equipment, at cost:
   Property and equipment                                                218,962
   Less accumulated depreciation                                         115,716
                                                                      ----------

Property and equipment, net                                              103,246


Other assets:
   Developed software, net                                               693,419
   Other                                                                   4,608
                                                                      ----------

Total other assets                                                       698,027
                                                                      ----------

Total assets                                                          $1,221,635
                                                                      ==========

                       See notes to financial statements.

                                       F-2
<PAGE>

                                 HEARTSOFT, INC.

                                  BALANCE SHEET

                                 March 31, 2000


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                $   218,753
    Notes payable                                                        83,927
    Accrued expenses                                                    201,170
                                                                    -----------

Total current liabilities                                               503,850

Commitments and contingencies                                                --

Total liabilities                                                       503,850

Stockholders' equity:
    Preferred stock, $0.01 par value, 5,000,000 shares
       authorized, 827,000 shares issued                                  8,270
    Common stock, $0.0005 par value, 30,000,000 shares
       authorized, 11,055,337 shares issued                               5,528
    Additional paid-in capital                                        5,605,946
    Accumulated deficit                                              (4,901,959)
                                                                    -----------


Total stockholders' equity                                              717,785
                                                                    -----------

Total liabilities and stockholders' equity                          $ 1,221,635
                                                                    ===========

                       See notes to financial statements.

                                       F-3
<PAGE>

                                 HEARTSOFT, INC.

                            STATEMENTS OF OPERATIONS

                       Years ended March 31, 2000 and 1999


                                                         2000           1999
                                                     -----------    -----------

Net sales                                            $   315,557    $   527,915

Costs and expenses:
    Costs of production                                  158,988        102,600
    Sales and marketing                                  462,643        239,756
    General and administrative                         1,021,477        602,518
    Depreciation and amortization                        148,837        181,697
                                                     -----------    -----------

Total operating expenses                               1,791,945      1,126,571
                                                     -----------    -----------

Operating loss                                        (1,476,388)      (598,656)

Other income and (expense):
    Gain on sale of interest in software library              --        153,277
    Interest expense                                    (143,089)      (121,897)
    Other, net                                              (971)       (10,608)
                                                     -----------    -----------

                                                        (144,060)        20,772
                                                     -----------    -----------

Loss before income taxes                              (1,620,448)      (577,884)

Income taxes                                                  --             --
                                                     -----------    -----------

Net loss                                             $(1,620,448)   $  (577,884)
                                                     ===========    ===========

Net loss per common share - basic and diluted        $     (0.15)   $     (0.08)
                                                     ===========    ===========


                       See notes to financial statements.

                                       F-4
<PAGE>

                                 HEARTSOFT, INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                       Years ended March 31, 2000 and 1999

<TABLE><CAPTION>
                               Preferred Stock                 Common Stock           Additional
                          --------------------------    --------------------------      Paid-in      Accumulated
                            Shares         Amount         Shares         Amount         Capital        Deficit         Total
                          -----------    -----------    -----------    -----------    -----------    -----------    -----------
<S>                      <C>            <C>            <C>            <C>            <C>            <C>            <C>
Balance, March 31, 1998     1,218,500    $    12,185      6,329,157    $     3,165    $ 2,898,537    $(2,703,627)   $   210,260

Common stock issued in
  lieu pf preferred
  dividends                        --             --         10,287              5            (5)             --             --
Convert preferred stock
  to common                  (840,000)        (8,400)       678,000            339          8,061             --             --
Warrant exercise                   --             --        444,600            222             --             --            222
Sale of common stock               --             --        925,743            463        239,569             --        240,032
Stock issued for services          --             --        757,427            379         69,336             --         69,715
Stock issued for repayment
  of debt                          --             --         24,000             12         23,988             --         24,000
Net loss                           --             --             --             --             --       (577,884)      (577,884)
                          -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance, March 31, 1999       378,500          3,785      9,169,214          4,585      3,239,486     (3,281,511)       (33,655)

Convert preferred stock
  to common                  (326,500)        (3,265)       165,200             83          3,182             --             --
Sale of preferred stock       775,000          7,750             --             --        689,750             --        697,500
Sale of common stock               --             --      1,500,000            750      1,385,271             --      1,386,021
Stock issued for services          --             --        191,835             96        148,271             --        148,367
Stock issued for debt
  repayment                        --             --        140,000             70        139,930             --        140,000
Common stock issued in lieu
  of preferred dividends           --             --         39,088             19            (19)            --             --
Adjustments of previous
  issuances                        --             --       (150,000)           (75)            75             --             --
Net loss                           --             --             --             --             --     (1,620,448)    (1,620,448)
                          -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance, March 31, 2000       827,000    $     8,270     11,055,337    $     5,528    $ 5,605,946    $(4,901,959)   $   717,785
                          ===========    ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

                       See notes to financial statements.

                                       F-5
<PAGE>

                                 HEARTSOFT, INC.

                            STATEMENTS OF CASH FLOWS

                       Years ended March 31, 2000 and 1999

                                                        2000           1999
                                                     -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss                                             $(1,620,448)   $  (577,884)
Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation and amortization                     148,836        181,697
       Stock issued for services                         148,268         69,505
       Gain on sale of software library                       --       (153,277)
       Changes in:
          Accounts receivable                             15,943        221,498
          Inventories                                    (25,343)       (10,744)
          Other assets                                     5,380         (3,234)
          Accounts payable                                25,013         14,559
          Accrued expenses                                57,467        120,681
                                                     -----------    -----------

Net cash used in operating activities                 (1,244,884)      (137,199)

CASH FLOWS FROM INVESTING ACTIVITIES

Capitalized software development costs                  (199,283)      (136,128)
Payments for the purchase of property                    (75,554)            --
                                                     -----------    -----------

Net cash used in investing activities                   (274,837)      (136,128)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from sale of software library                        --        165,512
Proceeds from issuance of long-term debt                      --        345,000
Proceeds from issuance of common and preferred stock   2,083,521        264,465
Repayments under line of credit                               --       (152,500)
Principal payments on notes payable                     (270,595)      (311,972)
                                                     -----------    -----------

Net cash provided by financing activities              1,812,926        310,505
                                                     -----------    -----------

Net increase in cash                                     293,205         37,178
Cash at beginning of year                                 41,589          4,411
                                                     -----------    -----------

Cash at end of year                                  $   334,794    $    41,589
                                                     ===========    ===========

Supplemental disclosures:
     Cash paid during the year for interest          $   203,089    $    46,676
                                                     ===========    ===========
     Common stock issued for debt repayment          $   140,000    $        --
                                                     ===========    ===========

                       See notes to financial statements.

                                       F-6
<PAGE>

                                 HEARTSOFT, INC.

                          NOTES TO FINANCIAL STATEMENTS

                             March 31, 2000 and 1999


NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Heartsoft, Inc., including its subsidiary described below ("Heartsoft" or the
"Company"), a publicly held Delaware corporation, was formed on January 15,
1988. On August 16, 1991, Heartsoft Software, Inc., an Oklahoma corporation, was
organized as a wholly owned subsidiary of Heartsoft, in which the actual
day-to-day operations of the Company are conducted.

NATURE OF OPERATIONS

The Company is engaged in publishing its own proprietary educational software
and licensing technological products for distribution to the education market.
The Company sells its products to schools and to end-users through telephone
sales and direct response reseller catalogs. The Company's principal market is
in the United States and Canada. Heartsoft's operations include only one
business segment.

REVENUE RECOGNITION

Revenues from the sale of software products are recognized upon shipment,
provided that no significant obligations remain outstanding and collection of
the receivable is probable. Shipments of software previews to customers include
the right of return for 45 days. Sales on these shipments are not recognized
until expiration of the preview period. Allowances for estimated returns are
provided at the time of sale. The Company evaluates the adequacy of allowances
for returns and doubtful accounts primarily based upon its evaluation of
historical and expected sales experience. The allowances for returns and
doubtful accounts are based upon information available at the reporting date. To
the extent the future market, customer mix, channels of distribution, product
pricing and general economic and competitive conditions change, the estimated
allowances required for returns and doubtful accounts may also change.

INVENTORIES

Inventories consist primarily of raw materials such as CD--ROM and floppy discs
and manuals. They are stated at the lower of cost, determined by using the
first-in, first-out method, or market.


                                       F-7
<PAGE>

ADVERTISING AND MARKETING COSTS

The Company expenses advertising costs, excluding co-operative advertising, as
incurred. Co-operative advertising programs are initially capitalized and then
expensed over the period of the specific contract for services. Capitalized
advertising costs are not material at March 31, 2000. Advertising costs totaled
$171,701 and $125,686 for the years ended March 31, 2000 and 1999, respectively.

DEPRECIATION

The Company's property and equipment is carried at cost and depreciated over the
estimated useful lives of the related assets. Depreciation is computed using the
straight-line method over a seven-year period for both financial reporting and
federal income tax purposes.

DEVELOPED SOFTWARE

Costs for new software products and enhancements to existing software products
are expensed as incurred until technological feasibility has been established.
Once the project reaches technological feasibility, all software development
costs are capitalized until the project is ready for release. Software
development costs are amortized on the straight-line method over a maximum of
seven years or the expected life of the product, whichever is less. Amortization
expense of software development costs was $125,401, and $162,533 for the years
ended March 31, 2000, and 1999, respectively.

INCOME TAXES

Deferred tax liabilities and assets are determined based on the differences
between the financial statement basis and tax basis of assets and liabilities,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Statement of Financial Accounting Standards ("SFAS") 109,
"Accounting for Income Taxes," also requires a valuation allowance against net
deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, accounts receivable, accounts payable and accrued expense amounts reported
in the accompanying balance sheet approximate fair value. Accounts receivable
are unsecured. Based on the borrowing rates currently available to the Company,
the carrying amounts reported in the accompanying balance sheet for notes
payable approximate fair value.


                                       F-8
<PAGE>

CONCENTRATIONS OF CREDIT RISK

Heartsoft markets to educators nationwide, which is a large, diverse group
governed by unrelated buying decisions. Thus, no single customer represents a
significant portion of the Company's revenues or accounts receivable. The
education market consists of both school systems and individual educators
requiring core curriculum materials as well as supplemental materials.

EMPLOYEE STOCK OPTIONS

When the exercise price of employee stock options equals or exceeds the market
value of the stock at date of grant, the Company recognizes no compensation
expense.

EARNINGS PER SHARE

The Company follows SFAS No. 128, "Earnings Per Share," ("SFAS 128"), which
requires the presentation of basic and diluted earnings per share. Basic net
loss per share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per share is computed using the
weighted average number of common shares outstanding during the period, plus the
dilutive effect of common stock equivalents.

COMPREHENSIVE INCOME

The Company has no comprehensive income items for the two years in the period
ended March 31, 1999. Therefore, net loss equals comprehensive income.

NEW ACCOUNTING STANDARDS

The Company will adopt SFAS No. 133, "Accounting for Derivative Investments and
Hedging Activities" during 2001. Currently, the Company does not engage in
hedging activities or transactions involving derivatives.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
regarding items such as allowances for sales returns and uncollectible accounts,
and valuation allowances for deferred tax assets 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
revenue and expenses during the reporting period. Actual results could differ
from those estimates.


NOTE 2 - CANADIAN LIMITED PARTNERSHIPS

During 1997, the Board of Directors of the Company authorized the sale of an
aggregate undivided 45% interest of the Company's "K-8 Library" (the "Software
Library") pursuant to the terms of a Software Agreement ("Software Agreement")
entered into between the Company and


                                       F-9
<PAGE>

Heartsoft 1997 Limited Partnership, Heartsoft II 1997 Limited Partnership, and
Heartsoft III 1997 Limited Partnership, all Ontario, Canada limited partnerships
(the "Partnerships").

The Partnerships were formed by their general partner to acquire the investment
in the Software Library and to take advantage of certain Canadian tax laws. The
general partner of the Partnerships, which is unrelated to Heartsoft, is
responsible for their operation. The Company has no involvement or association
with the Partnerships other than through the Joint Venture Agreement.

Pursuant to the terms of the Software Agreement, the Company sold 45% interest
in the Software Library for $4,940,000 (Canadian), less related expenses, which
was payable 30% in cash and 70% by promissory notes (the "Acquisition Notes")
bearing interest at 5%, due in 2007. The Acquisition Notes are payable from
funds generated by the Partnerships through a joint venture with the Company
(evidenced by a Joint Venture Agreement).

Pursuant to the Joint Venture Agreement between the Company and the
Partnerships, Heartsoft retained the sole marketing rights, while Heartsoft and
the Partnerships jointly share in the revenues attributable to the future sales
of product utilizing the Software Library. The Partnerships are entitled to 100%
of all "gross sales" each year until all interest owed to the Company under the
Acquisition Notes is paid in full. After all interest has been paid, and until
all principal and interest has been paid, the Partnerships and the Company each
are entitled to 50% of the "gross margin" from sales attributable to the
interest in the Software Library. The "gross margin" is all gross revenues
generated from the interest in the Software Library, less returns, discounts and
cost of goods sold. After the Acquisition Notes have been paid in full
(including all accrued interest), the Company is entitled to 75% of the gross
margin, and the Partnerships the remaining 25%.

As of January 1, 1999, the Company has the option to terminate the Joint Venture
and reacquire the interest in the Software Library at a price to be negotiated
in good faith.

After deducting the allocable cost of the Software Library, the Company reported
gain on sale of $153,277 in fiscal 1999. The gain associated with the
Acquisition Notes has been deferred because its realization depends on the
Company's success in marketing the Software Library, resulting in no net
carrying value for the Acquisition Notes. Such gain will be recognized as the
Acquisition Notes are collected. In fiscal 1999, interest on the Acquisition
Notes amounted to $119,647, and the principal balances were reduced by $19,757.
Since these amounts are realized through software sales, they are reported in
the statements of operations as such. The principal balance of the Acquisition
Notes at March 31, 2000, is approximately $2,300,000.


                                      F-10
<PAGE>

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at March 31, 2000:

         Office furniture, fixtures and equipment          $   137,267
         Production and development equipment                   72,464
         Leasehold improvements                                  9,231
                                                           -----------
                                                           $   218,962
                                                           ===========


Depreciation expense was $19,164 for each of the years ended March 31, 2000 and
1999.


NOTE 4 - NOTES PAYABLE

Notes payable consist of the following at March 31, 2000:

         Note payable to a bank, due $1,034 monthly including
             interest at 9%, due October 2000                      $     7,019

         Note payable to a bank, due $1,050 monthly including
             interest at Wall Street Prime + 2% (10.75% at
             March 31, 2000), due June 2000                              3,127

         Note payable to a finance company, $4,575 monthly
             including interest at 14.82%, due February 2001,
             secured by property and equipment                          73,781
                                                                   -----------

         Total                                                          83,927

         Current portion                                                83,927
                                                                   -----------

         Noncurrent portion                                        $        --
                                                                   ===========


                                      F-11
<PAGE>

NOTE 5 - COMMITMENTS AND CONTINGENCIES

The Company leases office facilities under an operating lease for $5,988 per
month plus adjustments over the life of the lease. Rental expense was $67,318
and $56,382 for the years ended March 31, 2000 and 1999, respectively. Future
annual payments under operating leases are $70,788 for fiscal 2001, $70,788 for
fiscal 2002, $70,788 for fiscal 2003, and $47,192 for fiscal 2004.


NOTE 6 - STOCKHOLDERS' EQUITY

PREFERRED STOCK

As of March 31, 2000, the Company had 52,000 shares of $.01 par value preferred
stock outstanding, convertible into common stock at the rate of .8 shares of
common stock per share of preferred stock.

During fiscal 2000, the Company sold 775,000 shares of $.01 par value preferred
stock, Series A, in a private placement. Proceeds of the sale aggregated
$775,000, less offering expenses of $77,500. The holders of Series A preferred
stock are not entitled to receive any dividends, and are entitled to $1.00 per
share preference in liquidation. Except in limited circumstances, the holders of
Series A preferred stock are not entitled to any voting rights. The Series A
preferred stock is convertible into common based on the average closing bid
price for 20 consecutive trading days preceding conversion times 60%. Conversion
rights are at the option of the holder during the period that a registration
statement relating to the common stock underlying the Series A preferred stock
is effective. Conversion is automatic at the date such registration is
terminated.

Purchasers of the Series A preferred stock also received warrants to purchase
200,000 shares of common stock. The warrants expire on February 1, 2005, and are
exercisable at the lesser of (1) 60% of the closing bid price of the Company's
common stock or (2) $3.00.

Under the terms of the Series A Preferred Stock Purchase Agreement, the Company
agreed to file a registration statement with the Securities and Exchange
Commission relating to the common shares into which the Series A preferred stock
are convertible, and the common shares issuable upon exercise of the warrants.
The Company agreed to cause such registration statement to become effective by
August 1, 2000. In the event the registration statement is not effective by
August 1, 2000, the Company agreed to pay the purchaser $100,000 per month in
common stock, based on 60% of the closing bid price.

COMMON STOCK

During fiscal 2000, the Company borrowed $1,010,000 under a convertible note
agreement. These borrowings were satisfied by conversions into 1,100,000 shares
of restricted common stock. These transactions are included in the statements of
changes in stockholders' equity and cash flows with sales of common stock.


                                      F-12
<PAGE>

During the years ended March 31, 2000 and 1999, the Company entered into various
agreements with vendors under which the vendors received shares of Company
common stock in exchange for their services. The Company issued 203,835 and
338,827 shares of its common stock during the years ended March 31, 2000 and
1999, respectively, under these agreements and recognized general and
administrative expenses of $148,367 and $69,505, respectively. The transactions
were valued based on the underlying price of the Company's common stock on the
dates of issuance.

EMPLOYEE BENEFIT AND STOCK OPTION PLAN

The Heartsoft, Inc. Employee Benefit and Stock Option Plan ("Plan") was
effective June 15, 1997, and terminates June 30, 2005. Awards under the Plan may
be granted by the Heartsoft Board of Directors in the form of stock issuance,
incentive stock options, or nonqualified stock options. The total number of
shares of common stock as to which stock issuances or options may be granted
under the Plan shall be 2,000,000. The option price of incentive stock options
shall not be less than 100% of the fair market value of the stock on the date of
grant. The option price of nonqualified stock options shall not be less than 25%
of the fair market value of the stock on the date of grant. The duration of each
option granted shall not exceed 10 years. During the years ended March 31, 2000
and 1999, no stock options were issued under the Plan.

During the year ended March 31, 2000, 140,000 shares of common stock were issued
in repayment of $140,000 of debt.

The weighted-average grant date fair value of shares issued to vendors,
employees and for extinguishment of debt during the years ended March 31, 2000
and 1999, was $1.29 and $.21, respectively.


NOTE 7 - INCOME TAXES

At March 31, 2000, the Company had approximately $4,775,000 in net operating
loss carryforwards ("NOL's") expiring in 2009 through 2020. Management believes
that the Company does not meet the criteria for recognizing the tax benefit of
net operating loss carryforwards as a deferred tax asset and has established a
valuation allowance for the entire balance of the NOL's.

There are no material temporary differences between the bases of assets and
liabilities for income tax and financial reporting purposes that would give rise
to deferred tax assets and liabilities. Therefore, no provision for income taxes
has been reflected in the Company's statements of operations.


                                      F-13
<PAGE>

NOTE 8 -- EARNINGS PER SHARE

Basic and diluted EPS for the years ended March 31, 2000 and 1999, were computed
as follows:

                                              2000             1999
                                          ------------     ------------
Basic EPS computation:

Net loss                                  $(1,620,448)    $   (577,884)
                                          ============     ============

Weighted average shares outstanding        10,456,775        7,310,970
                                          ------------     ------------

Basic and diluted net loss per share      $     (0.15)    $      (0.08)
                                          ============     ============


NOTE 9 - UNCERTAINTIES


The Company has experienced recurring operating losses and negative cash flows
from operating activities, which increased to $1,620,448 and $1,244,884,
respectively, in fiscal 2000. Revenues declined in fiscal 2000, while operating
expenses increased. Management implemented a program to increase the marketing
and sales staff, and these additional expenses are not expected to have a
substantial impact on revenues until fiscal 2001. Management also planned to
introduce significant new products in fiscal 2000. While product development
expenditures have been substantial, the product introductions have been delayed
until fiscal 2001. In order to finance these negative cash flows, the Company
placed issues of preferred stock with warrants, and common stock in fiscal 2000,
realizing in excess of $2,000,000 after offering expenses.

Management plans to introduce new products, including Heartsoft's children's
internet browser, "Internet Safari," in fiscal 2001. With new products and a
strengthened sales staff, management believes revenues from product sales will
increase dramatically. In order to finance the continuing costs of product
development and operating losses, management intends to raise additional capital
through equity offerings. However, the Company has no formal commitments for
equity placements. The ability of the Company to implement its operating plan
and to continue as a going concern depends on its ability to raise equity
capital and, ultimately, to achieve profitable operations.


NOTE 10  RESTATEMENT OF FINANCIAL STATEMENTS


On September 20, 1998, Heartsoft and Intercap Funding LTD ("Intercap") entered
into an agreement whereby Intercap agreed to provide consulting advisory
services over a three year period, primarily related to capital formation, in
exchange for 1.2 million shares of Heartsoft's Convertible Preferred Stock. On
March 16, 2001, Heartsoft issued 1.2 million shares of its common stock to
satisfy the Company's obligation under the agreement.

Upon issuance of the common stock, it was determined that the Company had not
previously given accounting recognition to the agreement. The value of the
agreement, based on the September 20, 1998, trading price of the common stock
into which the preferred stock was to have been convertible, was $240,000. This
value has been allocated to general and administrative expenses over the term of
the agreement. The Company's legal counsel has advised that the preferred stock
called for in the agreement could not have been validly issued prior to the time
the services were rendered. As a result, the obligation will be reported as an
accrued liability as it is accrued over the period October 1998 through March
2001. For the

                                      F-14
<PAGE>

fiscal years ended March 31, 2000 and March 31, 1999, a total of $96,315 and
$50,803, respectively, were recognized as general and administrative expense for
these consulting advisory services.

On February 1, 1999 the Company also entered into a Non Circumvention and
Consulting Agreement with Intercap Funding LTD. Under the agreement, Intercap
was to provide Heartsoft with various services for a period of 180 days and it
automatically renewed on the first day of each month thereafter for nine months.
Intercap was to receive a finder's fee in cash equal to a certain percentage of
all amounts invested in the Company. In addition, the Company was to issue
warrants equal to a specified percentage of the number of shares purchased by
any introduced parties. In connection with this agreement the Company must issue
178,763 warrants to Intercap. The warrants are exercisable over five years at
values ranging from $1.3437 to $3.4375 per warrant. The warrants are a cost of
the capital that was raised and their issuance will not affect the Company's
financial statements.

On June 1, 2001, the Company and Intercap Funding LTD entered into a new
Consulting Agreement. The new agreement cancelled the Non Circumvention and
Consulting Agreement, dated February 1, 1999. Pursuant to the new agreement, the
Consultant also agreed to surrendered any and all rights that the Consultant had
to any warrants to purchase shares of common stock of the Company to which the
Consultant was entitled under the Non Circumvention and Consulting Agreement.






























                                      F-15