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

                                   FORM 10-KSB

/x/      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
             For the fiscal year ended JUNE 30, 2001

/ /      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
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                    (Address of principal executive offices)

                                 (918) 362-3600
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                           (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)

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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. /x/

The issuer's revenue for the year ended June 30, 2001 was $513,996.

The aggregate market value of the voting stock held by non-affiliates at June
30, 2001 was $3,207,541. This amount was computed using the average bid and ask
price as of June 30, 2001. For purposes of this computation, all officers,
directors and 5% beneficial owners of the issuer are deemed to be affiliates.

As of June 30, 2001, the issuer had outstanding a total of 16,167,453 shares of
its $.0005 par value Common Stock.

Transitional Small Business Disclosure Format (Check one): Yes / / No /x/

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                                 HEARTSOFT, INC.
                                   FORM 10-KSB
                                TABLE OF CONTENTS

<Table>
<Caption>
<S>                                                                      <C>
ITEM NUMBER AND CAPTION                                                  PAGE NUMBER

PART I

Introduction                                                                 4

Cautionary Statement Regarding Forward-Looking Information                   4

Item 1.  Description of Business                                             4

Item 2.  Description of Property                                             13

Item 3.  Legal Proceedings                                                   13

Item 4.  Submission of Matters to a Vote of Security Holders                 14

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters            14

Item 6.  Management's Discussion and Analysis or Plan of Operation           16

Item 7.  Financial Statements                                                22

Item 8.  Changes In and Disagreements with Accountants on Accounting
           and Financial Disclosure                                          22

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                 22

Item 10.  Executive Compensation                                             25

Item 11.  Security Ownership of Certain Beneficial Owners and Management     26

Item 12.  Certain Relationships and Related Transactions                     27

Item 13.  Exhibits and Reports on Form 8-K                                   27

Summary of Risk Factors                                                      38
</Table>

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PART I

INTRODUCTION

      On August 4, 2000, the Board of Directors of Heartsoft, Inc. changed the
Company's fiscal year from March 31 to June 30 effective for the fiscal year
beginning July 1, 2000 to June 30, 2001.

THIS FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT COULD DIFFER FROM
ACTUAL FUTURE RESULTS.

This Form 10-KSB contains "forward-looking" statements regarding potential
future events and developments affecting the business of Heartsoft, Inc., a
Delaware corporation ("Heartsoft," or the "Company," including its subsidiary).
Forward-looking statements may be indicated by the words "expects," "estimates,"
"anticipates," "intends," "predicts," "believes" or other similar expressions.
Forward-looking statements appear in a number of places in this Form 10-KSB and
may address the intent, belief or current expectations of Heartsoft and its
Board of Directors and management with respect to Heartsoft and its business.
Heartsoft's ability to predict results or the effect of any future events on
Heartsoft's operating results is subject to various risks and uncertainties.

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS

Heartsoft was incorporated in the State of Delaware in June 1988. Historically,
Heartsoft has been engaged in the design and publishing of its own proprietary
educational software products for distribution to the education market and
consumer market. Its products are sold through an internal sales organization,
national and international resellers, United States based catalogers with an
annual aggregate circulation in excess of 5,000,000 catalogs and online through
four corporate websites, www.heartsoft.com, www.internet-safari.com,
www.thinkology,com, and www.isafari.com. The Company's product line is comprised
of approximately 50 educational software programs that assist young children in
pre-kindergarten through the 6th grade to practice and learn basic curriculum
subjects.

      In early 1999, Heartsoft began to evaluate potential business
opportunities regarding the development and distribution of a new software
product which would restrict the viewing of inappropriate material over the
internet by young children. During the first calendar quarter of 1999, the
Company committed to the design and development of a secure children's internet
browser. On February 7, 2001, the Company released its new secure internet
browser for children, INTERNET SAFARI-TM- Version 1.0. The release of INTERNET
SAFARI-TM- has broadened the Company's product line to include an internet-based
software solution.

      Since its release, INTERNET SAFARI-TM- has been well received. Beginning
in January, 2001, the Company's education group distributed thousands of copies
of a demo version of INTERNET SAFARI-TM- at major education conferences in
Florida, Texas, California and Illinois

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and the feedback from the many educators who have seen or used the product is
highly encouraging. Currently, nearly 50 school districts have expressed
interest in or requested proposals for purchasing INTERNET SAFARI-TM- on a
district-wide basis, and several thousand additional leads are in the sales
pipeline to be worked by Heartsoft's in-house sales team.

      On August 14, 2001, the Company entered into an agreement with
MegaSystems, a manufacturer and distributor of educational and reference
software, to provide national retail distribution of the Company's new secure
internet browser for children, INTERNET SAFARI-TM-. Additionally, the Company
has had initial discussions with several Internet Service Providers (ISPs)
and hopes to develop an ISP distribution model in the future.

      To date, the Company has received several inquiries from international
distributors regarding the conversion, or localization, of INTERNET SAFARI-TM-
into four foreign languages. These opportunities will be explored in the future.

      The Company believes that its investment in the development of INTERNET
SAFARI-TM- represents a key element of its future and that the Company can
become a leading player in the children's internet market.

      Subsequently, the Company concluded that in addition to the market for
children's on-line internet safety, sufficient demand may also exist for certain
proprietary technologies which it owns to be used in other markets. These
markets include, but are not limited to, certain government agencies,
corporations, professional, and educational organizations. On July 17, 2000, the
Company formed a wholly owned subsidiary, Plug-Invention Technologies, Inc. to
develop and market the company's proprietary pornographic image recognition and
detection technology and other internet security solutions to corporations,
organizations and governmental agencies throughout North America. While it has
no operations to date, it is anticipated that the new entity will initially
operate within the corporate infrastructure at the Company and will establish
its own team of management and sales personnel as its first products are
prepared for sale.

INDUSTRY BACKGROUND AND GROWTH OF THE INTERNET

      The internet has emerged as a global medium enabling millions of people
worldwide to share information, communicate and conduct business electronically.
Estimates by the International Data Corporation ("IDC") indicate that the number
of Web users could grow from approximately 150 million worldwide in 1998 to
approximately 500 million worldwide by the end of 2003. A study released in 2001
estimates that nearly 65 million teens and children currently have access to the
internet. Recent reports place the number of internet users in excess of 340
million.

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      As demand for internet access is increased by the growth in the number of
businesses conducting commerce over the internet, the need for businesses to
ensure that their employees operate in a safe and secure environment also
increases. In addition to the increasing use of the internet at schools, homes
and libraries, this growing business acceptance of the Web represents an
enormous opportunity for the demand of safe and secure access to the Internet.
IDC estimates that commerce over the internet will increase from approximately
$40 billion worldwide in 1998 to approximately $900 billion worldwide in 2003.

THE HEARTSOFT SOLUTION

      Heartsoft believes it understands the many challenges that the increased
demand by schools and businesses for internet derived information will have on
the marketplace. As the use of the internet increases, the probability of
individuals encountering offensive material is also likely to increase.

      The Company also believes the social, political and legal reactions to
objectionable material on the internet will be a major impetus for both schools
and businesses to protect their internet users from encountering unwanted
objectionable material. Heartsoft has released a completely integrated internet
security solution (INTERNET SAFARI-TM-) for use in both the classroom and at
home and is now engaged in the preliminary phase of bringing this concept to the
corporate workplace through the incorporation of advanced artificial
intelligence technologies.

PRODUCTS

      During the fiscal year ended June 30, 2001, the Company released INTERNET
SAFARI-TM-, a secure internet browser for children. INTERNET SAFARI-TM- is
distributed to both the consumer and educational markets. It is compatible with
Microsoft's next generation operating system, Window's XP(R), and has been
approved by the United Federation of ChildSafe Web Sites for ICCS (International
ChildSafe Certification Standard) Certification under the iWatchDog Program.

      INTERNET SAFARI-TM- is designed for children ages 4 through 12 years to
help simplify their use of the internet. INTERNET SAFARI-TM- is a full-featured
secure internet browser for children that utilizes the sights and sounds of a
jungle safari user interface with cartoons, sounds and a host of proprietary
features. INTERNET SAFARI-TM- provides a high level of internet security by
combining artificial intelligence with advanced image detection and recognition
software that has the capability to detect digitized pornographic images.
Security is achieved through the interaction of two proprietary programs:

-  An artificial intelligence based internet security software application; and

-  An image detection and recognition program to detect and block pornographic
   imagery.

INTERNET SAFARI-TM- also features:

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-  Adjustable tolerance levels within security features to help allow the
   browser to be accommodated to the maturity of its user;

-  One-click access to top on-line content providers;

-  A database/portal of hand-selected children's web sites broken into content
   channels designed as a starting place for Internet viewing;

-  Full internet URL support enabling children to have access to the entire
   internet; and

-  Unique "Teacher's Features" to transmit the same URL to all students at
   once, monitor student internet activities, and configure INTERNET SAFARI-TM-
   security and administration all from the teacher's workstation.

      Another of the Company's proprietary software products currently being
marketed is its award winning THINKOLOGY-TM-, a three titled software series
that facilitates learning by helping young children increase their critical
thinking and higher order reasoning skills. Released in late 1998,
THINKOLOGY-TM- has garnered the prestigious 1999 Media & Methods Portfolio
Award. THINKOLOGY-TM- has also received several favorable reviews in top
educational and consumer magazines, including FamilyPC and Multimedia Schools.

      Other Heartsoft programs include: the HEARTSOFT BESTSELLER SITE LICENSE,
which contains 12 of the Company's top selling titles under a license allowing
the teacher to copy the software for every computer in the school, and the
HEARTSOFT K-8 LIBRARY (consisting of 35 software titles in the current product
line).

MARKETS

      The Company believes that there are two basic markets for its current
proprietary software technology: the education market and the consumer or retail
market. Because the Company believes greater competition, higher barriers to
entry and shorter product life exists in the consumer market, it has
historically chosen to concentrate on the introduction of its products into the
educational market. As noted earlier, on August 14, 2001, the Company entered
into an agreement with MegaSystems, a manufacturer and distributor of
educational and reference software, to provide national retail distribution of
the Company's new secure internet browser for children, INTERNET SAFARI-TM-. The
Company anticipates implementing an aggressive expansion program into the
consumer/retail market.

EDUCATION MARKET

      The education market consists of school systems, home schools and
individual educators requiring core curriculum materials and supplemental
materials for use in the classroom. The Company derives most of its sales
revenues from this market.

      In the education market, as opposed to the consumer market, products enjoy
a longer life span and obsolescence is less of a concern. This difference can be
attributed, in part, to the fact

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that users in the education market tend to upgrade hardware less frequently than
users in the consumer market. Additionally, products in the education market
often have life-spans as long as seven years because such products are based on
core curriculum concepts that do not change significantly from year to year.

      The Company is not aware of a dominant company or companies that offer
curriculum materials of the type the Company offers in the education market. The
majority of the companies offering products to the education market focus on
large network solutions or integrated learning systems, which result in a
comprehensive curriculum-based solutions. While such building-wide curriculum
solutions are comprehensive in nature, they are very expensive, often costing
between $50,000 to $100,000 per building. In contrast, the Company's typical
site licensing fees are less than $2,000.

CONSUMER MARKET

      While the Company currently receives most of its income from sales to the
education market, the Company is moving into the consumer market with the
introduction of INTERNET SAFARI-TM- as evidenced by signing a National Retail
Distribution Agreement with MegaSystems. The consumer market consists of
individuals who purchase educational software for use in the home. The overall
growth in this market is a result of several major trends, including the
increasing number of computer systems in the home, the improved multimedia
capabilities of these systems and the increasing demand for a greater number of
high quality, affordably priced software applications. The opportunities for
consumers to purchase a vast number of software products and technologies from a
wide variety of sources has increased consumers' expectations for high quality
multimedia software. To increase its ability to reach this market, the Company
signed an agreement with MegaSystems who distributes products to retail stores
nationwide including Best Buy, CompUSA, Media Play, Frys, Office Depot, BJ's
Wholesale Club and others.

      Additionally, the Company is evaluating the revenue potential for other
consumer software distribution channels beyond traditional software retailers
and computer stores which include:

-  Warehouse clubs;
-  Internet service providers (ISPs);
-  Original equipment manufacturers (OEMs) such as Dell, Compaq, Gateway, Apple,
   etc.;
-  International partners for distribution/licensing agreements; and
-  On-line Internet stores, also known as e-commerce solutions.

      The consumer software market is extremely competitive and highly volatile
as multimedia software publishers vie for a limited amount of available retail
shelf space. These characteristics necessitate that companies achieve a greater
sell-through of unit volumes by building brand name recognition, establish
strong relationships with retailers and consistently upgrading products to offer
state-of-the-art capabilities and rich content. Rapid changes in technology and
customer requirements also need to be considered.

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      Advances in computer technology spur the introduction of newer and faster
computers. As a result, publishers need to constantly introduce new software to
take advantage of these improved technologies. Consumer software products become
obsolete much sooner than education software, sometimes in as little as two to
three years. Educational software publishers who cater to the consumer market
incur substantially increased development costs because of the need for more
frequent product introductions or upgrades.

MAJOR CUSTOMERS

      Heartsoft markets its products nationwide to many diverse groups that are
governed by unrelated buying decisions. No single customer represents a
significant portion of the Company's revenues. Heartsoft most effectively
strengthens relationships with existing customers by additional and upgrade
sales in situations where customers can add to their Heartsoft library.

SOURCES AND AVAILABILITY OF RAW MATERIALS

      The most important raw materials purchased by the Company are computer
diskettes and pre-duplicated CD-ROMs, both of which are obtained from domestic
suppliers. The Company also purchases certain components from domestic
manufacturers and printers for its packaging materials. The Company endeavors to
obtain the lowest possible cost when purchasing raw materials and components
while meeting specified quality standards. The Company is not dependent upon any
one source for its raw material or the major components of its manufactured
products. The Company anticipates that it will have adequate sources of supplies
to meet its manufacturing requirements for the foreseeable future.

MARKETING AND DISTRIBUTION

      As of June 30, 2001, the Company utilized a sales and marketing staff of
15 employees to market its products in the United States and abroad. During
Fiscal Year 2001, the Company conducted direct mail marketing campaign from
sales leads generated from its participation in four regional education
technology conferences. The Company has also implemented direct target marketing
campaigns that promoted existing product lines to education customers.
Educational sales are made directly to individual teachers and to regional
school systems and districts, with shipments being made from the Company's
Broken Arrow office to the purchaser. The Company also advertised its products
in reseller catalogs with aggregate circulations of approximately 5,000,000 in
preparation of the spring buying season. As of November 8, 2001 the sales and
marketing staff has been reduced as a result of delays in raising capital and
consists of 1 full-time and 4 contract employees.

      The Company's products and sales strategy focus on a "niche" market within
the consumer and educational markets. Three of the Company's best selling
products, HEARTSOFT BESTSELLER SITE LICENSE, HEARTSOFT K-8 LIBRARY, and
THINKOLOGY-TM-, sell from prices ranging from approximately $400 to $1,250,
depending on the configuration. Further, each product license allows multiple
use of the software throughout the school. Within the consumer, or home market,
the Company's products sell in the price range from

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approximately $20 to over $100 depending on configuration and
educational support materials. To support and service its customers, the Company
supplies technical support through its in-house technical support team. The
Company's warranty on its products is lifetime for content, and one year for
disc errors.

      The Company relies on its sales staff and contacts in the education
software market to sell the Company's proprietary titles. In addition, the
Company also has access to certain distribution channels through the use of
Value-Added-Resellers (VARs). With respect to its publishing activities, the
Company's development staff oversees the development of the software.
Additionally, the Company assembles its raw materials creating a final package
at its Broken Arrow, Oklahoma facilities. All of the proprietary software titles
developed by the Company have been copyrighted. All of the Company's products
currently in development will be copyrighted prior to release.

RESEARCH AND DEVELOPMENT

      All research and development activities of the Company are
company-sponsored, rather than customer-sponsored. Product development costs
are capitalized as incurred once technological feasibility has been
established. Ongoing work continues on Version 2 of its new secure internet
browser for children, INTERNET SAFARI-TM- and the Company is evaluating the
possibility of marketing its proprietary security technology as a software
plug-in for other computer software applications.

BACKLOG

      The Company has no current order backlog and has experienced minimal
occurrences in the past. Each order is filled on demand with sophisticated,
high-speed diskette duplicators that can duplicate a disk in as little as 25
seconds. The Company utilizes companies that provide CD-ROM duplication services
in five to fifteen business days. Any production delays are most frequently
caused by delays in raw material receipt. These delays rarely exceed 24-48
hours.

WORKING CAPITAL

      To support the Company's policy of growth, and to meet working capital
needs during the development of INTERNET SAFARI -TM-, the Company secured
approximately $2,300,000 in funding during the year ended June 30, 2001
through private placements of debt and common stock. A breakdown of this
funding is as follows:

-  On July 20, 2000, the Company borrowed $125,000 under a short-term promissory
   note from a private investment group. The Company repaid the note in full in
   August, 2000.

-  On August 18, 2000 the Company borrowed $100,000 under a convertible
   promissory note agreement. On November 8, 2000, the Company amended this
   agreement to issue 80,000 shares of restricted common stock in lieu of a
   payment of $40,000. This stock issuance reduced the promissory note to
   $60,000 that was due on December 31, 2000. The Investment

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   group has agreed to convert this debt into shares of common stock. As of June
   30, 2001 the conversion has not taken place. The promissory note holder
   extended the payment due date of the note to December 31, 2001.

-  On November 9, 2000, the Company borrowed $500,000 under two separate
   promissory notes, each for the principal sum of $250,000. The principal sum
   of both promissory notes plus interest at a per annum rate equal to 6.15% are
   due on the earlier of May 9, 2001 or five business days after the Company
   shall have received equity investments or debt financing in excess of
   $750,000. In order to induce the parties to enter into the promissory notes,
   the Company issued the holders of each of the promissory notes 125,000 shares
   of common stock of the Company, and Benjamin Shell, the Chairman and CEO of
   the Company, pledged collateral in the form of 500,000 shares of common stock
   of the Company owned by him to secure the amounts under the promissory notes.
   The Notes may be pre-paid in whole or in part at any time without penalty,
   but with interest to the date of payment on the amount. On May 9, 2001 the
   Company entered into an extension agreement with the holders of the
   promissory notes. Under the extension agreement, Heartsoft issued the holders
   of each of the promissory notes 150,000 shares of common stock of the
   Company. The principal sum of the original promissory notes plus interest
   accrued to May 9, 2001 and interest at the rate of 15% per annum is due and
   payable on July 9, 2001. On July 9, the Company entered into a second
   extension agreement and issued each promissory note holder an additional
   109,000 shares of common stock. On October 15, 2001, each promissory note
   holder entered into an extension agreement to extend the payment date of the
   notes to December 31, 2001.

-  On December 20, 2000, the Company received a note from a private investor
   for $10,000. The note bears interest at 8% and was due and payable on June
   20, 2001, however the note holder extended the payment date of the note to
   December 31, 2001.

-  On January 18, 2001, the Company borrowed $60,000 under a short-term
   promissory note from a private investor. The Company repaid the note in full
   on January 24, 2001.

-  On January 24, 2001 and February 5, 2001 the Company borrowed a total of
   $250,000 under a convertible promissory note. The principal sum of the
   convertible promissory note plus interest at a per annum rate equal to 6.15%
   are due on the earlier of August 5, 2001 or five business days after the
   Company shall have received equity investments or debt financing in excess of
   $1,500,000. In order to induce the party to enter into the convertible
   promissory note, the Company issued the holder 125,000 shares of common stock
   of the Company and agreed to pledge as collateral certain intangible assets.
   The holder of the convertible promissory note may at his option convert the
   unpaid principal amount into such number of fully paid and non-assessable
   shares of common stock. The basic conversion rate shall be one (1) share of
   common stock for each $.666666 in principal amount of the note surrendered
   for conversion. The Note may be pre-paid in whole or in part at any time
   without penalty, but with interest to the date of payment on the amount
   prepaid. On June 14, 2001, the Company entered into an agreement with the
   note holder and borrowed an additional $50,000 and amended and restated the
   convertible promissory note. The $50,000 added to the convertible

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   promissory note bears interest at 6.15% and is due and payable on or before
   February 8, 2002. In order to induce the party to add the $50,000 to the
   convertible promissory note, the Company issued the holder 100,000 shares of
   common stock. On October 15, 2001, the convertible promissory note holder
   entered into an extension agreement to extend the payment date of the note to
   December 31, 2001. Additionally, the principal sum of $250,000 of the
   original promissory note bears interest at the rate of 15%.

-  On February 01, 2001, the Company borrowed $60,000 under a verbal agreement
   from a private investor. The Company repaid the note in full on February 06,
   2001.

-  On March 1, 2001, the Company entered into a promissory note with a private
   investment group for $40,000. The note bears interest at 8% and is due and
   payable on February 28, 2002.

-  On March 17, 2001, the Company borrowed $50,000 under a short-term
   promissory note from a private investor. The note bears interest at 8% and
   original maturity date was September 16, 2001. The note is in default at
   November 9, 2001.

-  On April 17, 2001, the Company borrowed $100,000 under a short-term
   promissory note from a private investor. The note bears interest at 15% and
   was due and payable July 15, 2001. The promissory note holder extended the
   payment due date of the note to December 31, 2001.

-  On May 01, 2001, the Company borrowed $50,000 under a short-term promissory
   note from a private investor. The promissory note bears interest at 15% and
   was due and payable May 31, 2001. The promissory note holder extended the
   payment due date of the note to December 31, 2001.

-  On May 11, 2001, the Company borrowed $50,000 under a short-term promissory
   note from a private investor. The note's interest rate was 8% and maturity
   date June 9, 2001. The note's interest was revised to 10% starting June 1,
   2001 and revised a second time to 15% starting August 15, 2001. The
   promissory note holder extended the payment due date of the note
   to December 31, 2001.

-  During the year ended June 30, 2001, the Company sold 1,463,181 shares of
   restricted common stock. Proceeds of the sale aggregated $861,563 less
   offering expenses of $17,500. As of June 30, 2001 all shares have been
   issued.

      Additionally, to meet working capital needs, certain officers of the
Company loaned the Company a total of $174,300 for the year ended June 30,
2001. A total of $127,300 has been repaid to the officers. These transactions
have been reflected in the officer's shareholder payable accounts. Also, on
April 06, 2001, the Company received $30,000 from an investor and recorded
the transaction as contributed capital.

      The proceeds of the convertible debt and private placements of equity
met the Company's working capital needs through June 30, 2001. The Company is
currently in the process of

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attempting to negotiate another private placement of equity securities that the
Company anticipates will allow it to meet working capital requirements, although
there is no assurance that the private placement will be consummated (See the
Liquidity and Capital Resources section of Management's Discussion and Analysis
or Plan of Operation).

EMPLOYEES

      At June 30, 2001, the Company had 34 full-time employees, 3 part-time
employees and 1 contract employee, none of whom are represented by unions. As of
November 8, 2001, the Company has reduced its staff to a total of 14 which is
comprised of full-time, part-time and consulting staff.

COPYRIGHTS, PATENTS, TRADEMARKS, LICENSES AND CONCESSIONS

      The Company routinely copyrights its proprietary software titles. Further,
the Company is in the process of securing registered trademarks on its corporate
name, and its leading proprietary products. The Company has also filed a patent
application in connection with its new internet browser for children, INTERNET
SAFARI-TM-.

ENVIRONMENTAL MATTERS

      The Company's operations are of a nature that laws concerning the
environment do not substantially affect the Company's domestic operations. The
Company believes that it presently complies with these laws and that future
compliance will not materially adversely affect the Company's earnings or
competitive position.

ITEM 2.  DESCRIPTION OF PROPERTY.

      The Company leases its principal office location in Broken Arrow,
Oklahoma, a suburb of Tulsa. The Broken Arrow office, which includes both
executive offices and production space, contains approximately 8,100 square feet
(1,200 sq. ft. of production/warehouse space and 6,900 sq. ft. of office space),
located in a business office park at 3101 N. Hemlock Circle, Broken Arrow,
Oklahoma. The lease expires December 1, 2004.

ITEM 3.  LEGAL PROCEEDINGS.

INVESTIGATION BY THE FORT WORTH DISTRICT OFFICE OF THE SECURITIES AND EXCHANGE
COMMISSION.

      By letters dated February 23, 2000 and March 8, 2000, the Fort Worth
District Office of the Securities and Exchange Commission (the "SEC") notified
the Company, and two of its officers, Benjamin P. Shell ("Shell") and Jimmy L.
Butler ("Butler"), of the Fort Worth District Office's intent to recommend to
the SEC that a lawsuit be brought against the Company, Shell and Butler based on
alleged violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of
1933, Sections 10(b), 13(a) and 16(a) of the Securities Exchange Act of 1934,
and Rules 10b-5, 13a-1, 13a-13 and 16a-3 thereunder.

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      The investigation by the SEC involved, among other things, allegations
regarding the wording of certain press releases issued by the Company from
January 1999 to March 1999. On September 5, 2000, the Company settled the action
brought by the SEC. As a part of the terms of the settlement, the SEC filed a
complaint against the Company in the United States District Court for the
Northern District of Oklahoma on September 5, 2000. The complaint was filed with
stipulations and consents and agreed final judgments that were approved by the
SEC and Heartsoft. On September 15, 2000, the Court accepted these stipulations
and consents and entered the agreed final judgments resolving the lawsuit and
implementing the settlement.

      Under the terms of the stipulations and consents and the agreed final
judgments, the Company, Mr. Shell and Mr. Butler are permanently enjoined from
committing violations of certain securities laws and Mr. Shell and Mr. Butler
are required to individually pay disgorgement of certain trading profits,
interest and civil penalties totaling $146,402.99 and $129,850.94, respectively.
The Company and Messrs. Shell and Butler neither admitted nor denied any of the
allegations in the complaint filed by the SEC.

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

      No matter was submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the period from July 1, 2,000
through June 30, 2001.

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 and the Transition Period, as reported by the NASDAQ Stock Market, Inc.,
was as follows:

<Table>
<Caption>
QUARTER ENDED                               HIGH BID          LOW BID
-------------                               --------          -------
<S>                                         <C>               <C>
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
</Table>

                                       14
<Page>

<Table>
<S>                                         <C>               <C>
June 30, 2000                               $2.0000           $1.3750

September 30, 2000                          $2.7187           $0.7500
December 31, 2000                           $1.8750           $0.4688
March 31, 2001                              $1.5312           $0.4688
June 30, 2001                               $0.7187           $0.2200
</Table>

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

HOLDERS:

      As of June 30, 2001, there were 463 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 June 30, 2001, the Company has issued the
following securities without registering the securities under the Securities Act
of 1933:

<Table>
<Caption>
--------------------------------------------------------------------------------
            Class of Persons                          Consideration
--------------------------------------------------------------------------------
<S>                                        <C>
Investment Partnerships                    A total of 300,000 shares of common
                                           stock were issued to induce parties
                                           to extend two separate promissory
                                           notes.
--------------------------------------------------------------------------------
Individuals                                A total of 195,930 shares of common
                                           stock were issued for investor
                                           relations, marketing and financial
                                           services as well as finder fees
                                           associated with financing
                                           arrangements.
--------------------------------------------------------------------------------
Investment                                 Group A total of 717,871 shares of
                                           common stock were issued to an
                                           investment group for conversion of
                                           preferred stock.
--------------------------------------------------------------------------------
Individual                                 A total of 50,000 shares of common
                                           stock were issued as penalty for
                                           non-payment of debt.
--------------------------------------------------------------------------------
Individual                                 A total of 200,000 shares of common
                                           stock were issued to an individual
                                           for collateral on a promissory note.
--------------------------------------------------------------------------------
</Table>

      The Company has agreed to issue a total of 180,000 shares of common stock
associated with penalty provisions resulting from delays in filing a
registration statement.

                                       15
<Page>

      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.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

      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 four corporate websites,
WWW.HEARTSOFT.COM, WWW.INTERNET-SAFARI.COM, WWW.THINKOLOGY.COM, and
WWW.ISAFARI.COM.

      Through the fiscal year ending June 30, 2001, the three months ended June
30, 2000, and the fiscal year ending March 31, 2000, the Company's product line
was comprised of approximately 50 educational software programs that assist
young children in pre-kindergarten through the 6th grade to practice and learn
basic curriculum subjects. In early 1999, Heartsoft began to evaluate potential
business opportunities regarding the development and distribution of a new
software product that would restrict the viewing of inappropriate material over
the internet by young children. During the first calendar quarter of 1999, the
Company committed to the design and development of a secure children's internet
browser. On February 7, 2001, the Company released its new secure internet
browser for children, INTERNET SAFARI-TM- Version 1.0. The release of INTERNET
SAFARITM has broadened 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 reallocating some of the
Company's anticipated savings obtained from staffing reductions and
redistributing them on the introduction and sale of INTERNET SAFARI-TM-. During
Fiscal Year 2002, 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 ended March 31, 2000, the Company experienced a loss of
$1,620,448 and accumulated a total deficit of $4,901,959. For the three months
ended June 30, 2000, the Company experienced a loss of $494,755 and accumulated
a total deficit of $5,396,714. For the year ended June 30, 2001, the Company
experienced a loss of $2,969,880 and a total deficit of $8,366,594. These 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

                                       16
<Page>

most part, to marketing and general and administrative expenses. The Company
does not anticipate reaching profitability for at least 18 months.

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

-  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;
-  Develop a formal business plan for Plug Invention Technologies, Inc. and
   forge an alliance with a joint venture partner having sufficient resources to
   expedite the introduction of the Company's proprietary pornographic image
   recognition and detection technology and other Internet security solutions to
   corporations, organizations and governmental agencies throughout North
   America;
-  Shift marketing emphasis from the utilization of in-house sales
   representatives to a greater dependence upon lower cost, strategic joint
   venture partners to market the Company's product line both in the United
   States and internationally;
-  Expand the marketing of Internet Safari to both Original Equipment
   Manufacturers (OEMs) and Internet Service Providers (ISPs); and
-  Consider the sale of the Company's oldest product line to obtain the
   resources to introduce Internet Safari more effectively in both the education
   and the consumer markets.

      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 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 18 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
revenues and decreased expenses as percentage of revenues will lead to
profitability.

      The Company believes that its investment in the development of INTERNET
SAFARITM 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.

RESULTS OF OPERATIONS

YEAR ENDED JUNE 30, 2001 VS. YEAR ENDED JUNE 30, 2000

Net Revenue

                                       17
<Page>

      Revenue for the year ended June 30, 2001 increased to $513,996 from
$341,580 for the year ended June 30, 2000, an increase of 50%. The increase
resulted primarily from implementing a marketing strategy that included internal
reorganization of the Company's sales and marketing division, performing an
extensive analysis of product sales and rebundling products to enhance sales as
well as continuing efforts to promote educational programs to schools while
maintaining existing reseller business. It also included higher attendance at
trade shows and increased direct mail, email and fax campaigns.

Cost of Production

      Cost of production includes all costs associated with the acquisition
of raw materials, assembly of finished products, warehousing, shipping, and
payroll associated with production and shipping of finished products. This
expense category also includes labor costs associated with maintaining and
implementing enhancements to existing educational programs (software
maintenance costs) as well as miscellaneous costs related to the needs of the
Production Department. Cost of production for the year ended June 30, 2001
was $410,250 compared to $205,980 for the year ended June 30, 2000, an
increase of $204,270 or 99%. Software maintenance costs associated with
maintaining and enhancing existing educational programs increased
approximately $143,390, primarily as a result of expensing Internet Safari
labor costs subsequent to its release. Payroll and benefits costs increased
$42,254 primarily from the addition of a technical support employee for part
of the year, coupled with annual increases for existing employees as well as
an increase in benefits. Expenses for office rent increased $17,152 as a
result of leasing additional office space during the year.

Sales and Marketing

      Sales and marketing expenses for the year ended June 30, 2001 were
$903,035 versus $590,321 for the year ended June 30, 2000, an increase of
$312,714 or 53%. Since late 1999, the education sales division has been
reorganized and expanded. During fiscal year 2001, the Sales Department
increased attendance at industry trade shows that lead to increased expenses.
Additionally, the Sales Department utilized temporary personnel to fill selected
positions, and then upon satisfactory completion of work assignments hired these
individuals as full-time employees that lead to an increase in contract labor.
An approximate breakdown by component of the major increases in sales and
marketing expense follows: payroll and benefits $225,119; travel and conferences
$76,636; commissions $39,438 from increased sales; and contract labor $18,185.
The above increases were partially offset by a $99,893 decrease in advertising
expenses.

      Overall, advertising expenses for the year ended June 30, 2001 were lower
due to stabilization in marketing material costs. Historically, it had been
necessary to ramp-up marketing materials which included purchasing, creating and
printing new sales materials and promotional items to meet the increased sales
presence. Additionally, advertising cost decreased as a result of the Company
experiencing delays in raising capital.

General and Administrative

                                       18
<Page>

      Total general and administrative (G&A) expense for the twelve months
ended June 30, 2001 was $1,616,813 compared to $1,217,413 for the same period
in 2000, an increase of $399,400 or 33%. The primary reason for this increase
relates to accruing penalties totaling $339,324. A breakdown of the major
components of the penalty accrual is as follows: $227,810 in connection with
amending a Stock Purchase Agreement whereby the Company agreed to issue
300,000 shares of common stock in order to eliminate any liability the
Company might have under a penalty provision in that Stock Purchase
Agreement; $71,602 for recording a penalty provision for late registration
filing; $20,000 to extend two promissory notes; and $13,500 as a result of
issuing stock for non payment of a note.

      Additional factors causing the increase in G&A expense can be attributed
to taking the necessary steps to build the Company's infrastructure. These
factors include the addition of a Chief Financial Officer, addressing regulatory
reporting issues, and strengthening strategic customer and investor
relationships, all of which are critical to minimizing risks to the Company and
execution of its business plan. An approximate breakdown by component (excluding
the penalty accrual indicated above) of other major increases in G&A expense
follows: payroll and benefits $125,564; professional costs related to legal
fees, and investment service fees $107,907; and amortization of debt issuance
costs of $60,979. The above G&A expense increases were partially offset with
decreases resulting from a March 31, 2000 bonus expense accrual for awards
relating to the issuance of stock to employees for $88,272, lower accounting and
consulting fees totaling $78,888, and lower costs for seminars and travel
totaling $79,525.

THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 1999
(TRANSITION REPORT)

Net Revenue

      Revenue for the three months ended June 30, 2000 increased to $164,307
from $117,800 for the three months ended June 30, 1999, an increase of $46,507
or 39%. The increase is primarily the result of expanding the Sales and
Marketing Department in late 1999 (expanding the education sales division from
five to eleven employees) and continuing the implementation of a broad-based
marketing strategy. The marketing strategy focused on adding quality sales
personnel and directing their efforts in promoting educational programs to
schools while maintaining existing reseller business. It also included higher
attendance at trade shows and increased direct mailings, both of which
contributed to the increase in revenues.

Cost of Production

      Cost of production includes all costs associated with the acquisition of
raw materials, assembly of finished products, warehousing, shipping, and payroll
associated with production and shipping of finished products. This expense
category also includes labor costs associated with maintaining and implementing
enhancements to existing educational programs as well as miscellaneous costs
related to the needs of the Production Department. Cost of production for the
three months ended June 30, 2000 was $62,322 compared to $20,783 for the three
months ended June 30, 1999, an increase of $41,539 or 200%. Cost for the
acquisition of raw materials increased approximately $11,887 as a result of
increased sales as noted in the Net Revenue discussion above. Miscellaneous
expenses for production supplies, cabling, wiring, etc.,

                                       19
<Page>

increased approximately $15,228. Labor costs associated with maintaining and
enhancing existing educational programs increased approximately $7,124.

Sales and Marketing

      Sales and marketing expenses for the three months ended June 30, 2000 were
$196,814 versus $54,992 for the three months ended June 30, 1999, an increase of
$141,822 or 258%. As noted previously, in the Net Revenue discussion, the Sales
and Marketing Department was expanded in late 1999 and the Company's broad-base
marketing strategy is continuing to be implemented. All of the above factors,
coupled with direct mail campaigns targeted at schools, new advertising
materials and higher attendance at industry trade-shows lead to increased
expenses in sales and marketing. An approximate breakdown by component of the
major increases in sales and marketing expense follows: payroll and benefits
$67,160, advertising $54,737 and conferences $7,956.

General and Administrative

      Total general and administrative (G&A) expense for the three months ended
June 30, 2000 was $352,647 compared to $152,258 for the same period in 1999, an
increase of $200,389 or 132%. The increase in G&A expense is directly
attributable to building the infrastructure, assuming full reporting status to
become compliant with SEC regulations, and strengthening strategic customer and
investor relationships all of which are critical to minimizing risks to the
Company and execution of its business plan. Additionally, on a historical basis,
executive management focused primarily on the development of educational
programs resulting in capitalization of appropriate executive salaries.
Beginning in late 1999, this focus shifted from development to more of an
administrative role resulting in an expensing of appropriate executive salaries
and an increase in related G&A payroll costs. An approximate breakdown by
component of the major increases in G&A expense follows: payroll and benefits
$75,722, professional fees $62,196, and travel $34,368.


LIQUIDITY AND CAPITAL RESOURCES

      The Company's principal sources of liquidity include cash and accounts
receivable of $10,733.

      Due to operating losses resulting from execution of the Company's business
plan during fiscal 2001 and continuing into fiscal 2002, the Company remains
significantly reliant on external funding sources to continue operations. For
the year ending June 30, 2001, the Company experienced an operating loss and
negative cash flows from operating activities of $2,969,880 and $1,760,220,
respectively. For the three months ended June 30, 2000, the Company experienced
an operating loss and negative cash flows from operating activities of $494,755
and $375,801, respectively.

      In order to finance these losses, the Company secured approximately
$2,300,000 in funding for the year ending June 30, 2001 through placement of
debt and common stock.

                                       20
<Page>

      Although the Company has substantially reduced its overhead by reducing
expenses across the board, including reducing its total full-time, part-time,
and consulting staff from a high of 36 people during January 2001, to 14 as of
November 8, 2001, the Company remains dependent on additional outside funding.
Currently, the Company has outstanding obligations to its vendors, current and
previous employees and consultants. While the Company remains hopeful that
additional financing will be completed, any delay in completing additional
financing to meet current liabilities and growth needs remains a possibility.
There is no assurance that the Company will secure future financing.

Management's Plan

      The Company believes that its substantial investment in the development of
INTERNET SAFARI-TM- represents a key element of its future and that the Company
can become a leading player in the children's Internet market once funding is
obtained.

      Additionally, the Company previously formed a wholly owned subsidiary,
Plug-Invention Technologies, Inc. to develop and market the company's
proprietary pornographic image recognition and detection technology and other
internet security solutions to corporations, organizations and governmental
agencies throughout North America. In September 2001, the Company entered into
an agreement with SplitSecondServices, Inc. to develop a comprehensive business
plan for Plug-Invention Technologies. The business plan, which is expected to be
completed on or about November 30, 2001, will be used to present funding
opportunities to venture capitalists and angel investors, and will clearly
outline the business opportunities that exist for the Company's proprietary
internet security solutions. The Company anticipates receiving approximately
$1.8 million in up-front licensing revenue over a six-month period from this
opportunity as well as royalties on future product sales.

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

-  Complete the formal business plan for Plug Invention Technologies, Inc. and
   forge an alliance with a joint venture partner having sufficient resources to
   expedite the introduction of the Company's proprietary pornographic image
   recognition and detection technology and other internet security solutions to
   corporations, organizations and governmental agencies throughout North
   America;

-  Shift marketing emphasis from the utilization of in-house sales
   representatives to a greater dependence upon lower cost, strategic joint
   venture partners to market the Company's product line both in the United
   States and internationally;

-  Expand the marketing of INTERNET SAFARI-TM- to both Original Equipment
   Manufacturers (OEMs) and Internet Service Providers (ISPs); and

-  Consider the sale of the Company's oldest product lines to obtain the
   resources to introduce INTERNET SAFARI-TM- more effectively in both the
   education and the consumer markets.

   To continue operations and finance the continuing costs of product
development and enhancements, beginning on or around November 15, 2001, the
Company shall offer a Private

                                       21
<Page>

Offering Memorandum consisting of a maximum of 3,000,000 shares of 10% Series B
Convertible Preferred Stock at a cost of $1.00 per share. The Company
anticipates receiving approximately $2.6 million, after deducting offering
expenses and costs. 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.

ITEM 7. FINANCIAL STATEMENTS.

      The Financial Statements of the Company are set forth on pages F-1 through
F-19 inclusive, found at the end of this report.

<Table>
<Caption>
                                      INDEX TO FINANCIALS STATEMENTS
<S>                                                                                           <C>
Independent Auditors' Report..................................................................F-1

Balance Sheet at June 30, 2001................................................................F-2

Statements of Operations for the years ended June 30, 2001 and 2000 (unaudited) , for the
three month periods ended June 30, 2000 and 1999 (unaudited) and for the
year ended March 31, 2000.....................................................................F-4

Statements of Changes in Stockholders' Equity for the year ended June 30, 2001,
for the three month period ended June 30, 2000, and for the  year ended March 31, 2000........F-5

Statements of Cash Flows for the years ended June 30, 2001 and 2000 (unaudited),
for the three month periods ended June 30, 2000 and 1999 (unaudited) and
for the year ended March 31, 2000.............................................................F-7

Notes to Financial Statements.................................................................F-8
</Table>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

      The following sets forth information as of June 30, 2001 concerning the
Company's executive officers and directors:

<Table>
<Caption>
NAME                               AGE     POSITION
--------------------------------------------------------------------------------
<S>                              <C>       <C>
</Table>

                                       22
<Page>

<Table>
<S>                              <C>       <C>
Benjamin P. Shell, Jr.           38        Chairman of the Board, President and
                                           Chief Executive Officer
--------------------------------------------------------------------------------

Jimmy L. Butler, Jr.             37        Director, Vice-President of

                                           and Secretary
--------------------------------------------------------------------------------

Kathleen Hurley                  55        Director
--------------------------------------------------------------------------------

Rodger Graham (1)                48        Chief Financial Officer
--------------------------------------------------------------------------------

Juanita L. Seng (2)              48        Vice President, Sales and Marketing
--------------------------------------------------------------------------------

Dana Swift (3)                   49        Chief Technology Officer
--------------------------------------------------------------------------------
</Table>

(1) Joined the Company on August 28, 2000.
(2) Resignation from the Company became effective September 30, 2001.
(3) Became Chief Technology Officer effective September 1, 2000.

BENJAMIN P. SHELL, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER

      As a co-founder of Heartsoft, Benjamin Shell has played a key role in the
development and growth of the Company since its inception. Since 1989, Mr. Shell
has served as the Company's President, Chief Executive Officer and Chairman of
the Board of Directors. Not only has he overseen the development of over 60 of
the Company's former and current software titles, but he is also personally
responsible for programming more than 50 of those titles himself. Mr. Shell
firmly believes in the principle that a strong management team augmented with a
talented and highly creative staff is required to profitably compete in today's
rapidly changing education technology markets.

JIMMY L. BUTLER, DIRECTOR, VICE-PRESIDENT OF DEVELOPMENT, AND SECRETARY

      As a co-founder of Heartsoft, Jimmy Butler has more than ten years of
educational software development experience with the Company. Mr. Butler served
as Vice-President of Marketing from 1987 to 1993. His diverse exposure to the
educational and software industry includes:

    -  designing and implementing direct mail campaigns;
    -  market analysis;
    -  telemarketing;
    -  direct sales to school administrators;
    -  new product design;
    -  content writing; and

                                       23
<Page>

    -  hosting dozens of national trade shows.

      Mr. Butler also works in the areas of corporate imaging, marketing
position, new product development, crossover markets, public relations and
advertising campaigns.

      Mr. Butler has held the position of Vice-President of Development since
1993. In this position, he was recently responsible for the conversion of 40
products to the Macintosh platform, from conceptualization to final release.

KATHLEEN HURLEY, DIRECTOR

      Ms. Hurley is Vice-President of Marketing and Strategic Relationships for
NetSchools Corporation. Prior to joining NetSchools, she was Senior
Vice-President of Education Marketing for The Learning Company. Ms. Hurley
serves on several industry and education advisory boards, including: the
Software and Information Industry Association (SIIA), the International Society
for Technology in Education (ISTE), the Council of the Great City Schools
Technology Steering Committee, and the National Catholic Education Exhibitors
Association. Ms. Hurley also heads up the Education Advisory Board for Target
Stores. Prior to working for The Learning Company, she was the Senior Vice
President of SkillsBank Corporation. Ms. Hurley has held various positions with
IBM, Mindscape, Grolier, and DLM. Ms. Hurley began her career working with
learning disabled students after receiving her Masters degree at the Jersey City
State College. She also continues to support her undergraduate institution, the
University of Dayton, by serving on the school of education's advisory board.

RODGER GRAHAM, CHIEF FINANCIAL OFFICER

      Mr. Graham joined the Company as its Chief Financial Officer on August 28,
2000. Mr. Graham brings over 20 years of broad-based experience in the areas of
accounting, strategic planning, and risk management to the Company. Prior to
joining Heartsoft, Inc., Mr. Graham was Vice President, Treasurer, and
Controller for BuyItNow.com, an on-line webplaza of specialty Internet retail
stores. At BuyItNow.com, his responsibilities included:
   -  the evaluation and direction of financial and human resource activities;
   -  overseeing the budgeting process;
   -  implementation of cost controls; and
   -  reporting of financial results.

      He is an internationally recognized expert in risk management and
previously served as the National Director of Enterprise Risk Services for
Deloitte & Touche LLP where he oversaw the design and delivery of comprehensive
risk management programs for the Firm's most prestigious Fortune 500 clients and
educational organizations. Prior to Deloitte & Touche, Mr. Graham served as the
Director of Accounting and Finance for MAPCO, Inc. Mr. Graham is a Certified
Public Account and a Certified Internal Auditor.

DANA SWIFT, CHIEF TECHNOLOGY OFFICER

                                       24
<Page>

      Mr. Swift joined Heartsoft in 1995 and brought along over 20 years
experience as a software engineer. Nearly half of that time was spent working as
a contractor with the Strategic Defense Command and the Strategic Defense
initiative, where he also had the opportunity to write his first browser.
Previous to this, Mr. Swift had approximately 12 years experience in the area of
flight simulation development. NASA, the Jet Propulsion Laboratory and the U.S.
Geological Survey have also been beneficiaries of his programming expertise. Mr.
Swift's most recognizable achievement in the scientific community has occurred
with the software he developed to collect and organize the massive amounts of
interplanetary data collected from deep space probes.

      Dana has worked with Heartsoft through the last two product development
cycles and will play a key role in developing new products as well as enhancing
existing products.

ITEM 10. EXECUTIVE COMPENSATION.

      The following table sets forth information with respect to compensation
received by the Chief Executive Officer, Vice-President of Sales and Marketing,
Chief Technology Officer and Chief Financial Officer. During the past three
fiscal years and the three months ended June 30, 2000, no other executive
officers of Heartsoft received a total annual salary and bonus that exceeded
$100,000.

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
           Name and                                                                        Other Annual
     Principal Positions             Period             Salary            Bonus            Compensation
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                   <C>              <C>              <C>
Benjamin P. Shell,                 2001 Fiscal Year      $ 109,200              N/A        $ 20,461(2)
   President and Chief             Transition Period     $  29,400              N/A        $  2,361(2)
   Executive Officer               2000 Fiscal Year      $  70,125(1)           N/A        $  9,400(2)
                                   1999 Fiscal Year      $  46,800              N/A        $  9,444(2)

Juanita L. Seng,                   2001 Fiscal Year      $ 100,000        $   6,744        $  5,200(2)
   Vice-President,                 Transition Period     $  26,923        $   1,206        $  2,563(5)
   Sales and Marketing             2000 Fiscal Year(3)   $  50,000        $  76,875(4)     $  6,752(5)

Dana Swift,                        2001 Fiscal Year      $ 100,000        $   5,000        $  4,000(2)
   Chief Technology Officer

Rodger Graham,                     2001 Fiscal Year      $ 84,615(6)            N/A        $  4,400(2)
   Chief Financial Officer
--------------------------------------------------------------------------------------------------------------------
</Table>

(1) From April 1, 1999 to November 15, 1999, Mr. Shell received a base salary of
$46,800 per year. On November 15, 1999, Mr. Shell's base salary increased to
$109,000 per year.
(2) Unless otherwise specified, All Other Annual Compensation consists of a car
allowance provided by the Company.
(3) Ms. Seng was hired in October of 1999. The figures under Ms. Seng's Salary,
Bonus and Other Annual Compensation reflects payments made from October of 1999
to March 31, 2000.

                                       25
<Page>

(4) This figure includes a $5,000 signing bonus and a initial stock grant of
50,000 shares, both of which became due upon Ms. Seng's execution of her
Engagement Agreement with the Company. The stock was issued to Ms. Seng on
approximately October 18, 1999 when the price of the Company's Common Stock
closed at $1.4375.
(5) These figures include $5,625 paid to provide housing for Ms. Seng in Tulsa
through June of 2000. As of June of 2000, Ms. Seng has relocated to Tulsa and
will no longer receive a monthly stipend for housing. The remaining portion
under All Other Annual Compensation for 2000 for Ms. Seng consists of car
allowance provided by the Company.
(6) Mr. Graham was hired in August of 2000. The figures under Mr. Graham's
Salary and Other Annual Compensation reflects payments made from August of 2000
to June 30, 2001.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 2001 by (i)
each director, (ii) each of the named executive officers, (iii) all executive
officers and directors of the Company as a group, and (iv) all those known by
the Company to be beneficial owners of more than five percent of the Company's
Common Stock. This table is based upon information supplied by officers,
directors and principal shareholders. Subject to community property laws where
applicable, each of the shareholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially owned.

<Table>
<Caption>
                                                                   BENEFICIAL OWNERSHIP AS OF
                                                                         JUNE 30, 2001
                                                   -----------------------------------------------------------

NAME AND ADDRESS                                              NUMBER OF SHARES        PERCENTAGE OF TOTAL
OF BENEFICIAL OWNERS
<S>                                                               <C>                        <C>
Benjamin P. Shell, Chairman of the Board,
President,  and
Chief Executive Officer
3101 North Hemlock Circle
Broken Arrow, OK  74102                                             921,135                   5.70%

Jimmy L. Butler,  Director,  Vice-President,
Development,
and Secretary
3101 North Hemlock Circle
Broken Arrow, OK  74102                                             754,749                   4.67%

Kathleen Hurley, Director
3521 N. Military Road
Arlington, VA  22207                                                 31,000                   0.19%

Juanita L. Seng, Vice-President, Sales and
Marketing
3101 North Hemlock Circle
</Table>

                                       26
<Page>

<Table>
<S>                                                               <C>                        <C>
Broken Arrow, OK  74102
                                                                     50,000                   0.31%

Dana Swift, Chief Technology Officer
3101 North Hemlock Circle
Broken Arrow, OK  74102                                              25,000                   0.15%
                                                            ---------------------- ---------------------------

All  executive  officers  and  directors  as  a  group
(5 persons)                                                       1,781,884                  11.02%
                                                            ---------------------- ---------------------------

Hi-Tel Group
2400 East Commercial Blvd., Suite 205
Ft. Lauderdale, FL 33308                                            947,871                   5.86%

Dale Hill
5056 Westgrove Drive
Dallas, TX 75248                                                  1,101,000                   6.81%
</Table>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

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

(a) Exhibits:

<Table>
<Caption>
    EXHIBIT NO.                             DESCRIPTION
------------------------------------------------------------------------------------------------------------
<S>                                 <C>
         3.1                        Articles of Incorporation of the Company. (Incorporated by reference to
                                    the Company's Form 10-KSB/A for the period ended March 31, 1999, which
                                    was filed on January 22, 2000.)

         3.2                        By-Laws of the Company.  (Incorporated by reference to the Company's Form
                                    10-KSB/A for the period ended March 31, 1999, which was filed on January 22,
                                    2000.)

         4.1                        Specimen of Certificate for Heartsoft, Inc. Common Stock. (Incorporated by
                                    reference to the Company's Form 10-KSB/A for the period ended March 31, 1999,
                                    which was filed on January 22, 2000.)
</Table>

                                       27
<Page>

<Table>
<S>                                 <C>
         10.1                       Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated February 12,
                                    1998.  (Incorporated by reference to the Company's Form 10-KSB/A for the
                                    period ended March 31, 1999, which was filed on January 22, 2000.)

         10.2                       Software  Agreement  dated May 16, 1997 between  Heartsoft,  Inc. and Heartsoft
                                    1997 Limited  Partnership.  (Incorporated  by reference to the  Company's  Form
                                    10-KSB/A for the period  ended March 31,  1999,  which was filed on January 22,
                                    2000.)

         10.3                       Acquisition Note dated May 16, 1997 from Heartsoft 1997 Limited Partnership.
                                    (Incorporated by reference to the Company's Form 10-KSB/A for the period ended
                                    March 31, 1999, which was filed on January 22, 2000.)

         10.4                       Assumption Agreement dated April 30, 1997 by and among Heartsoft 1997 Limited
                                    Partnership, Heartsoft, Inc. and Limited Partners.  (Incorporated by reference
                                    to the Company's Form 10-KSB/A for the period ended March 31, 1999, which was
                                    filed on January 22, 2000.)

         10.5                       Joint Venture Agreement dated May 16, 1997 between Heartsoft, Inc. and
                                    Heartsoft 1997 Limited Partnership.  (Incorporated by reference to the
                                    Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
                                    on January 22, 2000.)

         10.6                       Software Agreement dated July 30, 1997 between Heartsoft, Inc. and Heartsoft
                                    II 1997 Limited Partnership.  (Incorporated by reference to the Company's Form
                                    10-KSB/A for the period ended March 31, 1999, which was filed on January 22,
                                    2000.)

         10.7                       Acquisition Note dated July 30, 1997 from Heartsoft II 1997 Limited
                                    Partnership.  (Incorporated by reference to the Company's Form 10-KSB/A for
                                    the period ended March 31, 1999, which was filed on January 22, 2000.)

         10.8                       Assumption Agreement dated July 30, 1997 by and among Heartsoft II Limited
                                    Partnership, Heartsoft, Inc. and Limited Partners.  (Incorporated by reference
                                    to the Company's Form 10-KSB/A for the period ended March 31, 1999, which was
                                    filed on January 22, 2000.)

         10.9                       Joint Venture Agreement dated July 30, 1997 between Heartsoft, Inc. and
                                    Heartsoft II 1997 Limited Partnership.  (Incorporated by reference to the
                                    Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
                                    on January 22, 2000.)

         10.10                      Software Agreement dated October 28, 1997 between Heartsoft, Inc. and
                                    Heartsoft III 1997 Limited Partnership.  (Incorporated by reference to the
                                    Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
                                    on January 22, 2000.)
</Table>

                                       28
<Page>

<Table>
<S>                                 <C>
         10.11                      Acquisition Note dated October 28, 1997 from Heartsoft III 1997 Limited
                                    Partnership.  (Incorporated by reference to the Company's Form 10-KSB/A for
                                    the period ended March 31, 1999, which was filed on January 22, 2000.)

         10.12                      Assumption Agreement dated July 30, 1997 by and among Heartsoft III 1997
                                    Limited Partnership, Heartsoft, Inc. and Limited Partners.  (Incorporated by
                                    reference to the Company's Form 10-KSB/A for the period ended March 31, 1999,
                                    which was filed on January 22, 2000.)

         10.13                      Joint Venture Agreement dated October 28, 1997 between Heartsoft, Inc. and
                                    Heartsoft III 1997 Limited Partnership. (Incorporated by reference to the
                                    Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
                                    on January 22, 2000.)

         10.14                      Letter Agreement by and between Heartsoft, Inc. and the Weather Channel
                                    Enterprises, Inc. dated September 1, 1999.  (Incorporated by reference to the
                                    Company's Form 10-KSB for the period ended March 31, 2000, which was filed on
                                    July 14, 2000.)

         10.15                      Co-branding Program Agreement by and between Heartsoft, Inc. and Ask Jeeves,
                                    Inc. dated September 16, 1999.  (Incorporated by reference to the Company's
                                    Form 10-KSB for the period ended March 31, 2000, which was filed on July 14,
                                    2000.)

         10.16                      Lease dated November, 1999 for commercial office space in Broken Arrow, Oklahoma.
                                    (Incorporated by reference to the Company's Form 10-KSB for the period ended
                                    March 31, 2000, which was filed on July 14, 2000.)

         10.17                      Lease dated January, 2000 for commercial office space in Broken Arrow,
                                    Oklahoma.  (Incorporated by reference to the Company's Form 10-KSB for the
                                    period ended March 31, 2000, which was filed on July 14, 2000.)

         10.18                      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. attached as Exhibit B.  (Incorporated by
                                    reference to the Company's Form 10-KSB for the period ended March 31, 2000,
                                    which was filed on July 14, 2000.)
</Table>

                                       29
<Page>

<Table>
<S>                                 <C>
         10.19                      Web Service Agreement by and between Heartsoft, Inc. and Gaggle, Inc. dated
                                    June 9, 2000.  (Incorporated by reference to the Company's Form 10-KSB for the
                                    period ended March 31, 2000, which was filed on July 14, 2000.)

         10.20                      Amendment to Stock Purchase Agreement by and between Heartsoft, Inc. and Hi-Tel
                                    Group, Inc. dated September 27, 2000. (Incorporated by reference to the Company's
                                    Form 10-KSB for the transition period ended June 30, 2000, which was filed on
                                    September 28, 2000.)

         10.21                      Amendment to Heartsoft, Inc. Common Share Purchase Warrant by and between Heartsoft,
                                    Inc. and Hi-Tel Group, Inc. dated September 27, 2000 (Incorporated by reference to the
                                    Company's Form 10-KSB for the transition period ended June 30, 2000, which was
                                    filed on September 28, 2000.)

         10.22                      Original Equipment Manufacturing (OEM) Licensing Agreement by and between
                                    Heartsoft, Inc. and International Academy of Science dated April 28, 2000. (Incorporated
                                    by reference to the Company's Form 10-QSB for the period ended September 30, 2000,
                                    which was filed on November 14, 2000.)

         10.23                      Co-Branding License Agreement by and between Heartsoft Inc and Merriam-Webster,
                                    Incorporated dated August 14, 2000. (Incorporated by reference to the Company's
                                    Form 10-QSB for the period ended September 30, 2000, which was filed on November 14,
                                    2000.)

         10.24                      Promissory Note dated August 18, 2000 between Heartsoft, Inc. and Hi-Tel Group,
                                    Inc. (Incorporated by reference to the Company's Form 10-QSB for the period ended
                                    September 30, 2000, which was filed on November 14, 2000.)

         10.25                      Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated July 31, 2000.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended September 30,
                                    2000, which was filed on November 14, 2000.)

         10.26                      Trademark License Agreement by and between Heartsoft, Inc. and Ask Jeeves dated September
                                    8, 2000. (Incorporated by reference to the Company's Form 10-QSB for the period ended
                                    September 30, 2000, which was filed on November 14, 2000.)

         10.27                      Letter Agreement granting Benjamin Shell, CEO of Heartsoft, Inc., a non-exclusive
                                    license to use the Yahooligans logo dated
</Table>

                                       30
<Page>

<Table>
<S>                                 <C>
                                    September 19, 2000. (Incorporated by reference to the Company's Form 10-QSB for the period
                                    ended September 30, 2000, which was filed on November 14, 2000.)

         10.28                      Amendment to Promissory Note between Heartsoft, Inc. and Hi-Tel Group, Inc. dated
                                    November 8, 2000. (Incorporated by reference to the Company's Form 10-QSB for the
                                    period ended September 30, 2000, which was filed on November 14, 2000.)

         10.29                      Promissory Note dated November 9, 2000 between Heartsoft, Inc. and Alan W. Carlton
                                    Revocable Living Trust. (Incorporated by reference to the Company's Form 10-QSB for the period
                                    ended September 30, 2000, which was filed on November 14, 2000.)

         10.30                      Letter Agreement dated November 9, 2000 between Heartsoft, Inc. and Alan W. Carlton Revocable
                                    Living Trust. (Incorporated by reference to the Company's Form 10-QSB for the period
                                    ended September 30, 2000, which was filed on November 14, 2000.)

         10.31                      Promissory Note dated November 9, 2000 between Heartsoft, Inc. and June Limited Partnership.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended September 30, 2000,
                                    which was filed on November 14, 2000.)

         10.32                      Letter Agreement dated November 9, 2000 between Heartsoft, Inc. and June Limited Partnership.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended September 30, 2000,
                                    which was filed on November 14, 2000.)

         10.33                      Joint Security Agreement dated November 9, 2000 between Heartsoft, Inc., Benjamin Shell, Alan
                                    W. Carlton Revocable Living Trust, and June Limited Partnership. (Incorporated by reference to
                                    the Company's Form 10-QSB for the period ended September 30, 2000, which was filed on
                                    November 14, 2000.)

         10.34                      Amended and Restated Engagement Agreement by and between Heartsoft, Inc. and Juanita Seng dated
                                    September 7, 1999. (Incorporated by reference to the Company's Form 10-QSB for the period ended
                                    December 31, 2000, which was filed on February 14, 2001.)

         10.35                      Employment Agreement by and between Heartsoft, Inc. and Rodger Graham dated August 28, 2000.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended December 31, 2000,
                                    which was filed on February 14, 2001.)
</Table>

                                       31
<Page>

<Table>
<S>                                 <C>
         10.36                      Amended and Restated Engagement Agreement by and between Heartsoft, Inc. and Dana Swift dated
                                    October 6, 2000. (Incorporated by reference to the Company's Form 10-QSB for the period
                                    ended December 31, 2000, which was filed on February 14, 2001.)

         10.37                      Promissory Note by and between Benjamin P. Shell and Heartsoft, Inc., dated November 13, 2000.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended
                                    December 31, 2000, which was filed on February 14, 2001.)

         10.38                      Electronic Agreement Summary dated November 14, 2000 granting Heartsoft, Inc. permission
                                    to use Binney & Smith's Crayola logo and link to it's web sight. (Incorporated by
                                    reference to the Company's Form 10-QSB for the period ended December 31, 2000, which
                                    was filed on February 14, 2001.)

         10.39                      Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated November 15, 2000.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended December 31, 2000,
                                    which was filed on February 14, 2001.)

         10.40                      Letter Agreement dated November 20, 2000 granting Heartsoft, Inc., a non-exclusive
                                    license to use CBS Sportsline.com (SPLN) logos. (Incorporated by reference to the
                                    Company's Form 10-QSB for the period ended December 31, 2000, which was filed on
                                    February 14, 2001.)

         10.41                      Electronic Agreement Summary dated November 27, 2000 granting Heartsoft, Inc. permission
                                    to use Timeforkids.com's logo and link to it's web sight. (Incorporated by reference
                                    to the Company's Form 10-QSB for the period ended December 31, 2000, which was filed on
                                    February 14, 2001.)

         10.42                      Non-Qualified Stock Option Agreement by and between Heartsoft, Inc. and Rodger Graham
                                    dated December 4, 2000. (Incorporated by reference to the Company's Form 10-QSB for
                                    the period ended December 31, 2000, which was filed on February 14, 2001.)

         10.43                      Non-Qualified Stock Option Agreement by and between Heartsoft, Inc. and Juanita Seng
                                    dated December 4, 2000. (Incorporated by reference to the Company's Form 10-QSB for
                                    the period ended December 31, 2000, which was filed on February 14, 2001.)

         10.44                      Non-Qualified Stock Option Agreement by and between Heartsoft, Inc. and Dana Swift dated
                                    December 4, 2000. (Incorporated by
</Table>

                                       32
<Page>

<Table>
<S>                                 <C>
                                    reference to the Company's Form 10-QSB for the period ended December 31, 2000, which was filed
                                    on February 14, 2001.)

         10.45                      Letter Agreement by and between Heartsoft, Inc., and The Glenn A. Chalker Revocable Trust dated
                                    January 24, 2001.  (Incorporated by reference to the Company's Form 10-QSB for the
                                    period ended December 31, 2000, which was filed on February 14, 2001.)

         10.46                      Security Agreement by and between Heartsoft, Inc. and The Glenn A. Chalker Revocable Trust
                                    dated January 24, 2001. (Incorporated by reference to the Company's Form 10-QSB for the
                                    period ended December 31, 2000, which was filed on February 14, 2001.)

         10.47                      Convertible Promissory Note by and between Heartsoft, Inc. and The Glenn A. Chalker Revocable
                                    Trust dated January 24, 2001. (Incorporated by reference to the Company's Form 10-QSB for the
                                    period ended December 31, 2000, which was filed on February 14, 2001.)

         10.48                      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.)

         10.49                      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.)

         10.50                      Promissory Note by and between Heartsoft, Inc. and Greg Dhuevetter dated January 18,
                                    2001. (Incorporated by reference to the Company's Form 10-QSB for the period ended
                                    March 31, 2001, which was filed on May 15, 2001.)

         10.51                      Promissory Note by and between Heartsoft, Inc. and Hi Tel Group, Inc. dated March 1, 2001.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended March 31, 2001,
                                    which was filed on May 15, 2001.)

         10.52                      Consulting Agreement by and between Heartsoft, Inc. and Wealth Capital Corporation dated March
                                    6, 2001. (Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
                                    2001, which was filed on May 15, 2001.)

         10.53                      Promissory Note by and between Heartsoft, Inc. and Greg Dhuevetter dated March 17,
                                    2001. (Incorporated by reference to
</Table>

                                       33
<Page>

<Table>
<S>                                 <C>
                                    the Company's Form 10-QSB for the period ended March 31, 2001, which was filed on May 15, 2001.)

         10.54                      Investor Relations/Public Relations Consultant Contract by and between Heartsoft, Inc. and
                                    Charles J. Fabiano of Strategic Initiatives dated April 2, 2001. (Incorporated by reference to
                                    the Company's Form 10-QSB for the period ended March 31, 2001,which was filed on May 15, 2001.)

         10.55                      Promissory Note by and between Heartsoft, Inc. and Dale Hill dated April 17, 2001.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
                                    2001, which was filed on May 15, 2001.)

         10.56                      Non-Exclusive Consulting Agreement by and between Heartsoft, Inc. and Santa Fe Capital
                                    Group dated April 23, 2001. (Incorporated by reference to the Company's Form 10-QSB for
                                    the period ended March 31, 2001, which was filed on May 15, 2001.)

         10.57                      Promissory Note by and between Heartsoft, Inc. and Dale Hill dated May 1, 2001.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
                                    2001, which was filed on May 15, 2001.)

         10.58                      Extension Agreement and Amendment to Joint Security Agreement by and between June Limited
                                    Partnership and Alan W. Carlton Revocable Living Trust and Heartsoft, Inc. and Benjamin P.
                                    Shell, Jr. dated May 9, 2001. (Incorporated by reference to the Company's Form
                                    10-QSB for the period ended March 31, 2001, which was filed on May 15, 2001.)

         10.59                      Promissory Note by and between Heartsoft, Inc. and George Fenimore dated May 11, 2001.
                                    (Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
                                    2001, which was filed on May 15, 2001.)

         10.60                      Consulting Agreement by and between Heartsoft, Inc. and 7th Wave Consulting dated May 17, 2001.

         10.61                      Consulting Agreement by and between Heartsoft, Inc. and INTERCAP FUNDING LTD dated June 1, 2001.

         10.62                      Investment Banking Agreement by and between Heartsoft, Inc. and First Avantus Securities, Inc.
                                    dated June 1, 2001.
</Table>

                                       34
<Page>

<Table>
<S>                                 <C>
         10.63                      Marketing Agreement by and between Heartsoft, Inc. and K-12 MICROMEDIA PUBLISHING, INC. dated
                                    June 1, 2001.

         10.64                      Officer Payable Agreement by and between Heartsoft, Inc. and Jimmy Butler, dated June 12, 2001.

         10.65                      Letter Agreement amending Convertible Promissory Note and Security Agreement by and between
                                    Heartsoft,Inc. and Glenn A. Chalker Revocable Trust dated June 14, 2001.

         10.66                      Amended and Restated Security Agreement by and between Heartsoft, Inc. and The Glenn A. Chalker
                                    Revocable Trust dated June 14, 2001.

         10.67                      Amended and Restated Convertible Promissory Note by and between Heartsoft, Inc. and The Glenn A.
                                    Chalker Revocable Trust dated June 14, 2001.

         10.68                      Finder's Fee Agreement by and between Heartsoft, Inc. and SBI Strategic Business Initiatives
                                    dated June 28, 2001.

         10.69                      Second Extension Agreement to Joint Security Agreement by and between June Limited Partnership
                                    and Alan W. Carlton Revocable Living Trust and Heartsoft, Inc. and Benjamin P. Shell
                                    dated July 9, 2001.

         10.70                      Promissory Note by and between Heartsoft, Inc. and Tim Bakamjian dated July 13, 2001.

         10.71                      Consulting Contract by and between Heartsoft, Inc. and Wells Group, Inc. dated July 18, 2001.

         10.72                      Promissory Note by and between Heartsoft, Inc. and Dale Hill dated July 24, 2001.

         10.73                      Intentionally omitted.

         10.74                      Software Distribution Agreement by and between Heartsoft, Inc. and MegaSystems LP dated August
                                    14, 2001.

         10.75                      Common Stock Purchase Agreement by and between Heartsoft, Inc. and Crowe & Dunlevy, a
                                    Professional Corporation dated August 9, 2001.

         10.76                      Promissory Note by and between Heartsoft, Inc. and A.J. Nassif dated August 10, 2001.
</Table>

                                       35
<Page>

<Table>
<S>                                 <C>
         10.77                      Promissory Note by and between Heartsoft, Inc. and Tim Bakamjian dated August 10, 2001.

         10.78                      Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated October 4, 2001.

         10.79                      Quotation for Services by and between Heartsoft, Inc. and SplitSecondServices, Inc. dated
                                    September 17, 2001.

         10.80                      Promissory Note by and between Heartsoft, Inc. and Juanita Seng dated September 13, 2001.

         21.1                       Subsidiaries of Heartsoft. (Incorporated by reference to the Company's Form 10-KSB/A for
                                    the period ended March 31, 1999, which was filed on January 22, 2000.)

         23.1                       Consent of Tullius Taylor Sartain & Sartain LLP.
</Table>


      (b) Reports on Form 8-K:

FORM 8-K FILED ON AUGUST 15, 2000:

      On August 15, 2000, the Company filed a Form 8-k reporting that on August
4, 2000, the Board of Directors of Heartsoft, Inc. (the "Company") changed the
fiscal year of the Company from the period beginning April 1 and ending March 31
to the period beginning July 1 and ending June 30. Such change in the Company's
fiscal year was effective commencing with the fiscal year beginning July 1,
2001. The Company filed a transition report on Form 10-KSB for the transition
period from April 1, 2000 to June 30, 2000 in accordance with and within the
time periods provided in Rule 15d-10 under the Securities Exchange Act of 1934.

FORM 8-K FILED ON JULY 11, 2001:

      On July 11, 2001, the Company filed a Form 8-K reporting that on May 15,
2001, Heartsoft, Inc. filed its Form 10-QSB for the quarterly period ended March
31, 2001 and disclosed in Note 2 to the interim financial statements and in Item
5 - Other Information two recently discovered consulting agreements, one of
which would have an impact on the Company's financial statements. The general
information disclosed in Form 10-QSB or a corresponding press release of the
Management Discussion and Analysis of Form 10-QSB follows:

      RESTATEMENT OF PREVIOUSLY ISSUED 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

                                       36
<Page>

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 Company's
financial statements as of March 31, 1999 and 2000, and June 30, 2000, as well
as each of the interim financial statements issued, were restated to report the
accounting recognition for the agreement. The Company's independent certified
public accountants advised the Company that they withdrew their previously
issued opinions on Heartsoft's financial statements included in Forms 10-KSB for
the above noted periods.

      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 should have been allocated to general and
administrative expenses over the term of the agreement. The Company's legal
counsel 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 had to be reported as an accrued liability as it was
accrued over the period October 1998 through March 2001. The Company's
previously issued financial statements had to be amended to retroactively report
the accrual. The accumulated deficit reported in the Company's balance sheet
reflected on Form 10-QSB for the quarterly period ended March 31, 2001 was
adjusted to reflect the retroactive accrual of this obligation.

      A review of the consulting agreement indicated the following financial
impact on the balance sheets and statement of operations presented on Form
10-KSB for the periods indicated below:

<Table>
<Caption>
                                                            MARCH 31, 1999      MARCH 31, 2000    JUNE 30, 2000
                                                            --------------      --------------    -------------
<S>                                                         <C>                 <C>               <C>
BALANCE SHEET:
--------------
   Accrued expenses previously reported                     $       92,900      $      54,052      $    76,569
   Correction to accrued expenses                                   50,803            147,118          171,197
                                                          ---------------------------------------------------------
   Restated accrued expenses                                $      143,703      $     201,170      $   247,766

   Accumulated deficit previously reported                  $   (3,230,708)     $  (4,754,841)     $(5,225,517)
   Correction to accumulated deficit                               (50,803)          (147,118)        (171,197)
                                                          ---------------------------------------------------------
   Restated accumulated deficit                             $   (3,281,511)     $  (4,901,959)     $(5,396,714)

STATEMENT OF OPERATIONS:
------------------------
   G&A expense previously reported                          $       544,751     $     925,162   $   328,568
   Correction to G&A expense                                         50,803            96,315        24,079
                                                          ------------------------------------------------------
   Restated G&A Expense                                     $       595,554     $   1,021,477   $   352,647

   Net loss previously reported                             $     (527,081)     $  (1,524,133)  $  (470,676)
   Correction to net loss                                          (50,803)           (96,315)      (24,079)
                                                          ------------------------------------------------------
   Restated net loss                                        $     (577,884)     $  (1,620,448)  $  (494,755)
</Table>

                                       37
<Page>

<Table>
<S>                                                         <C>                 <C>             <C>
   Earnings per share previously reported                   $        (0.07)     $       (0.14)  $     (0.04)
   Correction to earnings per share                                  (0.01)             (0.01)            -
                                                          ------------------------------------------------------
   Restated earnings per share                              $        (0.08)     $       (0.15)  $     (0.04)
</Table>

      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 should
have issued 178,763 warrants to Intercap. The warrants were exercisable over
five years at values ranging from $1.3437 to $3.4375 per warrant. The warrants
were a cost of the capital that was raised and their issuance would not have
affected 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 surrender 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.

FORM 8-K FILED ON OCTOBER 19, 2001:

      On October 19, 2001, the Company filed a Form 8-k reporting that due to
the press of other business and delays in completing the Company's financial
statements, the Company was unable to complete its Form 10-KSB for the period
ended June 30, 2001 (the "Form 10-KSB") by September 28, 2001 and, as a result,
the Company filed a Form 12b-25 (Notification of Late Filing) on September 28,
2001.


SUMMARY OF RISK FACTORS

THE COMPANY'S FUTURE SUCCESS DEPENDS UPON KEY EMPLOYEES.

      The Company has experienced significant changes in its business, including
but not limited to, an expansion in the Company's customer base as well as its
product lines. Such changes have placed and may continue to place a significant
strain on the Company's employees. The Company believes that its future success
may depend in part upon its ability to retain existing, as well as, attract
highly skilled technical, managerial and marketing personnel. Competition for
such personnel can be intense.

      Additionally, the loss of one or more of senior management could have a
material adverse effect upon the Company. In order to reduce the risk of losing
key employees, the Company entered into employment agreements with key
management personnel.

                                       38
<Page>

THE COMPANY'S FUTURE SUCCESS DEPENDS UPON DEVELOPMENT OF NEW PRODUCTS AND
ENHANCEMENT OF EXISTING PRODUCTS.

      In order to remain competitive in the educational software market, the
Company must develop and introduce new products and product enhancements on a
timely basis. If the Company fails to develop and introduce new products and
enhancements on a timely basis, it could have a material adverse effect on the
Company's financial condition and results of operations.

THE COMPANY FACES CERTAIN RISKS ASSOCIATED WITH PRODUCT DEFECTS.

      Prior to release of new products or upgrades to existing products, the
Company conducts exhaustive testing of those products. Despite intensive
testing, new products or enhancements may contain undetected errors or "bugs"
that are discovered only after a product has been installed and used by
customers. There can be no assurance that such errors will not be discovered in
the future.

THE COMPANY FACES CERTAIN RISKS ASSOCIATED WITH MANAGING GROWTH.

      The Company is experiencing a period of transition and product
introductions that has and may continue to place a significant strain on its
resources. Expansion of the Company's product lines, additional product
development and product introductions, or acquisitions of other technologies,
may further place a strain on the Company's resources and personnel, when added
to the existing management of the Company's day-to-day activities.

THE COMPANY'S SUCCESS DEPENDS IN PART ON ITS ABILITY TO ADAPT TO RAPID
TECHNOLOGICAL CHANGE.

      The educational software market is subject to rapid technological change,
new product introductions, evolving industry standards and changes in customer
demands. The introduction of new technologies and the emergence of new industry
standards can render existing products obsolete and unmarketable. The Company's
future success will depend in part on its ability to enhance existing products
and to develop new products that meet changing client requirements.

THE COMPANY IS SUBJECT TO INTENSE COMPETITION.

      The educational software market is highly competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. Some of the Company's primary and
potential competitors are substantially larger and have significantly greater
financial, technical and marketing resources as well as established channels of
distribution. As a result, these competitors may be able to respond more quickly
to emerging technologies and changes in customer requirements and can devote
greater resources to their businesses.

                                       39
<Page>

THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY PROTECT ITS INTELLECTUAL PROPERTY.

      The Company's success is heavily dependent upon its confidential and
proprietary intellectual property. The Company relies primarily on a combination
of copyright, trademark and trade secret laws. The Company has filed a
preliminary patent application in connection with its new Internet browser for
children, INTERNET SAFARI-TM-. Trade secret and copyright laws afford only
limited protection.


THE COMPANY MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING NECESSARY TO SUSTAIN
AND GROW ITS OPERATIONS.

      The Company's audited financial statements for the fiscal year ended March
31, 2000, for the three months ended June 30, 2000, and for the fiscal year
ended June 30, 2001 have been qualified on a going concern basis principally due
to lack of long term financing to achieve its goal of effectively developing and
marketing its new secure Internet browser for children, INTERNET SAFARI-TM-. To
date, the Company has funded its transition period to the introduction of
INTERNET SAFARI-TM- primarily through revenues generated by other products and
debt and equity financings. The Company will need additional capital before
INTERNET SAFARI-TM- begins generating a sufficient cash flow to sustain
operations and anticipated growth.

THE COMPANY'S REVENUES DEPEND ON CONTINUED MARKET ACCEPTANCE OF PRODUCTS.

      To date, the Company has derived substantially all of its revenue from the
sale of approximately 50 educational programs. Accordingly, the Company's
results will depend on continued market acceptance of these existing products
and acceptance of its new products, including INTERNET SAFARI-TM-. Failure to
achieve such acceptance could have a material adverse effect on the Company's
business, financial condition and results of operations.

CERTAIN RESTRICTED SHARES OF THE COMPANY WILL BE ELIGIBLE FOR SALE IN THE FUTURE
AND COULD AFFECT THE PREVAILING MARKET PRICE OF THE COMPANY'S COMMON STOCK.

      Certain of the outstanding shares of Common Stock are "restricted
securities" under Rule 144 of the Securities Act, and would be eligible for sale
as the applicable holding periods expire. Sales or the expectation of sales of a
substantial number of shares of Common Stock in the public market by selling
stockholders could adversely affect the prevailing market price of the Common.

THE COMPANY'S COMMON STOCK MAY BE SUBJECT TO SECONDARY TRADING RESTRICTIONS
RELATED TO PENNY STOCKS.

      Certain transactions involving the purchase or sale of Common Stock of the
Company may be affected by a Securities and Exchange Commission rule for "penny
stocks" that imposes additional sales practice burdens and requirements upon
broker-dealers that purchase or sell such securities. The penny stock rule may
impede the ability of broker-dealers to purchase or sell the

                                       40
<Page>

Company's securities for their customers and the ability of persons now owning
or subsequently acquiring the Company's securities to resell such securities.

                                       41
<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:  11/14/01
                        /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:  11/14/01
                        /s/ Benjamin P. Shell
                       --------------------------------------------------------
                       Benjamin P. Shell, Chairman of the Board, President, and
                       Chief Executive Officer
                       (Principal Executive Officer)

Date:  11/14/01
                        /s/ Jimmy L. Butler
                       --------------------------------------------------------
                       Jimmy L. Butler, Jr., Director and Vice-President

Date:  11/14/01
                        /s/ Rodger Graham
                       ---------------------------------------------------------
                       Rodger Graham, Chief Financial Officer
                       (Principal Financial Officer)


Date:  11/14/01
                        /s/ Kathy Howell
                       ---------------------------------------------------------
                       Kathy Howell, Chief Financial Controller
                       (Principal Accounting Officer)

                                       42
<Page>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Heartsoft, Inc.

We have audited the accompanying balance sheet of Heartsoft, Inc., as of June
30, 2001, and the related statements of operations, changes in stockholders'
equity (deficiency), and cash flows for the years ended June 30, 2001 and March
31, 2000, and the three month period ended June 30, 2000. 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 of America. 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 June 30,
2001, and the results of its operations and its cash flows for the years ended
June 30, 2001 and March 31, 2000, and the three month period ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States of America.

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 stockholders' deficiency is $634,448, and it
has experienced recurring losses and negative cash flows from operating
activities, which increased to $2,969,880 and $1,760,220 respectively, for the
year ended June 30, 2001. 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.


/s/ TULLIUS TAYLOR SARTAIN & SARTAIN LLP

Tulsa, Oklahoma
November 8, 2001

                                       F-1
<Page>

                                 HEARTSOFT, INC.

                                  BALANCE SHEET

                                  June 30, 2001

<Table>
<Caption>
<S>                                                         <C>
  Assets
  Current assets:
     Cash                                                   $         -
     Accounts receivable, trade, net of allowance
       of $31,128                                                10,733
     Note receivable-officer                                    260,983
     Inventories, at cost                                        57,260
     Other                                                       48,277
                                                            -----------

  Total current assets                                          377,253

  Property and equipment, at cost:
     Property and equipment                                     292,933
     Less accumulated depreciation                              155,359
                                                            -----------

  Property and equipment, net                                   137,574

  Other assets:
     Developed software, net                                    934,823
     Other                                                        4,668
                                                            -----------

  Total other assets                                            939,491
                                                            -----------

  Total assets                                              $ 1,454,318
                                                            ===========
</Table>

                       See notes to financial statements.

                                       F-2
<Page>

                                 HEARTSOFT, INC.

                                  BALANCE SHEET

                                  June 30, 2001

<Table>
<Caption>
<S>                                                            <C>
Liabilities and Stockholders' Deficiency
Current liabilities:
   Accounts payable                                            $     493,779
   Accrued expenses                                                  334,435
  Notes payable                                                    1,232,013
                                                               -------------

Total current liabilities                                          2,060,227

Long-term notes payable                                               28,539

Commitments and contingencies                                              -


Stockholders' deficiency:
   Preferred stock, $0.01 par value, 5,000,000 shares
      authorized, 642,000 shares issued                                6,420
  Common stock, $0.0005 par value, 30,000,000 shares
      authorized, 16,167,453 shares issued                             8,084
  Additional paid-in capital                                       7,717,642
   Accumulated deficit                                            (8,366,594)
                                                               -------------

Total stockholders' deficiency                                      (634,448)
                                                               -------------

Total liabilities and stockholders' deficiency                 $   1,454,318
                                                               =============
</Table>

                       See notes to financial statements.

                                       F-3
<Page>

                                 HEARTSOFT, INC.

                            STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                  Years                       Three month                 Year
                                                  ended                      periods ended                ended
                                                 June 30,                       June 30,                 March 31,
                                     -----------------------------    ------------------------------   ------------
                                           2001           2000           2000             1999             2000
                                     -----------------------------    -----------    ---------------   --------------
                                                      (unaudited)                      (unaudited)
<S>                                  <C>             <C>              <C>            <C>               <C>
Net sales                            $     513,996   $     341,580    $   164,307    $      117,800    $    315,557

Costs and expenses:
  Costs of production                      410,250         205,980         62,322            20,783         158,988
  Sales and marketing                      903,035         590,321        196,814            54,992         462,643
  General and
    administrative                       1,616,813       1,217,413        352,647           152,258       1,021,477
  Depreciation and
    amortization                           198,274         159,888         40,337            29,286         148,837
                                     -------------   -------------    -----------    --------------    ------------

Total operating expenses                 3,128,372       2,173,602        652,120           257,319       1,791,945
                                     -------------   -------------    -----------    --------------    ------------

Operating loss                          (2,614,376)     (1,832,022)      (487,813)         (139,519)     (1,476,388)

Other income and expense:
  Interest expense                         370,237         134,073         (3,101)          (12,118)       (143,089)
  Other, net                               (14,733)          3,109         (3,841)             (704)           (971)
                                     -------------   -------------    ------------   --------------    -------------

                                           355,504         137,182         (6,942)          (12,822)       (144,060)
                                     -------------   -------------    -----------    --------------    ------------

Loss before income taxes                (2,969,880)     (1,969,204)      (494,755)         (152,341)     (1,620,448)

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

Net loss                             $  (2,969,880)  $  (1,969,204)   $  (494,755)   $     (152,341)   $ (1,620,448)
                                     =============   =============    ===========    ==============    ==============

Net loss per common
 share - basic and diluted           $       (0.22)  $       (0.27)   $     (0.04)   $        (0.02)   $     (0.15)
                                     =============   =============    ===========    ==============    ==============
</Table>

                       See notes to financial statements.

                                       F-4
<Page>

                                 HEARTSOFT, INC.

           STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

                            Year ended June 30, 2001,
                   Three month period ended June 30, 2000 and
                            Year ended March 31, 2000

<Table>
<Caption>
                                                                            Additional
                               Preferred Stock          Common Stock         Paid-in       Accumulated
                           -----------------------------------------------
                             Shares       Amount      Shares     Amount      Capital         Deficit          Total
                           ------------ ----------  ----------  --------    ----------     -----------     ----------
<S>                        <C>             <C>     <C>           <C>        <C>            <C>             <C>
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

Stock issued
  for services                    -             -      25,000       125           (125)             -               -
Cash received for stock
  unissued                        -             -           -         -        247,500              -         247,500
Net loss                          -             -           -         -              -        (494,755)      (494,755)
                           ------------ ---------- -----------  ---------- -----------     -----------     ----------

Balance, June 30, 2000      827,000        $8,270  11,080,337    $5,653     $5,853,321     $(5,396,714)    $  470,530
</Table>

                       See notes to financial statements.

                                       F-5
<Page>

                                 HEARTSOFT, INC.

     STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) (continued)

                            Year ended June 30, 2001,
                   Three month period ended June 30, 2000 and
                            Year ended March 31, 2000

<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, June 20, 2000      827,000    $  8,270    11,080,337   $  5,653   $ 5,853,321   $  (5,396,714) $   470,530

Convert preferred stock
  to common                (185,000)     (1,850)      742,505        371         1,479              -             -
Sale of common stock              -           -     1,463,181        732       860,831              -       861,563
Stock issued for
  services                        -           -     1,440,430        608       325,277              -       325,885
Stock issued as
 consideration
 for financings                   -           -       880,000        440       395,200              -       395,640
Stock issued for                  -           -       350,000        175       241,160              -       241,335
penalties
Stock issued
 for compensation                 -           -        11,000          5        10,474              -        10,479
Stock issued for                  -           -       200,000        100          (100)             -             -
collateral
Capital contribution              -           -             -          -        30,000              -        30,000
Net loss                          -           -             -          -             -      (2,969,880)  (2,969,880)
                           ----------------------------------------------------------------------------------------
Balance, June 30, 2001      642,000    $  6,420    16,167,453   $  8,084   $ 7,717,642   $  (8,366,594) $  (634,448)
                           ========================================================================================
</Table>

                       See notes to financial statements.

                                       F-6
<Page>

                                 HEARTSOFT, INC.

                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                   Years                   Three month               Year
                                                   ended                  Periods ended              ended
                                                   June 30,                  June 30,               March 31,
                                        ----------------------------  -------------------------   -----------
                                            2001            2000         2000           1999          2000
                                        ----------------------------  -------------------------   -----------
                                                         (unaudited)                (unaudited)
<S>                                     <C>             <C>           <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                $(2,969,880)    $ (1,969,204) $  (494,755) $   (152,341)  $(1,620,448)
Adjustments to reconcile net loss to
  net cash used in operating
activities:
   Depreciation and amortization            198,274          159,888       40,337        29,286       148,836
   Stock issued for services and            973,339          305,433            -             -       148,268
other
   Changes in:
     Accounts receivable                     53,679            1,816      (33,757)      (19,630)       15,943
     Note receivable - officer             (260,983)           3,281            -             -             -
     Inventories                            (10,240)               -       (1,328)      (12,836)      (25,343)
     Other assets                           (41,218)         (13,833)       2,220         2,280         5,380
     Accounts payable                       210,140          128,042       64,886       (32,635)       25,013
     Accrued expenses                        86,669           97,956       46,596         6,108        57,467
                                        -----------     ------------  -----------  ------------   -----------
Net cash used in operating activities    (1,760,220)      (1,286,621)    (375,801)     (179,768)   (1,244,884)

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Capitalized software development           (353,975)        (253,303)     (86,397)      (32,378)     (199,283)
costs
Payments for the purchase of property       (65,189)         (79,311)      (8,775)       (3,205)      (75,554)
                                        -----------     ------------  -----------  ------------   -----------
Net cash used in investing activities      (419,164)        (332,614)     (95,172)      (35,583)     (274,837)

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Capital contribution                         30,000                -            -             -             -
Proceeds from issuance of notes           1,499,172          299,543            -        79,500             -
payable
Proceeds from issuance of common            861,563        2,138,454      247,375       175,509     2,083,521
stock
Principal payments on notes payable        (305,171)        (729,945)     (17,376)      (77,070)     (270,595)
                                        -----------     ------------  -----------  ------------   -----------
Net cash provided by financing            2,085,564        1,708,052      229,999       177,939     1,812,926
activities
                                        -----------     ------------  -----------  ------------   -----------
Net increase (decrease) in cash             (93,820)          88,817     (240,974)      (37,412)      293,205
Cash at beginning of period                  93,820            5,003      334,794        41,589        41,589
                                        -----------     ------------  -----------  ------------   -----------
Cash at end of period                   $         -     $     93,820  $    93,820  $      4,177   $   334,794
                                        ===========     ============  ===========  ============   ===========

SUPPLEMENTAL DISCLOSURES
Cash paid during the period for         $    15,318     $     53,359  $     3,101  $      8,112   $   203,089
interest
                                        ===========     ============  ===========  ============   ===========
Common stock issued for debt repayment  $    40,000     $          -  $         -  $          -   $   140,000
                                        ===========     ============  ===========  ============   ===========
</Table>

                                       F-7
<Page>

                                 HEARTSOFT, INC.

                          NOTES TO FINANCIAL STATEMENTS

       Years ended June 30, 2001 and 2000 (unaudited) and March 31, 2000,
          Three month periods ended June 30, 2000 and 1999 (unaudited)


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. A subsidiary, Plug Invention
Technologies, Inc., was formed on July 17, 2000, and had no operations during
fiscal 2001.

CHANGE IN YEAR END

The Company changed its fiscal year end from March 31 to June 30 effective June
30, 2000.

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 30 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.

                                       F-8
<Page>

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.

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 June 30 2001. Advertising costs totals
$137,364 and $237,257 for the years ended June 30, 2001 and 2000, respectively,
$74,596 and $9,040 for the periods ended June 30, 2000 and 1999, respectively,
and $171,701 for the year ended March 31, 2001.

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 totals $164,530 and $135,354 for the years
ended June 30, 2001 and 2000, respectively, $34,438 and $33,764 for the periods
ended June 30, 2000 and 1999, respectively, and $125,401 for the year ended
March 31, 2001.

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

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

                                       F-9
<Page>

rates currently available to the Company, the carrying amounts reported in the
accompanying balance sheet for notes payable approximate fair value.

CONCENTRATIONS OF CREDIT RISK

The most significant credit risk is the note receivable from an officer.

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

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.

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

                                      F-10
<Page>

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%.

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. The principal balance of the
Acquisition Notes at June 30, 2001, is approximately $2,205,000.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at June 30, 2001:

<Table>
<Caption>
<S>                                                            <C>
         Office furniture, fixtures and equipment              $   152,407
         Production and development equipment                      122,669
         Leasehold improvements                                     17,857
                                                               -----------

                                                               $   292,933
                                                               ===========
</Table>

Depreciation expense is $33,745 and $24,534 for the years ended June 30, 2001
and 2000; $5,899 and $4,791 for the three month periods ended June 30, 2000 and
1999, and $19,164 for the year ended March 31, 2000.

                                      F-11
<Page>

NOTE 4 - NOTES PAYABLE

Notes payable consist of the following at June 30, 2001:

<Table>
<Caption>
<S>                                                                <C>
         Notes payable to investors (A)                            $  835,164

         Notes payable to a finance company, $6,803
             monthly, due October 2003 bearing interest at
             14.82%, secured by property and equipment                 65,388

         Notes payable to investors, balloon payments due
             December 31, 2001, bearing interest at rates
             ranging from 8% to 15%                                   270,000

         Note payable to an investment group, balloon
             payment due February 28, 2002, bearing
             interest at 8%                                            40,000

         Notes payable to investors, in default, bearing
             interest at 8%                                            50,000
                                                                   ----------

         Total                                                      1,260,552

         Current portion                                            1,232,013
                                                                   ----------

         Noncurrent portion                                        $   28,539
                                                                   ==========
</Table>

(A) On September 1, 2001, and October 15, 2001, three noteholders entered into
an extension agreement, and amended and restated note agreements and security
agreements (together, the "Agreements"). Under the Agreements, the principal
balances bear interest at 15% per annum. Principal and interest on each note are
due December 31, 2001, which date would be accelerated upon Heartsoft's
receiving aggregate cumulative proceeds of $1,000,000 from debt, equity or sale
of assets. In consideration of the signed notes, the Company issued the
noteholders an aggregate of 525,000 shares of common stock. In consideration of
the extension agreement, the Company agreed to issue the noteholders an
aggregate of 1,200,000 shares of common stock. The fair value of the common
stock issued is accounted for as additional interest. The Company agreed

                                      F-12
<Page>

to file a registration statement with the SEC registering for sale all of the
shares held by the noteholders. The notes are collateralized by 500,000 shares
of the Company's common stock and all intangible assets of the Company including
the Company's software INTERNET SAFARI-TM- and other software titles.

On November 9, 2000, the Company borrowed a total of $500,000 under two separate
promissory notes, each for the principal sum of $250,000. The principal sum of
both promissory notes plus interest at a per annum rate equal to 6.15% were due
May 9, 2001. The Company borrowed $75,000 on January 24, 2001, $175,000 on
February 5, 2001, and $50,000 on June 19, 2001, under promissory notes for the
principal sum of $300,000. The principal sum of the promissory notes plus
interest at 6.15% per annum were due on August 5, 2001.

Maturities of notes payable are as follows:

<Table>
<Caption>
                     Year ended
                      June 30,
                  ---------------
<S>                                    <C>
                  2002                 $   1,232,013
                  2003                        22,832
                  2004                         5,707
                                       -------------
                                       $   1,260,552
                                       =============
</Table>

NOTE 5 - STOCKHOLDERS' DEFICIENCY

PREFERRED STOCK

As of June 30, 2001, the Company had 642,000 shares of $.01 par value preferred
stock outstanding.

A total of 52,000 shares are from a 1996 private placement and are
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. 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. During 2001 185,000 preferred shares were converted to 742,505
shares of common stock, leaving 590,000 shares remaining to be converted.

                                      F-13
<Page>

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, which condition was not met. On September 26, 2000, the Company
and the holders of the Series A preferred stock amended their agreement whereby
the Company is to file a registration statement to become effective within a
reasonable time after October 1, 2000. In addition, the Company issued 300,000
shares of common stock.

COMMON STOCK

During the years ended June 30, 2001 and 2000, 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 1,440,430 and
191,835 shares of its common stock during the years ended June 30, 2001, and
March 31, 2000, respectively, under these agreements and recognized general and
administrative expenses of $325,885 and $148,367, respectively. The transactions
were valued based on the underlying price of the Company's common stock on the
dates of issuance.

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. 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.

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.

                                      F-14
<Page>

During the year ended June 30, 2001, various officers' employment agreements
were amended resulting in the officers being granted non qualified stock
options. The Company granted the officers a total of 1,200,000 options to
purchase shares of common stock at a price of $.5312 per share. The Company also
granted 10,000 options to purchase shares of common stock at a price of $1.50
per share to an employee under the Plan. The employee and officer options become
vested and exercisable at different periods that range from December 31, 2000,
through January 29, 2004. At June 30, 2001 none of the options had been
exercised.

SFAS 123, "Accounting for Stock-Based Compensation", provides an alternative
method of determining compensation cost for employee stock options, which
alternative method may be adopted at the option of the Company. Had compensation
cost for the options granted to employees been determined consistent with SFAS
123, the Company's net loss for the year ended June 30, 2001, would have been
increased and EPS would have been reduced to the following pro forma amounts:

<Table>
         <S>                                    <C>
         Net loss:

                  As reported                   $ (2,969,880)
                  Pro forma                       (3,123,839)

         Basic and diluted EPS:

                  As reported                   $       (.22)
                  Pro forma                             (.23)
</Table>

Compensation cost was based on an weighted average estimated fair value of $.53
per share, which was calculated using the Black-Scholes option pricing model
with the following assumptions: weighted average exercise and stock price of
$.54 per share; weighted average risk-free interest rate of 5.59%; expected
dividend yield of 0.0; expected life of ten years; and estimated volatility of
146%.

                                      F-15
<Page>

A summary of the status of the Company's stock options at June 30, 2001, and
changes during the year then ended is presented below:

<Table>
<Caption>
                                                                                      Weighted
                                                                                       Average
                                                          Shares                         Price
                                                   -------------------------------------------
         <S>                                              <C>                     <C>
         Outstanding, beginning of period                         -               $       -
         Granted                                          1,210,000                     .54
         Exercised                                                -                       -
         Forfeited                                                -                       -
                                                   -------------------------------------------
         Outstanding, June 30, 2001                       1,210,000               $    0.54
                                                   -------------------------------------------
         Exercisable, June 30, 2001                         400,000               $    0.53
                                                   -------------------------------------------
         Weighted average fair value of
          options granted                                      0.54
                                                   ----------------------
</Table>

The following table summarizes information about fixed stock options outstanding
at June 30, 2001:

<Table>
<Caption>
                                              Options Outstanding                     Options Exercisable
                                ------------------------------------------------ -------------------------------
                                                        Weighted
                                                         Average       Weighted                        Weighted
                                         Number        Remaining        Average           Number        Average
         Range of exercise       Outstanding at      Contractual       Exercise   Exercisable at       Exercise
         prices                         6/30/01             Life          Price          6/30/01          Price
         -------------------------------------------------------------------------------------------------------
<S>      <C>                         <C>              <C>               <C>             <C>             <C>
         $.5312                      1,200,000        9.44 years        $.5312          400,000         $.5312
         $1.50                          10,000        9.59 years         $1.50                -          $1.50
</Table>

The weighted-average grant date fair value of shares issued to vendors and for
extinguishments of debt during the years ended June 30, 2001, and March 31,
2000, was $.36 and $1.29, respectively.

NOTE 6 - INCOME TAXES

At June 30, 2001, the Company had approximately $8,345,000 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.

                                      F-16
<Page>

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.

Note 7 - Earnings per Share

Basic and diluted EPS are computed as follows:

<Table>
<Caption>
                                                                                              Three months ended
                                                                                                   June 30
                                                        Years ended                     ---------------------------
                                          June 30,        June 30          March 31,        2000           1999
                                        ---------------------------------------------------------------------------
                                            2001            2000              2000                      (unaudited)
                                        ---------------------------------------------
                                                       (unaudited)
<S>                                     <C>             <C>              <C>            <C>             <C>
Basic and diluted EPS computation:

   Net loss                             $ (2,969,880)   $  (1,969,204)   $ (1,620,448)  $   (494,755)   $ (152,341)

Weighted average
   shares outstanding                     13,553,339       11,029,555      10,739,719     11,062,480     9,944,326

Basic and diluted net loss
   per share                            $      (0.22)   $       (0.27)   $      (0.15)  $      (0.04)   $    (0.02)
</Table>

All options are excluded from the EPS calculation as their effect is
anti-dilutive.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

The Company leases office facilities under an operating lease for $6,578 per
month plus adjustments over the life of the lease. Rental expense was $88,205
and $71,969 for the years ended June 30, 2001 and 2000, respectively, $19,071
and $14,420 for the 3 months ended June 30, 2001 and 2000, respectively, and
$67,318 for the year ended March 31, 2000. Future annual payments under
operating leases are $95,604 annually for fiscal 2002 and fiscal 2003 and
$39,835 for fiscal 2004.

During fiscal 2001, the SEC brought an action alleging violations of Securities
laws regarding the wording of certain press releases issued by the Company from
January 1999 to March 1999. On September 5, 2000, the Company settled the action
brought by the SEC. As a part of the terms of the settlement, the SEC filed a
complaint against the Company in the United States District Court for the
Northern District of Oklahoma on September 5, 2000. The complaint was filed with
stipulations and consents and agreed final judgments that were approved by the
SEC and Heartsoft. On September 15, 2000, the Court accepted these

                                      F-17
<Page>

stipulations and consents and entered the agreed final judgments resolving the
lawsuit and implementing the settlement. Under the terms of the stipulations and
consents and the agreed final judgments, the Company and its President and Vice
President are permanently enjoined from committing violations of certain
securities laws. The Company's officers were required to individually pay
disgorgement of certain trading profits, interest and civil penalties. The
Company and its officers neither admitted nor denied any of the allegations in
the complaint filed by the SEC.

NOTE 9 - UNCERTAINTIES
Due to operating losses resulting from execution of the Company's business plan
during fiscal 2001 and continuing into fiscal 2002, the Company remains
significantly reliant on external funding sources to continue operations. For
the year ending June 30, 2001, the Company experienced an operating loss and
negative cash flows from operating activities of $2,969,880 and $1,760,220,
respectively. For the three months ended June 30, 2000, the Company experienced
an operating loss and negative cash flows from operating activities of $494,755
and $375,801, respectively.

In order to finance these losses, the Company secured approximately
$2,300,000 in funding for the year ending June 30, 2001 through placement of
debt and common stock.

Although the Company has substantially reduced its overhead by reducing expenses
across the board, including reducing its total full-time, part-time, and
consulting staff from a high of 36 people during January 2001, to 14 as of
November 8, 2001, the Company remains dependent on additional outside funding.
Currently, the Company has outstanding obligations to its vendors, current and
previous employees and consultants. While the Company remains hopeful that
additional financing will be completed, any delay in completing additional
financing to meet current liabilities and growth needs remains a possibility.
There is no assurance that the Company will secure future financing.

MANAGEMENT'S PLAN

The Company believes that its substantial investment in the development of
INTERNET SAFARI-TM- represents a key element of its future and that the Company
can become a leading player in the children's internet market once funding is
obtained.

Additionally, the Company previously formed a wholly owned subsidiary,
Plug-Invention Technologies, Inc. to develop and market the Company's
proprietary pornographic image recognition and detection technology and other
internet security solutions to corporations, organizations and governmental
agencies throughout North America. In September 2001, the Company entered into
an agreement with SplitSecondServices, Inc. to develop a comprehensive business
plan for Plug-Invention Technologies. The business plan, which is expected to be
completed on or about November 30, 2001, will be used to present funding
opportunities to venture capitalists and angel investors, and will clearly
outline the business opportunities that

                                      F-18
<Page>

exist for the Company's proprietary internet security solutions. The Company
anticipates receiving approximately $1.8 million in up-front licensing revenue
over a six month period from this opportunity as well as royalties on future
product sales.

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

-    Complete the formal business plan for Plug Invention Technologies, Inc. and
     forge an alliance with a joint venture partner having sufficient resources
     to expedite the introduction of the Company's proprietary pornographic
     image recognition and detection technology and other internet security
     solutions to corporations, organizations and governmental agencies
     throughout North America;

-    Shift marketing emphasis from the utilization of in-house sales
     representatives to a greater dependence upon lower cost, strategic joint
     venture partners to market the Company's product line both in the United
     States and internationally;

-    Expand the marketing of INTERNET  SAFARI-TM- to both Original  Equipment
     Manufacturers  (OEMs) and Internet Service Providers (ISPs); and

-    Consider the sale of the Company's oldest product lines to obtain the
     resources to introduce INTERNET SAFARI-TM- more effectively in both the
     education and the consumer markets.

To continue operations and finance the continuing costs of product
development and enhancements, beginning on or around November 15, 2001, the
Company shall offer a Private Offering Memorandum consisting of a maximum of
3,000,000 shares of 10% Series B Convertible Preferred Stock at a cost of
$1.00 per share. The Company anticipates receiving approximately $2.6
million, after deducting offering expenses and costs. 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.

                                      F-19