<PAGE>
 
                    U.S. Securities and Exchange Commission
                            Washington, D.C. 20549
    
                                AMENDMENT NO. 1 
                                      TO       
                                  FORM 10-KSB

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended March 31, 1996

                      Commission file number:  33-23138-D

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

                  Delaware                                       87-0456766
                  --------                                       ----------
         (State or other jurisdiction                          (IRS Employer
        of incorporation or organization)                    Identification No.)

3101 Hemlock Circle, Broken Arrow, Oklahoma                        74012
-------------------------------------------                        -----
  (Address of principal executive offices)                       (Zip Code)

        Issuer's telephone number, including area code:  (918) 251-1066

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

         Title of each class           Name of each exchange on which registered
     Common Stock, par value $.0005                  OTC pink sheets
     ------------------------------                  ---------------



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

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not 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 its most recent fiscal year was $1,158,817.

     The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock on June
18, 1996, was approximately $6,286,238.  For purposes of this computation, all
officers, directors and 5% beneficial owners of Registrant are deemed to be
affiliates.

     As of June 18, 1996, the issuer had outstanding a total of 5,089,608
shares of its $.0005 par value Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of Registrant's definitive Proxy Statement to be filed in
connection with the Annual Meeting of Stockholders to be held August 28, 1996,
are incorporated into Part III.

     Transitional Small Business Disclosure Format:

     Yes       No  X 
         ---      --- 
<PAGE>
 
                               TABLE OF CONTENTS

                                                                           PAGE
ITEM NUMBER AND CAPTION                                                   NUMBER
 
PART I
 
 1.         Description of Business                                          1
 
 2.         Description of Property                                          4
 
 3.         Legal Proceedings                                                4
 
 4.         Submission of Matters to a Vote of Security Holders              5
 
PART II
 
 5.         Market for Common Equity and Related Stockholder Matters         5
 
 6.         Management's Discussion and Analysis or Plan of Operation        6
 
 7.         Financial Statements                                             7
 
 8.         Changes In and Disagreements with Accountants on Accounting      8
            and Financial Disclosure
 
PART III
 
 9.         Directors, Executive Officers, Promoters and Control Persons;    8
            Compliance With Section 16(a) of the Exchange Act
 
 10.        Executive Compensation                                           8
 
 11.        Security Ownership of Certain Beneficial Owners and Management   8
     
 12.        Certain Relationships and Related Transactions                   9
     
 
 13.        Exhibits and Reports on Form 8-K                                 9
<PAGE>
 
                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS

Heartsoft, Inc., a Delaware corporation ("Heartsoft", or including its
subsidiary described below, the "Company"), was incorporated on June 2, 1988,
under the name "Davenport Company".  In July of 1988, Davenport made a public
offering of its stock in furtherance of the objective of seeking and acquiring
an interest in a prospective business opportunity.   In May of 1989, Davenport
acquired all of the issued and outstanding stock of Heartsoft, Inc., a Delaware
corporation formed on January 15, 1988 ("Heartsoft -Delaware") pursuant to an
Agreement and Plan of Reorganization.  As part of the Agreement and Plan of
Reorganization, on June 21, 1989, Davenport caused Heartsoft - Delaware to be
merged into it, and Davenport then changed its corporate name to Heartsoft, Inc.

As a result of the Agreement and Plan of Reorganization the former stockholders
of Heartsoft - Delaware became the then owners of approximately 70% of the
outstanding stock of Heartsoft.

Heartsoft is engaged in publishing its own proprietary educational software and
licensing technological products for distribution to the education market.

On August 16, 1991, Heartsoft incorporated Heartsoft Software, Inc., an Oklahoma
corporation, organized as a wholly-owned subsidiary of Heartsoft, in which the
actual day-to-day operations of the Company are conducted.

PRODUCTS AND MARKETS

The Company publishes proprietary educational software and licenses such
software to the educational market (both public and private school educators,
schools and school systems).  In addition, the Company licenses and sells third
party educational technology.  The Company believes that there are two basic
markets for educational software technology -- retail and educational systems.
The retail market consists of such outlets as computer and software specialty
stores, warehouse clubs and general merchandise outlets.  The education market
consists of both school systems and individual educators requiring core
curriculum materials as well as supplemental materials.  Because the Company
perceived the competition and barriers to entry into the retail market to be
extremely high, it has chosen to concentrate solely on the educational market.

With respect to products created for the education market, the primary emphasis
(apart from price considerations) are on content and instructional methodology.
Since, in contrast to the retail market, product obsolescence is less of a
concern, product life spans are greater, marketing costs are lower, and with the
emphasis on content and instructional methodology (as opposed to the
exponentially high demand placed on graphics and system performance in the
retail market) development costs are lower.

The Company believes that the educational supplemental materials market is
sufficiently served by many of the same companies competing in the retail
market, with software that focuses more on "edutainment" than core curriculum.
Therefore, the Company believes that the real opportunity for growth exists in
the curriculum materials market.

There does not appear to be a dominant company or companies that offer
curriculum materials of the type the Company offers.  The majority of the
companies offering products to this market segment focus on network solutions or
integrated learning systems, which result in a comprehensive curriculum-based
solution, but at a very high price, and with the result that such networked
systems can exclude the concurrent use of computers in the classroom by others.

                                       1
<PAGE>
 
The Company's market focus to date has been in the development of curriculum
based packages consisting of the multi-licensing of software titles at a price
well below industry average.  In addition to traditional sales channels, in
April of 1995 the Company began marketing its curriculum based packages by
direct mailings to approximately 100,000 educators nationwide.  Because of the
initial success of this campaign, the Company anticipates that direct sales will
assume an increasing marketing role over the next five years.

Among the Company's best selling proprietary titles are:  Tommy the Time Turtle,
                                                          ---------------------
an animated turtle that teaches children 5-7 to tell time on an analog clock,
with lessons ranging from 1 minute to 1 hour increments; Coin Changer, which
                                                         ------------
introduces children from 5-7 to the relative denominations of coins; and the
Heartsoft Bestseller Site License, which consists of 12 titles under a license
---------------------------------
allowing the teacher to copy the software for every computer in the school.  The
Company currently maintains a line of 38 proprietary educational software
titles.

From its Dallas office, the Company  licenses and sells leading edge technology
for the classroom.  The two primary products marketed by the Dallas office are
Foundations in Reading and Discourse Technologies.

Foundations in Reading, the product developed by Breakthrough, Inc.,
concentrates on helping children learn how to read.  The most successful results
have been attained where children initially scoring below the 60th percentile in
reading have improved an average of 33 percentile points after using the
program. Discourse Technologies provides a student response system which
utilizes individual student workstations (either computers or low cost units
manufactured by Discourse) that enable the teacher to communicate with each
student simultaneously.  The teacher's workstation allows him or her to ask
questions and see all students' responses immediately, in the same amount of
time it would take to verbally ask a question, and receive a verbal response
from one student in the class.

In addition, Heartsoft has licensing agreements in place with over a dozen
additional product lines, which allow the Company to address reading and
language arts comprehensively for K-12.

Heartsoft derives commissions and overrides as a percentage of the total sales
from this type of leading edge technology.  The Company relies on a seasoned,
professional sales staff with many years experience, and extensive contacts, in
the educational technology industry.  The Dallas office opened in June, 1995,
and during the first nine months of its operation was engaged in building
market awareness of its third party products.  Thus, as of March 31, 1996, all
of the Company's revenues were derived from the sale of its proprietary titles.
Management expects the Dallas office will assume an increasing percentage of
sales throughout the next fiscal years.

With respect to its publishing activities, the Company's personnel develop the
software, and the Company produces the medium of transmission, together with the
actual packaging of the final product, at its Broken Arrow facilities.

All of the software developed by Heartsoft has been copyrighted.

MAJOR CUSTOMERS

Heartsoft markets to educators nationwide, which is a large, diverse group
governed by unrelated buying decisions.  Thus, no single customer represents a
significant portion of the Company's revenues.  Heartsoft works diligently to
strengthen relationships with existing customers, most effectively by additional
and upgrade sales, where customers can add to their Heartsoft library.

Ongoing work involves constant upgrades and variations to support new hardware
configurations.  Current development activities are focused on a "critical
thinking" based curriculum product, due out by January of 1997.

                                       2
<PAGE>
 
SOURCES AND AVAILABILITY OF RAW MATERIALS

The most important raw materials purchased by the Company are computer diskettes
which are obtained from domestic suppliers.  The Company also purchases from
other domestic manufacturers certain components, including packaging materials
used in its products.  The Company endeavors to obtain the lowest possible cost
in its purchases of raw materials and components, consistent with 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

The Company utilizes a direct sales staff of three individuals to market its
products in the United States. The Company also has recently initiated a direct
mail marketing campaign for both its proprietary products and its licensed
technology.  Sales are made directly to both individual teachers and to regional
school systems and districts, with shipments being made from the Company's
Broken Arrow office to the purchaser.  Billings are to the end user.

The Company's products and sales strategy focus on a "niche" market -- that
being the education industry, as opposed to sales at retail outlets. Further,
even within the education market, the Company's products focus on utilization in
the school curriculum itself as opposed to the "supplemental" or "edutainment"
market (more suitable for home use). Two of the Company's best selling products,
Heartsoft Bestseller Site License (covering 12 software titles) and
---------------------------------
Heartsoft K-8 Library (containing all 38 titles in the current product line)
---------------------
sell from prices ranging from approximately $400 to $1,400, depending on the
configuration. Further, each product license allows multiple use of the software
throughout the school.

To support and service its customers the Company supplies technical support by
means of an in-house programming services team.                          .

The Company's warranty on its products is lifetime for content, and one year for
disc errors.

RESEARCH AND DEVELOPMENT
    
All research and development activities of the Company are company-sponsored,
rather than customer-sponsored. Research and development costs are expensed as
incurred. Ongoing work involves additional title development, with a new line of
"critical thinking" software due for release by January of 1997. Anticipated
detail program design costs of approximately $100,000 over the next two years
will be capitalized and amortized over a maximum of 7 years or the life of the
product, whichever is less.       

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 which can duplicate a disk in as little as 25
seconds. Production delays are most likely caused by delays in raw material
receipt, referenced above. These delays rarely exceed 24-48 hours before
materials are procured.

                                       3
<PAGE>
 
WORKING CAPITAL PRACTICES

Working capital practices in the industry center on inventories and accounts
receivable.  The Company regularly reviews its working capital components with a
view to maintaining the lowest level consistent with requirements of anticipated
levels of operation.  Its greatest needs arise during the months of November and
December, the peak season for inventory (primarily purchased material) and
accounts receivable.  The Company's working capital requirements are generally
met through a bank revolving credit facility, which currently permits allowable
borrowings up to $250,000.  The Company believes that the combination of the
proceeds received upon completion of its private placement of preferred stock
and its available bank credit, will be sufficient to meet its working capital
needs through 1997.

SEASONALITY

The Company experiences mild seasonality in its sales patterns, with the peak
buying periods in the October through December quarter and April through June
quarter.

COMPETITION

The Company competes with approximately 600 other educational software
developers, with such competitors having sales ranging from less than $500,000,
to over $300 million.  Heartsoft differentiates itself on the basis of price,
total value and quality of product.  In addition, the Company is representing
new, leading edge technology solutions which are under-marketed, and show a
consistent record of test score improvement by the students utilizing these
products.

EMPLOYEES

As of June 15, 1996, the Company had 20 full-time employees, one part-time
employee and two temporary employees, none of whom are represented by unions.
Management considers its relations with its employees to be good.

COPYRIGHTS, PATENTS, TRADEMARKS, LICENSES AND CONCESSIONS

The Company routinely copyrights its proprietary software titles, and all of its
proprietary titles developed to dated have been copyrighted.  The Company has
further trademarked the "Heartsoft" name.

ENVIRONMENTAL MATTERS

The Company's operations are of a nature that laws concerning the environment
(such as the Clean Water Act, the Clean Air Act, the Resource Conservation and
Recovery Act, the Occupational Safety and Health Act, the National Environmental
Policy Act, the Toxic Substances Control Act, regulations promulgated under
these Acts) do not substantial 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.  The
Broken Arrow office, which includes both executive offices and production space,
contains 4,350 square feet (1,200 sq. ft. of production/warehouse space and
3,150 sq. ft. of office space), located in a business office park at 3101
Hemlock Circle, Broken Arrow, Oklahoma.  The lease is for a five year term
expiring October of 2000.
    
The Company's operations in Dallas, Texas, are conducted out of space leased by
Charles Carlson, who served as the Company's CEO during this period.  Pursuant
to the Company's arrangement with Mr.         

                                       4
<PAGE>
     
Carlson, during the year ended March 31, 1996, Mr. Carlson maintained an
independent sales business in Dallas. This business represented Heartsoft and
several other suppliers of software to schools in Texas. His sales of Heartsoft
products represented less than 5% of his total business during this period. For
this reason, no rent has been charged to the Company for this space.     

The Company's current office space is believed to be adequate for the
foreseeable future.


ITEM 3.   LEGAL PROCEEDINGS.

Both the Company and Benjamin Shell, the Company's Chairman of the Board, are
named as defendants in a lawsuit filed on May 17, 1996, in Superior Court of
Murray County, Georgia, by Raymond Long, a former stockholder of the Company.
The suit sets forth various claims against Mr. Shell and the Company,
essentially alleging fraud in connection with Mr. Long's investment in the
Company in 1991 and 1992. Although it is difficult to ascertain from the
complaint the specific facts giving rise to the allegations or the aggregate
amount of damages sought, the suit alleges actual damages in excess of
$2,000,000, punitive damages, as well as treble damages under various theories
of recovery. While the lawsuit has only recently been filed, both the Company
and Mr. Shell have retained Georgia counsel, and have filed both an answer to
the allegations in the complaint, asserting numerous defenses, as well as a
motion to dismiss the case, for lack of jurisdiction. Both Mr. Shell and the
Company believe they have meritorious defenses to the suit, and both plan to
vigorously defend the allegations contained therein.


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 December 31, 1995, through March
31, 1996.


                                    PART II


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

The Company's Common Stock is traded over the counter (symbol: HTSF). The range
of sales prices for the Company's Common Stock during the last two years, as
reported by the National Association of Securities Dealers, Inc., was as
follows:
<TABLE>
<CAPTION>
 
 
          Quarter Ended         High Bid  Low Bid
          -------------         --------  -------
          <S>                   <C>       <C>
 
          June 30, 1994          $ .8125  $   .50
          September 30, 1994     $ .6875  $   .50
          December 31, 1994      $   .50  $  .375
          March 31, 1995         $ .5625  $  .375
 
          June 30, 1995          $ .9372  $.34375
          September 30, 1995     $ .9375  $   .50
          December 31, 1995      $ .8125  $   .25
          March 31, 1996         $2.0625  $   .25
</TABLE>

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

                                       5
<PAGE>
 
On June 1, 1996, there were 422 holders of record, and approximately 798
beneficial owners, of the Company's Common Stock.

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.


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

Set forth below is income statement information with respect to the Company for
fiscal years ended March 31, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                      Years ended March 31,
                             ----------------------------------------
                                1996           1995          1994
                                ----           ----          ----
                                          (In thousands)
<S>                          <C>          <C>             <C>
Gross Sales                  $1,158,817        $508,850    $ 289,525

Sales Returns & Discounts       356,693          22,955       58,197
                             ----------        --------    ---------
Net Sales                       802,124         485,895      231,328

Total Cost of Goods Sold         60,271          42,071       30,027
                             ----------        --------    ---------

 Gross Margin                   741,853         443,824      201,301
                             ----------        --------    ---------

Payroll Expense                 316,624         143,370      201,726

Amortization/Depreciation       121,228          86,833       43,206

Advertising Expense             164,078          44,377        -  0-

Administrative Expense          264,325         131,972      163,053
                             ----------        --------    ---------

 Operating Expenses             866,255         406,552      407,985
                             ----------        --------    ---------

Income Before Taxes            (124,402)         37,272     (206,684)

Income Taxes Deferred           (27,395)          6,905      (45,500)

 Net Income (Loss)           $  (97,007)       $ 30,367    $(161,184)
                             ==========        ========    =========
</TABLE>

RESULTS OF OPERATIONS
    
Total sales increased by approximately 127% in the fiscal year ended March 31,
1996, as compared to 1995, and were 300% above 1994 levels. Net sales were 65%
higher for the fiscal year ended March 31, 1996 compared to March 31, 1995
levels. During the fiscal year ended March 31, 1996, the Company discontinued
certain sales and marketing activities deemed to have lower sales growth
potential, resulting in the recognition of certain expenses which had
accumulated at the fiscal year end. The majority of these expenses were an
increase in sales returns, which increased to 31% of gross sales from 5% in the
previous year. The Company initiated, and then discontinued, a telemarketing
campaign which sold product on a preview basis, resulting in the high return
rate. The program was discontinued after the increase in returns was noted, and
will not be used in the future. It is anticipated that the cancellation of this
program will bring the future return rate back in line with historical norms.
      
Gross profit increased by 65% in the fiscal year ended March 31, 1996, compared
to 1995, and 247% compared to the fiscal year ended March 31, 1994. Total cost
of goods sold declined as a percentage of sales to 7.6%, compared with 8.7% and
13.0% for the fiscal years ended March 31, 1995 and 1994,

                                       6
<PAGE>
 
respectively. This improvement was primarily attributable to improved production
efficiency and economies gained by sales of higher priced items.
     
Total SG&A expenses increased 113% for the period ended March 31, 1996, as
compared to the fiscal year ended March 31, 1995. This includes the effect of
management's recognition of a need to make an accounting change to capitalize
certain software costs and begin amortization of the capitalized software costs.
Management believes that because amortization is fixed and would not vary based
on sales, such costs are more clearly presented as part of administrative
expenses. Without the impact of such amortization, total SG&A expenses rose 133%
when compared to the previous year's level, and 86% when compared to the fiscal
year ended march 31, 1994. Payroll expense and advertising expense rose 56% and
191%, respectively in the period ended March 31, 1996 compared to the year ended
March 31, 1995. The addition of nine full time employees accounted for the
majority of the payroll increase. The Company executed numerous marketing and
direct mail campaigns in 1995-1996, resulting in the increase in advertising
expenses over fiscal years ended March 31, 1995 and 1994. Management believes
that the $85,000 increase in advertising in the fiscal year just ended had a  
direct effect on the increase in sales during the same period.       
 
Administrative expenses increased 140% in the fiscal year ended March 31, 1996
compared to March 31, 1995, and 62% compared to the fiscal year ended March 31,
1994. This increase is due primarily to the Company's expanded service and
support functions, as additional capacity was added in the areas of production
and customer service.

FINANCIAL CONDITION AND LIQUIDITY

Current assets and current liabilities in the fiscal year ended March 31, 1996
were comparable to 1995 as a percentage of sales. The growth in accounts
receivable accounted for the majority of the current asset change. The growth in
current liabilities was attributable to short-term borrowings on a line of
credit secured by the aforementioned receivables.

The Company did not incur any major capital expenditures for the fiscal year
ended March 31, 1996, as the growth in property and equipment was in line with
expanded sales and support needs.

The Company changed its method of accounting for software development costs and
its amortization policy. Additional development costs of $57,000 for the year
ended March 31, 1994, have been retroactively capitalized.

Initial financial statements for the year ended March 31, 1994, and the year
ended March 31, 1995, did not include amortization, but have been retroactively
revised to include $37,000 for the year ended March 31, 1994, and $80,700 for
the year ended March 31, 1995.
 
During 1995 the Company implemented Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Effective March, 31, 1994, the
significant component of the Company's deferred tax asset was a net operating
loss carryforward of $570,027 expiring in the year 2009, representing temporary
differences in reporting income. Retained earnings at March 31, 1994, have been
increased by $126,704, representing the combined federal and state effective tax
rates for the tax loss carryforward.
 
The Company's working capital needs are met primarily by its bank revolving
credit facility which is collateralized by accounts receivable and inventory. As
of March 31, 1995, the Company also relied on a short-term bank loan, secured by
the Company's assets and personal guarantees of the Company's Chairman, which
loan matured on March 31, 1996.
 
As of March 31, 1996, the Company was in the process of raising additional
capital through the private placement of convertible preferred stock. The total
offering was for $1,200,000 of preferred stock, with a 12% cumulative dividend
payable through January 2, 1998, at which time each share of preferred stock

                                       7
<PAGE>
 
automatically converts into 0.8 shares of common stock. The initial proceeds of
this offering were used to extinguish the short-term bank loan, as well as
amounts drawn under the Company's line of credit. Subsequent to March 31, 1996,
the Company has raised in excess of $1,000,000 and expects the offering to be
completed by mid-1996. Additional proceeds from the offering will be used for
additional business development and sales expansion, as well as additional
product development. Management believes that the combination of profits,
revolving debt and this new equity infusion will provide the necessary liquidity
and capital resources to the Company for at least the next two years.
 

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and supplementary data are included at page 11.


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

In January, 1996, the Company engaged Cross and Robinson, certified public
accountants, as the Company's accountants for purposes of auditing the Company's
financial statements for the fiscal year ended March 31, 1996.
    
Prior to the engagement of Cross and Robinson, Brown, Kinion and Company had
served, and continues to serve as the Company's tax accountants. However, since
1990 the Company had not engaged any accounting firm to audit its financial
statements, because the Company did not believe it was required to file annual
reports.  Because the Company now has such number of shareholders of record that
cause it to again be a "reporting company" under Section 12(g), Cross and
Robinson was engaged by the Company due to their experience with public
companies. The engagement of Cross and Robinson did not result from any
disagreement related to accounting principles or practices, financial statement
disclosure, or auditing scope or procedure with Brown, Kinion and Company or any
other accountant. The engagement of Cross and Robinson was recommended and
approved by the board of directors of the Company because of such firm's
experience with SEC reporting companies.     


                                   PART III

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

Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 1996 Annual Meeting of Stockholders.


ITEM 10.  EXECUTIVE COMPENSATION.

Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 1996 Annual Meeting of Stockholders.


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

Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 1996 Annual Meeting of Stockholders.

                                       8
<PAGE>
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with the
Company's 1996 Annual Meeting of Stockholders.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

        (a)  1.   Financial statements.
                    See Financial Statements beginning on page 11.
                
             2.   Exhibits:
                
                    (3)  (A)  Articles of Incorporation (i)
                         (B)  Bylaws (i)
                
                    (21)      List of Subsidiaries: Heartsoft Software, Inc.
                    (27)      Financial Data Schedule
                                        
                    -------------

                  (i)    Incorporated herein by reference to the Company's 10-K
                         for the fiscal year ended March 31, 1989.


        (b)  The Company did not file any reports on Form 8-K during the period
             from December 31, 1995 to March 31, 1996.

                                       9
<PAGE>
 
                                  SIGNATURES
    
     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this Amendment No. 1 to Form 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized.       


                                                HEARTSOFT, INC.

    
Dated:  October 11, 1996                        By:  /s/ Benjamin P. Shell
                                                     ---------------------------
                                                     Benjamin P. Shell, Chairman


     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.


    
Dated:  October 11, 1996                        By:  /s/ Benjamin P. Shell
                                                     ---------------------------
                                                     Benjamin P. Shell
                                                     Chairman of the Board and
                                                     Director
                                                     (principal executive 
                                                     officer)



    
Dated:  October 11, 1996                        By:  /s/ Jimmy L. Butler, Jr.
                                                     ---------------------------
                                                     Jimmy L. Butler, Jr.
                                                     President and Director



    
Dated:  October 11, 1996                        By:  /s/ Bryan J. Reusser
                                                     ---------------------------
                                                     Bryan J. Reusser
                                                     Director of Finance
                                                     (principal financial 
                                                     officer
                                                     and principal accounting 
                                                     officer)

                                       10
<PAGE>
 
                                HEARTSOFT, INC.
                                ---------------

                                TULSA, OKLAHOMA

                             FINANCIAL STATEMENTS
                             --------------------

                                     AS OF
                                     -- --


                           MARCH 31, 1996 (AUDITED)
                           ------------------------
                        AND MARCH 31, 1995 (UNAUDITED)
                        ------------------------------

                                       11
<PAGE>
 
                       [LETTERHEAD OF CROSS & ROBINSON]



                         Independent Auditors' Report
                         ----------------------------



To the Board of Directors
Heartsoft, Inc.
Broken Arrow, Oklahoma



     We have audited the accompanying balance sheet of Heartsoft, Inc. as of
March 31, 1996, and the related statements of income and changes in
stockholders' equity, and cash flows for the year then ended.  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 audit.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heartsoft, Inc. as of March
31, 1996, and the results of its operations and its cash flows for the year
ended in conformity with generally accepted accounting principles.

                                       12
<PAGE>
 
              
    
     The accompanying balance sheet of Heartsoft, Inc. as of March 31, 1995, and
the related statements of income, stockholders' equity, and cash flows for the
year then ended, were not audited by us and, accordingly, we do not express an
opinion on them.        



                                         CROSS AND ROBINSON



                                         Certified Public Accountants



June 12, 1996

                                       13
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                                Balance Sheets
                                --------------
              As of March 31, 1996 (Audited) and 1995 (Unaudited)
              ---------------------------------------------------


                                  A S S E T S
                                  - - - - - -

<TABLE>
<CAPTION>
                                                                          (Unaudited)
                                                                 1996        1995
                                                              -----------  ---------
<S>                                                           <C>          <C>
Current Assets-Note 2
---------------------
  Cash                                                          $ 19,922   $ 33,412
  Accounts receivable-trade, net of allowance
    for doubtful accounts of 6,900 and 5,900, respectively       165,013     53,264
  Inventory-at cost                                               11,216      1,858
  Prepaid expenses and deposits                                   50,495     69,059
  Receivables-related parties-Note 7                              51,013      6,400
                                                                --------   --------
 
     Total Current Assets                                        297,659    163,993
                                                                --------   --------
 
Property and Equipment
----------------------
  Equipment                                                      173,820    125,825
  Less accumulated depreciation                                  (73,342)   (50,308)
                                                                --------   --------
   Property and Equipment - Net                                  100,478     75,517
                                                                --------   --------
 
Other Assets
------------

  Developed software-net-Note 5                                  536,140    494,449
  Deferred income tax benefit-Note 5                             145,901    118,506
                                                                --------   --------


   Total Other Assets                                            682,041    612,955
                                                                --------   --------
 
   Total Assets                                               $1,080,178   $852,465
   ------------                                               ==========   ========
</TABLE> 


See accompanying independent auditors' report 
   and notes to financial statements

                                       14
<PAGE>
 
     L I A B I L I T I E S   A N D   S T O C K H O L D E R S'  E Q U I T Y
     ---------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                               (Unaudited)
                                                      1996         1995    
                                                  ----------   ----------     
<S>                                                <C>          <C> 
Current Liabilities                                 
-------------------
 
 Accounts payable-trade                             $122,851     $111,538
 Notes payable-current portion                       261,801      179,000
 Capital lease obligations-current portion-Note 4     22,662        8,079
 Payroll taxes and other taxes payable                53,901           --
                                                  ----------   ----------     
 
     Total Current Liabilities                       461,215      298,617
                                                  ----------   ----------     

Long-Term Liabilities
---------------------
 Capital lease obligations-non current 
   portion Note 4                                     38,404       20,276
                                                  ----------   ----------     

     Total Liabilities                               499,619      318,893
                                                  ----------   ----------     
 
 
Shareholders' Equity -Notes 5 and 6
-----------------------------------
 Preferred stock $0.01 par value, 1,200,000 
    shares authorized, 155,000 shares issued 
    and outstanding                                    1,550           --
 Common stock $0.0005 par value, 30,000,000 
    shares authorized, 5,025,570 shares 
    issued and outstanding                             2,513        2,105
 Additional paid-in capital                        1,460,963    1,318,927
 Retained earnings (deficit)-Note 5                 (884,467)    (787,460)
                                                  ----------   ----------     
     Total Stockholders' Equity                      580,559      533,572
                                                  ----------   ----------     
 
     Total Liabilities and Stockholders' Equity   $1,080,178   $  852,465
     ------------------------------------------   ==========   ==========
</TABLE>

                                       15
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                             Statements of Income
                             --------------------
                              For the Years Ended
                              -------------------
                 March 31, 1996 (Audited) and 1995 (Unaudited)
                 ---------------------------------------------

<TABLE>     
<CAPTION>
                                                       (Unaudited)
                                             1996         1995
                                          -----------  ----------
 
<S>                                       <C>          <C>
 
Revenue
-------
  Sales                                   $1,158,817    $508,850
  Less returns and discounts                (356,693)    (22,955)
                                          ----------    --------
 
     Net Sales                               802,124     485,895
 
Cost of Goods Sold                            60,271      42,071
------------------                        ----------    --------
 
     Gross Profit                            741,853     443,824
                                          ----------    --------
 
Operating Expenses
------------------
  Salaries and employee benefits             316,624     143,370
  Advertising                                164,078      44,377
  Office rental                               30,728      28,568
  Interest                                    32,449       4,560
  Legal and professional                      48,133      18,879
  Payroll taxes and other taxes               21,071       2,849
  Telephone                                   29,697      15,607
  Depreciation and amortization-Note 5       121,228      86,833
  Other expenses                             102,247      61,509
                                          ----------    --------
 
     Total Operating Expenses                866,255     406,552
                                          ----------    --------
 
     Income (Loss) Before Income Taxes      (124,402)     37,272
 
Income Taxes-Deferred-Note 5                 (27,395)      6,905
----------------------------              ----------    --------
 
     Net Income (Loss)                    $  (97,007)   $ 30,367
     -----------------                    ==========    ========
 
Earnings (Loss) Per Common Share
--------------------------------
  Primary                                     $(0.02)      $0.01
                                          ==========    ========
 
</TABLE>       



See accompanying independent auditor's report
and notes to financial statements.

                                       16
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                 Statements of Changes in Stockholders' Equity
                 ---------------------------------------------
                              For the Years Ended
                              -------------------
                 March 31, 1996 (Audited) and 1995 (Unaudited)
                 ---------------------------------------------
                                        


<TABLE> 
<CAPTION> 
                                                                            Additional      Retained      
                                               Preferred       Common        Paid-In        Earnings   
                                                 Stock          Stock        Capital        Deficit       Total
                                             -------------  -------------  ------------    ---------    ---------
<S>                                          <C>            <C>             <C>            <C>          <C> 
Balance at                                                                                           
----------                                                                                           
  March 31, 1994 (Unaudited)                                                                         
  --------------------------                                                                         
                                               $    --        $ 2,037        $1,312,207    $(817,827)    $496,417
                                                                                                       
      Net Income for Year                                                                            
        Ended March 31, 1995                        --             --                --       30,367       30,367 
                                                                                                     
                                                                                                     
      Issue 135,766 shares                                                                           
        of stock                                    --             68             6,720           --        6,788  
                                               -------        -------        ----------    ---------     --------
                                                                                                     
                                                                                                     
                                                                                                     
Balance at                                                                                           
----------                                                                                           
  March 31, 1995 (Unaudited)                        --          2,105         1,318,927     (787,460)     533,572
  --------------------------                                                                         
                                                                                                     
                                                                                                     
     Net Income (loss) for Year                                                                      
           ended March 31, 1996                     --             --                --      (97,007)     (97,007)
                                                                                                     
      Issue 155,000 shares of                                                                        
       preferred stock                           1,550             --           118,027           --      119,577     
                                                                                                     
      Issue 815,830 shares                                                                           
       of common stock                              --            408            24,009           --       24,417
                                               -------        -------        ----------    ---------     --------
                                                                                                     
Balance at                                                                                           
----------                                                                                           
     March 31, 1996                            $ 1,550        $ 2,513        $1,460,963    $(884,467)    $580,559
     --------------                            -------        -------        ----------    ---------     --------
</TABLE>

See accompanying independent auditors' report
  and notes to finanical statements.

                                       17
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                            Statements of Cash Flows
                            ------------------------
                              For the Years Ended
                              -------------------
                 March 31, 1996 (Audited) and 1995 (Unaudited)
                 ---------------------------------------------

<TABLE>
<CAPTION>
                                                                       (Unaudited)
                                                             1996         1995
                                                          -----------  ----------
<S>                                                       <C>          <C>
Cash Flows from Operating Activities
------------------------------------
  Net income (loss) for year                               $ (97,007)  $  30,367
  Cash provided by operating activities:
    Depreciation and amortization not requiring cash         120,234      97,808
    Deferred income tax not requiring cash                   (27,395)      6,900
    (Increase) Decrease current operating activities:
       Accounts receivable-trade-net                        (111,749)    (12,567)
       Inventory                                              (9,358)     12,572
       Prepaid expense and other                             (26,049)    (63,445)
       Accounts and taxes payable                             76,006    (144,813)
                                                           ---------   ---------
 
         Cash Provided (Used) by Operating Activities        (75,318)    (73,178)
                                                           ---------   ---------
 
Cash Flows from Investing Activities
------------------------------------
  Software development                                      (135,141)    (55,366)
  Equipment purchased                                         (3,161)    (12,119)
                                                           ---------   ---------
 
         Cash Provided (Used) by Investing Activities       (138,302)    (67,485)
                                                           ---------   ---------
 
Cash Flows from Financing Activities
------------------------------------
  Proceeds of notes payable                                  171,382     179,000
  Principal payments                                        (100,704)     (6,291)
  Proceeds from issuing preferred and common stock           129,452          --
                                                           ---------   ---------
 
         Cash Provided by Financing Activities               200,130     172,709
                                                           ---------   ---------
 
         Net Increase (Decrease) in Cash                     (13,490)     32,046
         -------------------------------
 
Cash at Beginning of Period                                   33,412       1,366
---------------------------                                ---------   ---------
 
         Cash at End of Period                             $  19,922   $  33,412
         ---------------------                             =========   =========

Supplemental Disclosures
------------------------
  Cash paid during the year for interest                   $  32,449   $   4,560
  Additional noncash investing and financing activity:
  Stock issued for payment of operating expenses
    and for software development                              14,542       6,788
  Equipment purchased through capital leases                  44,834      34,646
</TABLE>

See accompanying independent auditor's report
 and notes to financial statements.

                                       18
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                         Notes to Financial Statements
                         -----------------------------
                            March 31, 1996 and 1995
                            -----------------------
                  (Information With Respect to the Year Ended
                  -------------------------------------------
                          March 31, 1995 is Unaudited)
                          ----------------------------
                                        

Note 1 -  Summary of Significant Accounting Policies
          ------------------------------------------

               This summary of significant accounting policies of Heartsoft,
          Inc. (the Company) is presented to assist in understanding the
          Company's financial statements.  The financial statements and notes
          are representations of the Company's management, who is responsible
          for their integrity and objectivity.  These accounting policies
          conform to generally accepted accounting principles and have been
          consistently applied in the preparation of the financial statements,
          except as described in Note 5.

          Nature of Operations
          --------------------

               The Company is a publicly held Delaware Corporation, incorporated
          in January, 1988.  Until March 31, 1994, the Company was in its
          development stage.  It devoted substantially all of its efforts to
          financial planning, raising capital, and developing products and
          markets.  The Company designs, produces, and distributes integrated
          multimedia educational software and learning products to educational
          institutions nationwide.

          Revenue Recognition
          -------------------

               Sales are recorded by the Company upon shipment of the products.
          Sales are made with the right of return for forty-five days.  The
          Company provides for estimated returns when the products are shipped.
 
          Inventories
          -----------

               Inventories consist primarily of raw materials and are stated at
          the lower of cost or market.  Cost is determined by using the first-
          in, first-out method.

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

               Capitalization of software development costs begins when the
          project reaches technological feasibility and includes costs incurred
          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.

                                       19
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                         Notes to Financial Statements
                         -----------------------------
                            March 31, 1996 and 1995
                            -----------------------
                  (Information With Respect to the Year Ended
                  -------------------------------------------
                         March 31, 1995 is Unaudited)
                         ----------------------------

Note 1 -  Summary of Significant Accounting Policies  (Continued)
          ------------------------------------------             

          Income Taxes
          ------------

               Income taxes are provided for the tax effects of transactions
          reported in the financial statements and consist of deferred taxes
          related to income tax reporting.  The deferred tax asset represents
          the future tax consequences of utilizing a net operating loss
          carryforward that is available to offset future federal income taxes.
          (See Note 5).

          Earnings Per Share
          ------------------
    
               Earnings per share is based on the weighted average common shares
          outstanding during the period.  Primary weighted average shares
          outstanding for the year ended March 31, 1996, were 4,800,405; for
          1995 was 4,161,539.       

          Use of Estimates
          ----------------

               The preparation of financial statements in conformity with
          generally accepted accounting principles require management to make
          estimates and assumptions that affect certain reported amounts and
          disclosures.  Accordingly, actual results could differ from those
          estimates.


Note 2 -  Notes Payable
          -------------
 
<TABLE>
<CAPTION>
          Balances as of March 31,                       1996          1995
                                                     ------------  ------------
<S>                                                  <C>           <C>
 
          A $100,000 line of credit bears interest
          at a floating rate, presently at 9.75%.
          The Company has provided its receivables
          and inventory as security.  The note is
          renewable on an annual basis with a
          renewal date of September 30.                $ 99,742      $     --   

          A $150,000 line of credit bears interest
          at a floating rate, presently at 8.75%.
          The Chairman of the Company provided his
          personal assets for security.  The note
          was retired in April, 1996.                   148,563       150,000

</TABLE> 

                                       20
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                         Notes to Financial Statements
                         -----------------------------
                            March 31, 1996 and 1995
                            -----------------------
                  (Information With Respect to the Year Ended
                  -------------------------------------------
                         March 31, 1995 is Unaudited)
                         ----------------------------

Note 2 -  Notes Payable  (Continued)
          -------------             
 
<TABLE>
<CAPTION>
          Balances as of March 31,                       1996          1995
                                                     ------------  ------------
<S>                                                  <C>           <C>
 
          A loan bears interest at 10.9%.  The
          Chairman of the Company provided
          personal assets for security.
          Subsequent to March 31, 1996 the note
          was renewed as part of a line of
          credit secured by company assets.              13,496        29,000
                                                       --------      --------
 
               Total                                   $261,801      $179,000
               -----                                   ========      ========
</TABLE>

Note 3 -  Concentration of Credit Risk
          ----------------------------

               The Company's customer base is comprised primarily of hundreds of
          public and private schools, and numerous resellers to the same
          marketplace.  This results in a concentration of customers in the
          education industry.

Note 4 -  Leases
          ------

          Capital Lease Obligations
          -------------------------

               The Company leases certain equipment under agreements which are
          classified as capital leases.  Future minimum payments, by year, under
          noncancellable capital leases are as follows:

<TABLE>
 
<S>                                                   <C>
                    March 31, 1997                     $34,768
                    March 31, 1998                      27,738
                    March 31, 1999                      17,695
                    March 31, 2000                       1,380
                                                       -------
 
 
                         Total lease payments           81,581
                    Less interest included              20,515
                                                       -------
 
                    Present value of payments           61,066
 
                    Less current maturities             22,662
                                                       -------
                         Capital lease obligations     $38,404
                                                       =======
</TABLE>

                                       21
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                         Notes to Financial Statements
                         -----------------------------
                            March 31, 1996 and 1995
                            -----------------------
                  (Information With Respect to the Year Ended
                  -------------------------------------------
                         March 31, 1995 is Unaudited)
                         ----------------------------
                                        

Note 4 -  Leases  (Continued)
          ------

          Operating Lease
          ---------------

               The Company leases office space for a period of five years,
          beginning August 1, 1995 for $3,561 per month plus adjustments over
          the life of the lease.

               Future minimum payments, by year, under the terms of the lease
          are as follows:

<TABLE>

<S>                                   <C>
                    March 31, 1997     $42,820
                    March 31, 1998      42,960
                    March 31, 1999      43,096
                    March 31, 2000      14,380
 
</TABLE>
Note 5 -  Change in Method of Accounting and Restatement of Prior Years'
          ---------------------------------------------------------------  
          Financial Statements
          --------------------

          Development Cost and Amortization
          ---------------------------------

               The Company changed its method of accounting for software
          development costs and its amortization policy.  Previously expensed
          development costs of $57,000 for the year ended March 31, 1994, have
          been retroactively capitalized.

               Initial financial statements for the year ended March 31, 1994,
          and the year ended March 31, 1995, did not include amortization
          expense, but have been retroactively revised to include $37,000 for
          the year ended March 31, 1994, and $80,700 for the year ended March
          31, 1995.

          Income Taxes
          ------------

               During 1995 the Company implemented Statement of Financial
          Accounting Standards No. 109, "Accounting for Income Taxes".
          Effective March 31, 1994, the significant component of the Company's
          deferred tax asset was a net operating loss carryforward expiring in
          the year 2011 of $570,027, representing a temporary difference in
          reporting incomes.  Retained earnings at March 31, 1994, have been
          increased by $126,704, representing the combined federal and state
          effective tax rates for the tax loss carryforward.

                                       22
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                         Notes to Financial Statements
                         -----------------------------
                            March 31, 1996 and 1995
                            -----------------------
                  (Information With Respect to the Year Ended
                  -------------------------------------------
                         March 31, 1995 is Unaudited)
                         ----------------------------
                                        

                                        
Note 5 -  Change in Method of Accounting and Restatement of Prior Years'
          --------------------------------------------------------------
          Financial Statements  (Continued)
          --------------------             


               At March 31, 1996 and 1995, respectively the deferred tax asset
          was comprised of the following:

<TABLE>
<CAPTION>
                                                1996       1995
                                              --------   --------
<S>                                           <C>        <C>
 
          Net operating loss carryforwards    $144,401   $117,206
          Provision for doubtful accounts        1,500      1,300
                                              --------   --------
           Total                              $145,901   $118,506
           -----                              ========   ========
</TABLE>

               Income tax expense reflects federal and state income taxes on
          current earnings.  No actual current income taxes were paid due to the
          application of the tax loss carryforward.  Therefore, tax expense for
          both years is deferred to a future date.

               The provision for taxes on income differs from the amount
          computed by applying the U.S. Federal statutory rate as a result of
          the following:

<TABLE>
<CAPTION>
                                                  1996    1995
                                                 ------  ------
<S>                                              <C>     <C>
 
          Provision for income taxes computed
           at the statutory rate                  35.0%   35.0%
 
          State taxes                              7.0     7.0
          Benefit of federal graduated rates     (20.0)  (20.0)
          Other                                     --     3.5
                                                 -----   -----
                                                  22.0%   18.5%
                                                 =====   =====
</TABLE> 

Note 6 -  Stock Offerings
          ---------------

               The Company was authorized to issue by June 30, 1996 up to
          1,200,000 shares of non-voting preferred stock at $1.00 per share.  As
          of March 31, 1996, 155,000 shares of preferred stock have been issued.
          The preferred stock is convertible at January 2, 1998, at a rate of
          0.8 shares of common stock per share of preferred stock.  Dividends
          accrue at the rate of 12% per share, per year and are payable
          quarterly.  Preferred shares have a liquidation preference of $1.00
          per share, and a par value of $0.01.

                                       23
<PAGE>
 
                                Heartsoft, Inc.
                                ---------------
                                Tulsa, Oklahoma

                         Notes to Financial Statements
                         -----------------------------
                            March 31, 1996 and 1995
                            -----------------------
                  (Information With Respect to the Year Ended
                  -------------------------------------------
                         March 31, 1995 is Unaudited)
                         ----------------------------
                                        


Note 7 -  Related Party Transactions
          --------------------------

               The Company's Board of Directors have approved an incentive stock
          option of 497,000 shares, at par value to the Chief Executive Officer.
          The option is exercisable at the rate of 100,000 shares per year, and
          contains substantial restrictions to its resale.

               Receivable-related parties, represent advances made to establish
          a Dallas, Texas marketing affiliate owned by the Chief Executive
          Officer of the Corporation and other advances to officers and
          employees.

                                       24