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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                  FORM 10-KSB

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

     FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                       OR

[ ]  TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (NO FEE REQUIRED)

                         COMMISSION FILE NO. 000-24637

                           JENKON INTERNATIONAL, INC.

                 (Name of Small Business Issuer in its Charter)

                 DELAWARE                                     91-1890338

State or other jurisdiction of incorporation or organization     I.R.S. Employer
Identification Number

7600 N.E. 41ST STREET, SUITE 350, VANCOUVER, WASHINGTON            98662

              Address of principal executive office           Zip Code

ISSUER'S TELEPHONE NUMBER: (360) 256-4400

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT

                         COMMON STOCK, $0.001 PAR VALUE

                                (Title of Class)

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

Check whether the issuer has (i) filed all reports required by Section 13 or
15(d) of the Exchange Act during the past 12 months, and (ii) been subject to
such filing requirements for the past ninety (90) days.  Yes  X No ___

Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B 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 the Form 10-KSB or any
amendment to this Form 10-KSB.  /X/

The Company's revenues for Fiscal Year ended June 30, 1999 were $6,500,045.

As of October 1, 1999, 4,459,970 shares of Common Stock were outstanding and the
aggregate market value of the Common Stock (based on the latest sale price on
the Nasdaq Small Cap Market on September 15, 1999) held by non-affiliates
(2,828,376 shares) was $5,855,940.

Transitional Small Business Disclosure Format (check one):  Yes ___ No  X
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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

    Jenkon International, Inc. ("Jenkon" or the "Company") is a leading
developer of specialized software solutions for network marketing and other
companies involved in the direct sales industry. The Company's management
information systems, including its proprietary Summit V-Registered Trademark-
management information system software, have been installed in over 150 direct
sales companies in over 25 countries throughout the world.

    Jenkon's product line includes SUMMIT V, NOW!-REGISTERED TRADEMARK-,
TOUCHTALK and JOL. NOW!, Jenkon's scaleable Internet-based product, allows
home-based direct sales personnel to communicate with the company they represent
as well as the ability to quickly obtain, view and analyze many types of
information over the Internet, including order status, personal and group sales,
commissions and other data. JOL (Jenkon-On-Line) provides an outsourcing
solution for existing and start-up companies who want to reduce operational
overhead by giving them access to Jenkon's premier compensation software system.
This service allows companies to manage their direct sales network without
significant staffing and hardware expenses. Integrated with Jenkon's NOW!
product, JOL provides 24-hour e-commerce, order entry and sales information to
the corporate client's sales organization.

    The Company's primary focus over the past four years has been the
development and sale of its SUMMIT V management information system software
package, sales of which have been the primary source of the Company's business.
AS A RESULT OF INCREASED COMPETITIVE PRESSURES, THE COMPANY HAS EXPERIENCED A
DETERIORATION IN SALES OF THE CURRENT GENERATION OF SUMMIT V SOFTWARE AND HAS
ACCELERATED THE DEVELOPMENT OF ITS NEXT GENERATION MANAGEMENT INFORMATION
SYSTEM. SUCH DECREASE IN SALES AND INCREASED DEVELOPMENT COSTS HAVE RESULTED IN
NEGATIVE CASH FLOW AND A LACK OF CASH RESOURCES THAT HAS CAUSED THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO ISSUE AN EXPLANATORY PARAGRAPH IN
THEIR OPINION WHICH EXPRESSES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO
CONTINUE AS A GOING CONCERN. Jenkon International, Inc., is a Delaware
corporation that is a holding company for the business of the Company. The
founders of the Company began operations in 1982 and incorporated Jenkon
International, Inc., a Washington corporation ("Jenkon Washington"), on December
23, 1988. The Company subsequently reincorporated in the State of Delaware
effective July 1, 1996 and Jenkon Washington became a wholly-owned subsidiary of
Jenkon Delaware.

DIRECT SALES INDUSTRY BACKGROUND

    The direct sales industry markets its products through networks of
home-based direct sales personnel whose selling activities most commonly take
place in customers' homes. This industry thrives on a team building approach
whereby home-based direct sales personnel can build a sales group and derive
income from the cumulative sales of the group in addition to their individual
earnings from retail sales.

    The industry is built on a "direct to the customer" approach to the
marketing of consumer-oriented products. Eliminating national wholesalers,
regional distribution centers, retail stores and other middlemen, direct sales
companies instead utilize the entrepreneurial spirit of independent home-based
distributors to reach customers. Home-based direct sales personnel buy direct
from the direct sales company or other direct sales personnel at wholesale, sell
at retail and keep the profit for their efforts. Further earnings are available
through team-building activities whereby home-based direct sales personnel can
gain a percentage on all the sales made by team members under a pre-defined
compensation program.

    Direct sales companies benefit by being able to operate a low overhead, high
sales volume business with less staff, premises and marketing costs. Home-based
direct sales personnel benefit by being able to build an ongoing business with
little or no inventory, minimal start-up costs and expanded income through
team-building. Although many home-based direct sales personnel are able to
generate a full-time income

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from their marketing activities, the vast majority are part-time marketers who
use their energy and contacts to build a second income to supplement their
primary source of income.

    The Company markets its products to three broad categories of companies in
the direct sales industry:

    TRADITIONAL DIRECT SALES COMPANIES.  Their prime focus is to make retail
sales on a one-to-one basis. Avon Products is an example of a traditional direct
sales company.

    PARTY PLAN COMPANIES.  These companies depend on sales "parties" where
guests are invited to a home setting by a "host" or "hostess." The "host" or
"hostess" is then given an opportunity to demonstrate the Company's products and
take orders from customers. Companies in this group, such as Tupperware,
accounted for over 26% of direct sales industry sales in the U.S. in 1998.

    NETWORK MARKETING COMPANIES.  This industry sector thrives on the
team-building element of sales whereby each home-based direct sales person can
build his/her own sales group and derive income from the cumulative sales of the
group in addition to their individual earnings from retail sales. Herbalife and
Amway are examples of network marketing companies.

BUSINESS STRATEGY

    The Company's business objective is to take advantage of the continued
growth in the direct sales industry and expand its position as a leading
provider of specialized software to such industry. In order to achieve this
goal, the Company's strategy includes the following elements:

           INCREASE MARKET PENETRATION OF CORE PRODUCTS. The Company believes
           that its current base of direct sales company clients represents only
           a small portion of the total number of direct sales companies that
           are potential users of SUMMIT V and the Company's other core
           products. The Company will attempt to increase the market penetration
           of SUMMIT V through more aggressive marketing and promotional efforts
           and by continuing to modify and improve SUMMIT V and other products
           to meet the changing needs of direct sales company clients. The
           Company is currently developing the next generation of its management
           information software system that the Company expects will include
           multi-platform database support, an e-commerce enabled server,
           support for existing communications standards, and other advanced
           features. In addition, the Company is in the process of creating an
           application program interface that would enable the NOW! product to
           be used by direct sales companies and their home-based personnel
           regardless of whether the company in question utilizes the SUMMIT V
           system or any other software products of the Company.

           LEVERAGE EXISTING CUSTOMER BASE TO INCREASE REVENUES. The Company
           believes that its relationships with its corporate direct sales
           clients provide an opportunity for the Company to generate revenues
           from the cross-selling and marketing of additional products and
           services by the Company and others to the home-based personnel of its
           direct sales clients.

           EXPAND GEOGRAPHIC MARKET PENETRATION. The Company believes that
           international markets provide significant opportunity for the Company
           to increase sales of its products. Given the rapid growth of the
           direct sales industry throughout the world, and especially in the
           countries of the Pacific Rim, Southeast Asia and Latin America, the
           Company intends to expand its geographic presence by expanding the
           focus of its sales efforts to these expanding international markets
           as well as the U.S. market.

           DIRECTLY ACCESS HOME-BASED DIRECT SALES PERSONNEL THROUGH THE
           INTRODUCTION OF INTERNET-BASED PRODUCTS. While direct sales companies
           will remain the Company's core customer base, the Company believes
           that the large number of individual home-based direct sales personnel
           of these direct sales companies present a large and growing potential
           market for direct sales software products such as the Company's NOW!
           product.

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    Given the Company's current financial condition, no assurance can be given
that the Company will have sufficient capital resources to continue its existing
operations, to implement its business plan, complete the development of its next
generation of management information software, or achieve any of its other
business objectives. See "Additional Considerations and Risk Factors."

PRODUCTS AND SERVICES

    SUMMIT V.  SUMMIT V is a management information system for direct sales
companies that is designed to provide such companies easy access to the
information necessary for the successful operation and management of their
business.

    The range of information SUMMIT V can generate for clients includes:

           Operational information such as sales order processing, sales
           organization tracking and maintenance, commission processing, credit
           card checking, inventory control

           Management information such as activity analysis and growth analysis

           Financial information such as daily statistics, event analysis and
           sales volume

    To maximize client loyalty and retention, and to establish and maintain a
reputation that will attract new clients, Jenkon offers annual support and
maintenance contracts whereby purchasers of the service can obtain technical
customer support service. Jenkon technical personnel are available 24 hours a
day, 7 days a week, to assist clients in solving problems with the system at any
time (which in the vast majority of cases can be provided on the spot by voice
or, if necessary, via a telephone modem). In addition, the Company offers
training on an ongoing basis to maintain quality control with respect to the
operation of the system, particularly in the case of customized systems.

    As a result of increased competitive pressures, the Company has experienced
a deterioration in sales of the current generation of Summit V software and has
accelerated the development of its next generation management information
system. Development of the next generation system incorporates the latest
technologies and industry "best practices." The Company projects that the next
generation system will increase Jenkon's share of the entire market, and better
facilitate servicing the international direct selling community.

    NOW!  NOW! is a Windows-based software program that together with Jenkon's
SUMMIT V management information system provides home-based direct sales
personnel with immediate access to the real-time sales information they need to
manage their business over the Internet.

    Utilizing the power of the Internet NOW! provides home-based direct sales
personnel with the ability to:

           View their entire downline organizations and analyze critical
           downline performance information such as personal sales volumes,
           group sales volumes, and new recruits

           Place and view the status of orders online without assistance from
           corporate personnel

           View current inventory information

           View or listen to corporate announcements and training video/audio
           broadcasts from the home office

           View a detailed explanation of their commissions earned to date

    In addition to the benefits afforded to home-based direct sales personnel,
the Company believes that NOW! can serve to increase the efficiency of its
corporate customers' order processing while reducing transaction costs by
reducing the volume of labor-intensive paperwork and related costs associated
with distributor inquiries and processing of fax and telephonic orders.
Moreover, the NOW! product is scalable

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and can be added to a client's system on a modular basis so that the software
system can grow as the needs and size of the client's business expand.

    NOW! has been developed to address the varying information needs and levels
of sophistication among computer users. For novice computer users NOW! Online is
simply an interactive Internet WEB system that allows access to all necessary
sales information online using standard WEB browser software. NOW! Online is
also compatible with Microsoft's WEB TV to provide easy Internet access to
valuable sales information using the home television. For the more technically
proficient home-based direct sales personnel the NOW! CD-ROM is available which
includes a Personal Information Manager (PIM) and the ability to download
information from the Internet onto a personal computer to assist in the creation
of personalized management reports.

    TOUCHTALK.  TouchTalk is a stand-alone software product that operates with
SUMMIT V. Once connected to both a phone system (or lines) and a computer,
TOUCHTALK works 24 hours each day to handle phone calls by home-based direct
sales personnel. By selecting a menu option with a touch tone key, each
home-based sales person can place orders, make inquiries, hear training
messages, or leave messages for their downline direct sales personnel.

    The Company believes that the key attractions of the TOUCHTALK software are
that it facilitates around-the-clock operation and helps reduce operating
overhead for direct sales companies.

    JOL.  JOL (Jenkon-On-Line) is an outsourcing solution for existing and
start-up companies who want to reduce operational overhead by utilizing the
SUMMIT V system via the Internet. This web hosting service allows companies to
manage their direct sales network without significant staffing and hardware
expenses. Integrated with Jenkon's NOW! product, JOL provides 24-hour
e-commerce, order entry and sales information to the corporate client's sales
organization.

OTHER SERVICES

    CUSTOM PROGRAMMING.  The unique compensation programs of direct sales
companies of various kinds have established the need for the Company to
customize SUMMIT V for its customers, which provides an additional source of
potential revenue for the Company. In addition, due to the changing nature of
compensation plans, the international and organization-by-organization
differences between direct sales companies are expected to increase the need for
customization. Moreover, because it is customary in the direct sales industry
for clients to regularly revise their compensation plans and structures in order
to provide incentives to sale personnel, the Company generates additional
revenue for customizations and modifications even after the initial installation
of the product has been completed.

    ANNUAL SUPPORT AGREEMENTS.  In order for clients to have access to Jenkon's
support services, it is necessary for the client to purchase an Annual Support
Agreement. Such support agreements typically provide for annual fees equal to
18% of the cost of the system. There are many benefits for the customer to do
this, including 24 hour-7 days a week support, and reduced rates for services.

TECHNOLOGY

    Similar to many other business packages, SUMMIT V utilizes various
technologies provided by other suppliers. These include operating systems,
relational database software, and PC/Client software. In addition, SUMMIT V was
built using advanced engineering tools, some of which are required to be
installed on each client computer for SUMMIT V to operate.

    OPERATING SYSTEMS.  SUMMIT V currently operates within the UNIX and
Microsoft Windows/NT operating systems. UNIX is the current platform of choice
due to its ability to support large companies and the massive volumes of data
they must process. Jenkon installs all small systems (under 20 workstations)
using

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Windows NT. SUMMIT V is currently compatible with Windows NT running the Ardent
Software, Inc. (formerly Unidata) relational database software.

    RELATIONAL DATABASE SOFTWARE.  Like other software, relational database
technology has also evolved considerably in recent years and now imposes
"standards" which, if followed, allow business software programs to exchange
data and even "talk" to each other. SUMMIT V utilizes relational database
software products of Ardent Software, Inc. Ardent products comply with industry
standards (ANSI) and are capable of seamlessly communicating with many other
commonly used database systems such as Oracle, Informix, Sybase, and Microsoft
Access. This provides Jenkon with the ability to interface products written in
these other environments into SUMMIT V, if desired. It also allows customers to
use SUMMIT V in similar fashion to other database software they are accustomed
to using for reports and inquiries.

    The Company has entered into a reseller agreement with a predecessor to
Ardent Software, Inc. granting the Company the right to utilize Ardent software
in its SUMMIT V software. The Company is in the process of negotiating a renewal
of the reseller agreement. To the extent that Ardent elects to terminate or not
renew the Company's license or change its pricing structures in a manner that is
unfavorable to the Company, the Company may be materially adversely affected.

    FOURTH GENERATION LANGUAGE.  Today, software engineers often use computers
to design and build programs much like a word processor creates a publication
quality document. Programmers now show the computer what they want by "painting"
input screens and reports on their workstations, then ask the computer to create
the actual programs. This method of software development creates a much more
reliable and consistently coded package which is later easier and less expensive
to support. The Fourth Generation Language which does this is called System
Builder Plus ("SB+"). SUMMIT V was created with SB+, which is owned by Ardent
Software, Inc.

    SB+ has recently provided the capabilities to provide graphically designed
screens to better comply with Windows standards. Jenkon has developed a version
of SUMMIT V which takes advantage of this new capability. The Company believes
this newer look and feel could result in relatively greater market demand for
SUMMIT V.

    PC/CLIENT SOFTWARE.  Connecting a PC computer to a UNIX server requires a
software program which runs on the PC to manage the connection, the data, and
the software interface. SUMMIT V utilizes a PC software package called SBClient
which is designed to work in harmony with SB+ based applications. SBClient
allows PC networks to access SUMMIT V at high speed. It also provides the GUI
(graphical user interface) capabilities.

    SUMMIT V can also be accessed by Macintosh computer workstations using one
of several terminal emulation programs available. In addition, for computer
users who would prefer to avoid the expense of PC workstations, SUMMIT V can
also be accessed by "dumb" workstations costing as little as $300 each.

    INTERNET TECHNOLOGY.  The NOW! technology provides for multiple
heterogeneous devices to connect simultaneously and in parallel via the
Internet. Utilizing the industry standard Internet TCP/IP (Transmission Control
Protocol/Internet Protocol) through an extended HTML (HyperText Markup
Language), a connection by browsers, web pages, CD-ROMS, or any other "Internet
aware" device can be achieved.

    The NOW! system is completely proprietary as it requires an interface with
SUMMIT V to be fully functional with real-time information. This interface is an
Application Programming Interface (API) which provides significant time and cost
savings by enabling the reuse of a reliable software interface each time a new
customer or product is connected to SUMMIT V. The API technology is used both
internally, to interface new features developed by Jenkon, as well as being
positioned as a development kit which may be purchased by customers for their
own integration into the otherwise proprietary environment.

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CUSTOMERS

    Jenkon currently has software systems installed in over 25 countries
including the United States and Canada. The smallest of these are "3-User"
systems, mainly for the new start up customer with a limited budget. Other than
size constraints imposed by the client's hardware systems, the Company does not
believe there is an upper limit to the number of users on a Jenkon software
system, with large companies like Shaklee having a large number of ports on
their mainframe.

    The profile of a Jenkon customer ranges from the household names like Avon
Products or Shaklee to the individual starting his or her own direct sales
company.

    Although no customer accounted for more than 10% of the Company's net sales
during fiscal 1998, two customers accounted for approximately 25% of the
Company's net sales for the fiscal year ended June 30, 1999. Similar or greater
concentration of its net sales among a limited number of customers may occur in
the future. In such event, any material decrease in net sales to any one of the
Company's largest customers that is not matched by corresponding increases in
net sales to new or existing customers could have a material adverse effect on
the Company's financial condition and results of operations and could affect its
economic viability. There can be no assurance that the Company will receive
orders from any existing customers or from new customers.

SALES AND MARKETING

    SALES.  Industry sources estimate that there are in excess of 5,000 direct
sales companies globally. Moreover, there is a constant turnover of such
companies as existing companies leave the market and new direct sales companies
are formed. The profiles of these companies range between well known names, such
as Amway and Avon Products to new start-up operations. In most cases, a
prospective client will be "qualified" prior to any selling activity to ensure
that the correct range of products and services are offered to meet the clients
requirements, both in terms of functionality and budget. This process will
typically be carried out on the telephone by a salesperson, with the assistance
of a technician, if necessary, to advise on operational issues and marketing
plan requirements.

    The Company sells its products and services to the customer by its direct
sales force based in the United States. Due to the global nature of the
Company's clients, extensive travel is often necessary in order to negotiate and
conclude sales. On-site visits will often entail a preliminary "site-study" to
clearly identify the type of system needed for the prospect, and a technician
will accompany the salesperson if required.

    MARKETING.  While traditionally pricing its products so as to target larger
companies, the Company has recently begun to target a broader spectrum of
smaller companies in the belief that, given the rate of industry growth, this
strategy may help the Company retain its position as an industry leader and to
develop profitable long-term relationships with these companies.

    The Company's marketing operations include production of DIRECT SELLING
TODAY, a quarterly Newsletter distributed to over 1,000 industry leaders and
contacts; organizing trade shows; working with consulting companies and
individual consultants to consolidate working relationships and pave the way for
the sales process to begin; and advertisements in trade publications together
with other public relations activity.

    Market research is also carried out to assess the relative strengths and
weaknesses of Jenkon's products and services compared to its competition. The
Company's marketing group is responsible for identifying new opportunities
within Jenkon's existing target market and works closely with the Company's
research and development group.

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COMPETITION

    The software industry is highly competitive and is characterized by rapid
technological change, rapidly changing customer preferences and little or no
barriers to entry. There are several businesses, many of which are better
capitalized than the Company, currently offering software similar in type or
scope to the Company's. The Company believes that the primary competitive
factors for the provision of its software are price, technical expertise and
quality, ease of use, variety of value-added services, reliability and security,
customer support and geographic coverage. The Company's success will depend
heavily upon its ability to provide high quality software and value-added
services. Other factors that will affect the Company's success in this market
include the Company's continued ability to attract additional experienced
marketing, sales, and management talent, and the expansion of worldwide support,
training and service capabilities.

    The Company's current and prospective competitors generally consist of other
independent software providers such as Globenet and 20/21 Interactive. The
Company believes that additional competitors, which may include consumer
software or other companies, may potentially enter the direct sales market. In
addition, the Company may face potential competition from some of the larger
direct sales companies that have developed their own in-house systems that could
be adapted for sale to other direct sales companies. Some or all of the
Company's actual and potential competitors may have greater market presence,
engineering, customer support and marketing capabilities, and financial,
technological and personnel resources than those available to the Company. As a
result, they may be able to adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than can the Company.

    Because price is a major competitive factor in the market for the Company's
products, if any of the Company's present or future competitors elect to
initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.

EMPLOYEES

    As of June 30, 1999, the Company has approximately 64 employees in
Vancouver, Washington, all of which were full-time employees. None of the
employees are represented by a labor union, and the Company considers its
relations with employees to be good.

RESEARCH AND DEVELOPMENT

    Since the beginning of the fiscal year ended June 30, 1998, the Company's
research and development activities have primarily focused on the development of
its SUMMIT V, TOUCHTALK, NOW!, and JOL products as well as the next generation
management information system. The Company's research and development expenses
for particular periods consist of all costs incurred on projects for which
technological feasibility has not yet been attained. In accordance with
Statement of Financial Accounting Standards No. 86, the Company determines
technological feasibility based upon the completion of a detailed program design
or working model, after which time all software production expenses for a
particular project are capitalized. For the years ended June 30, 1998 and 1999
the product research, development and enhancement expenses were $772,962 and
$938,575, respectively.

INTELLECTUAL PROPERTY

    The Company relies on a combination of trade secrets laws and contractual
restrictions to establish and protect its technology. Although the Company has
registered trademarks for certain products, it is in the process of registering
certain trademarks on other property. There can be no assurance that the steps

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taken by the Company will be adequate to prevent misappropriation of its
technology that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, there can be no assurance that licenses for any
intellectual property that may be required for the Company to provide services
or develop products would be available on reasonable terms, if at all.

    The Company has not historically required trade secrecy and confidentiality
agreements to be executed by its employees or, in some instances, independent
software developers in order to protect its rights in its proprietary
technology. The Company is in the process of requiring employees and contractors
to execute such agreements. No assurance can be given that such measures will be
effective in protecting the Company's rights in its present or future
technology.

    The Company owns federally registered trademarks on the "Summit V," "NOW!"
and "TouchTalk" product names as well as for "Jenkon." The Company believes that
its trademarks are of great value, providing the customer with an assurance that
the product being purchased is high quality. The Company has filed a federal
trademark registration for the product name "JOL." There can be no assurance
that tradename protection can be obtained for this name. Although the Company
does not believe that its products or tradenames infringe upon the proprietary
rights of any third parties and no third parties have asserted trademark,
patent, or copyright infringement or other similar claims against the Company,
there can be no assurance that third parties will not assert such claims against
the Company in the future or that such claims will not be successful. The
Company could incur substantial costs and diversion of management resources with
respect to the defense of any claims relating to proprietary rights which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, parties making such claims could secure
a judgment awarding substantial damages, as well as injunctive or other
equitable relief which could effectively block the Company's ability to sell
product in the United States or abroad. Such a judgment could have a material
adverse effect on the Company's business, financial condition or results of
operations.

    The laws of certain foreign countries where the Company distributes or
intends to distribute its products do not effectively protect technology,
trademarks or tradenames that the Company uses in its business and considers
proprietary. The Company has not undertaken to investigate such laws or to
assure that available protection is obtained.

POTENTIAL BUSINESS ACQUISITION

    On August 25, 1999, the Company entered into a non-binding letter of intent
(the "Letter of Intent") to acquire Multimedia KID--Intelligence in Education
Ltd., ("MMKid") an Israeli-based interactive educational company.

    If the transaction contemplated by the Letter of Intent (the "Transaction")
is consummated, of which there can be no assurance, the Company will issue to
MMKid stockholders an aggregate of (i) 840,000 shares of Common Stock, (ii)
1,208,000 shares of a newly-created Series B Redeemable Preferred Stock and
(iii) 1,208,000 shares of Series C Redeemable Preferred Stock. The Series B and
Series C Preferred Stock which has no voting or conversion rights unless and
until the stockholders of the Company have approved the grant of voting rights
to such shares will be convertible into an aggregate of 24,160,000 shares of the
Company's Common Stock. Upon such stockholders approval, the Series B and Series
C Preferred Stock will have voting rights on an as-converted basis and will be
convertible into Common Stock once certain agreed-to revenue targets for MMKid
have been achieved. Assuming all shares of Series B and Series C Preferred Stock
are converted into Common Stock, former stockholders of MMKid would hold
approximately 83% of Jenkon's fully-diluted Common Stock.

    In the event that Jenkon stockholder approval of the grant of voting rights
to the Series B and Series C Preferred Stock is not obtained on or prior to
February 28, 2000, the shares of Series B and Series C

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Preferred Stock will be redeemable at the option of the holders thereof at a
price of $10 per share for a total redemption price of $24,160,000.

    Upon consummation of the Transaction, the Company has agreed to promptly
file a registration statement with respect to not less than 6,600,000 shares of
Common Stock underlying the Preferred Stock issued to the former MMKid
stockholders. In addition, the Company will grant the former MMKid stockholders
piggyback and demand registration rights with respect to Common Stock underlying
the Preferred Stock that is not registered as described above.

    Completion of the Transaction is contingent upon the signing of a definitive
agreement, the completion of a private placement of convertible notes resulting
in net proceeds to the Company of at least $4,000,000, and other customary terms
and conditions. If the Transaction is completed as contemplated by the Letter of
Intent, the notes will be converted into Common Stock at a rate of $1.25 and the
Company will receive an additional $4,000,000 in private placement equity
financing, $2,000,000 of which will be allocated to the Company's existing
business and completion of the development of the next generation product. There
can be no assurance that a financing transaction can be completed on a timely
basis or on terms that are favorable to the Company. In the event that such
financing is not completed on a timely basis, it is unlikely that the Company
will have sufficient capital resources to continue its existing operations, to
implement its business plan, complete the development of its next generation of
management information software, or achieve any of its other business
objectives. See "Additional Considerations and Risk Factors."

    In connection with the proposed acquisition, the Company is in the process
of completing a $4,500,000 private placement of up to $4,500,000 in convertible
promissory notes. The notes will accrue interest at 12% per annum. Upon
shareholder approval on or before February 28, 2000, the notes will be
convertible into common shares of the Company at a conversion price of $1.25 per
share.

ADDITIONAL CONSIDERATIONS AND RISK FACTORS

    SUBSTANTIAL DOUBTS REGARDING COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN.  As a result of increased competitive pressures, the Company has
experienced a deterioration in sales of the current generation of Summit V
software and has accelerated the development of its next generation management
information system. SUCH DECREASE IN SALES AND INCREASED DEVELOPMENT COSTS HAVE
RESULTED IN NEGATIVE CASH FLOW AND A LACK OF CASH RESOURCES THAT HAS CAUSED THE
COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO ISSUE AN EXPLANATORY
PARAGRAPH IN THEIR OPINION WHICH EXPRESSES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S
ABILITY TO CONTINUE AS A GOING CONCERN. In August 1999, the Company signed a
letter of intent to acquire MMKid, an Israeli-based interactive educational
software company. The terms of the proposed transaction include the issuance of
840,000 common shares of Jenkon and 2,416,000 shares of redeemable preferred
stock which will be convertible into an aggregate of 24,160,000 common shares of
Jenkon, in exchange for 100% of the outstanding securities of MMKid. The
acquisition is contingent upon the signing of a definitive acquisition
agreement, the completion of a private placement of at least $4,000,000 in
convertible debt, and other customary terms and conditions. Any failure of the
Company to complete the acquisition and financing would have a material adverse
affect on the Company and its ability to successfully operate.

    NEED FOR ADDITIONAL CAPITAL.  The Company's business involves the continued
investment of funds towards the development of new products and modifications of
existing products. The Company's current business plan calls for significant
expenditures of cash over the next six to twelve months in order to complete the
development of the next generation of its back office management information
system to replace its current Summit V product. To the extent that the Company
continues to be unsuccessful in generating significant cash flow from operations
in order to fund such development expenses and other operating costs, the
Company will need to rely on outside financing sources for working capital.
Moreover, because MMKid is in the early stages of its development and will
require significant capital to implement its business plan, even if the Company
completes the $4,000,000 in financing that is a condition to closing

                                       10
<PAGE>
the MMKid Transaction and the notes issued in such financing are converted into
Common Stock, the Company may require additional capital in order to operate its
business. The Company currently has no bank line of credit and there can be no
assurance that the Company will be able to obtain sources of outside financing
on favorable terms, if at all, in the event that such financing is required in
the future. To the extent that the Company's operations do not generate positive
working capital or enable it to secure adequate outside financing, the Company's
business would be materially and adversely affected.

    HISTORY OF LOSSES.  The Company and its predecessors Summit V, Inc., a
Washington corporation and wholly-owned subsidiary of the Company, as well as
Redwood Technology, Inc., a Washington corporation formerly known as Jenkon Data
Systems, Inc. ("Redwood Technology"), which operated certain assets of the
Company prior to selling them to Summit V, Inc. in 1995, have a history of
losses. The Company sustained net losses of approximately $265,000, $1,701,000,
and $3,307,000 for the fiscal years ended June 30, 1996, 1997 and 1999,
respectively. There can be no assurance that the Company will be able to operate
profitably in the future.

    As a result of increased competitive pressures, the Company has accelerated
the development of its next generation management information system. The
Company expects that it will incur significant losses during the next six to
twelve months due primarily to the costs associated with the development of this
new product and delays in revenue recognition for sales of existing products
that are linked to or contingent upon delivery of new products. Such revenues
would be recognized at such time as the Company has completed its obligations
under any such sales contracts.

    MMKID HAS A HISTORY OF LOSSES AND HAS LIMITED REVENUES AND CAPITAL
RESOURCES.  MMKid has not operated profitable and, based on financial statement
prepared in accordance with generally accepted accounting principles in Israel
that were provided to the Company by MMKid, has experienced losses of
approximately $50,000 and $72,000 for the fiscal years ended December 31, 1997
and 1998, respectively. Moreover, MMKid's revenues from sales of products,
services and marketing rights were only approximately $714,000 and $1,500,000
over the same periods. Additionally, based on unaudited financial statements for
the six month period ended June 30, 1999, which were prepared in accordance with
generally accepted accounting principles in Israel, MMKid has a net loss of
approximately $170,000 and revenues of $748,000 for such six month period. In
the event that the acquisition of MMKid is completed there can be no assurance
that MMKid will ever be able to generate significant revenues or profits from
operations.

    RISK OF CREDITORS CLAIMS AND SUCCESSOR LIABILITY; RISKS OF PENDING
LITIGATION.  In July 1995, Summit V, Inc. purchased and/or licensed
substantially all of the assets, and Summit V, Inc. assumed certain contractual
obligations and indebtedness from Redwood Technology, the developer of a
substantial portion of the Company's SUMMIT V software technology. Because
Redwood Technology may be deemed to have been rendered insolvent by the sale and
license of certain of its assets to Summit V, Inc. and because of the
commonality of ownership and management of Redwood Technology and Summit V, Inc.
and/or because Summit V continued operating the business of Redwood Technology,
the Company is or may be subject to claims by unsatisfied creditors of Redwood
Technology challenging the rights of the Company to the SUMMIT V software
technology or other assets acquired from Redwood Technology or alleging
successor liability or other similar bases for liability. The Company believes
that such claims could total as much as $120,000. There can be no assurance that
claims for successor liability will not be made or that the Company's rights to
the assets acquired from Redwood Technology, including the SUMMIT V software
technology, will not be challenged. If any such claims or challenges are made
and are successful, the Company's business and results of operations would be
materially and adversely affected. Any payments made by the Company with respect
to claims against Redwood Technology may benefit certain officers and directors
of the Company who may be secondarily liable for such claims.

    The Company acquired from Redwood Technology a license to utilize certain
Ardent Software, Inc. products which were incorporated into the SUMMIT V
software in connection with sales in certain portions

                                       11
<PAGE>
of Asia, including China. The grant of the license by Unidata, Inc., a
predecessor of Ardent Software, Inc., to Redwood Technology and the sublicense
by Redwood Technology to Avon Products or its affiliates have been challenged in
a lawsuit (the "U.S. Claim") filed in the United States District Court for the
Western District of Washington at Tacoma (Case No. C96-5459FDB) by Pacific
Unidata, Ltd., the Asia licensee of Unidata, Inc., as violating the terms of
such licensee's agreement with Unidata. In addition, Pacific Unidata, Ltd.
brought an action (the "China Claim") against Guangzhou Avon Co., Ltd., a
Chinese subsidiary of Avon Products ("Avon China"), in the Guangdong Province
Supreme People's Court (the "Chinese Court") seeking damages against Avon China
for infringement of Pacific Unidata, Ltd.'s copyright and exclusive rights to
certain Unidata software in China. In June 1998, the Chinese Court awarded
damages in favor of Pacific Unidata, Ltd. in an amount of approximately US$12
million plus costs. Avon China has informed the Company that it intends to
appeal the ruling and has indicated an intention to seek indemnification against
Redwood Technology and the Company in the event it is unsuccessful in its
appeal. Although the Company is not a party to the China Claim, if Unidata, Inc.
does not indemnify Redwood Technology and the Company from damages resulting
from the China Claim and the U.S. Claim and the Company is required to (i)
devote significant resources to protect its interests and the interests of its
sublicensees in Asia or (ii) if any sublicensee successfully seeks
indemnification against Redwood Technology or the Company for damages suffered
as a result of claims made by Pacific Unidata, Ltd. and the Company is required
to pay such indemnification directly or as a successor to Redwood Technology,
the Company's financial condition and results of operations could be materially
adversely affected.

    RISK OF ACCEPTANCE OF NEW PRODUCT.  The future success and growth of the
Company, if any, will depend in large part upon the ability of the Company to
develop and sell a next generation back office product to replace Summit V. The
Company has experienced a significant deterioration in its revenues as a result
of the obsolescence of the Summit V product. Even if development is completed,
there can be no assurance that the next generation back office product will be
accepted by its existing or new customers. The failure of the Company to
complete the development of its next generation back office product would have a
material adverse effect on the Company's prospects for future growth.

    NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE.  The markets for the Company's
products are characterized by rapid technological advances, evolving industry
standards, changes in end-user requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards could render the
Company's existing products and products currently under development obsolete
and unmarketable. The Company has experienced decreased demand for its SUMMIT V
product, as a result of the introduction of competing products which more
effectively embody these new technologies. The Company's future success will
depend upon its ability to enhance its current products and develop and
successfully introduce and sell new products that keep pace with technological
developments and respond to evolving end-user requirements. Any failure by the
Company to anticipate or respond adequately to technological developments or
end-user requirements, or any significant delays in product development or
introduction, could damage the Company's competitive position in the marketplace
and reduce revenues. The Company may need to increase the size of its product
development staff in the near term to meet these challenges. There can be no
assurance that the Company will be successful in hiring and training adequate
product development personnel to meet its needs. In the past, the Company has
occasionally experienced delays in the introduction of new products and product
enhancements. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis
or that the Company will not experience significant delays in the future. Any
failure to successfully develop and market new products and product enhancements
would have a material adverse effect on the Company's results of operations.

    RISKS OF SOFTWARE DEVELOPMENT IN GENERAL.  The success of the Company is
dependent upon its ability to deliver reliable, easy-to-use and technologically
up-to-date software products. Any failure of the Company's existing or new
products to meet client specifications or expectations will have a material
adverse

                                       12
<PAGE>
effect on the Company's reputation and the demand for the Company's products.
There can be no assurance that the software will consistently meet such
specifications or expectations. In addition, continued demand for the Company's
products and services will depend on its ability to successfully anticipate
customer demand and to integrate new and emerging technologies, features and
standards into its software on a timely basis. Any failure by the Company to
anticipate customer demand and to successfully integrate new features and
standards into its software on a timely basis could adversely affect the
Company's reputation, demand for its products and, as a result, its financial
condition and results of operations.

    DEPENDENCE ON SALES OF EXISTING SOFTWARE PRODUCTS.  Substantially all of the
Company's revenues have been derived from sales of its SUMMIT V information
system, customizations, and related support services. The demand for the product
has decreased in recent periods due to increased competition through the
introduction of new technology and product by the Company's competitors. In
addition, the initial demand for the Company's NOW! product did not meet
expectations. Future demand of the NOW! product will be highly dependent on
customers and companies who utilize such information systems and software.
Accordingly, any event that adversely affects fees derived from the sale of such
systems, such as competition from other products, significant flaws in the
Company's software products or incompatibility with third party hardware or
software products, negative publicity or evaluation, or obsolescence of the
hardware platforms or software environments in which the systems run, would have
a material adverse effect on the Company's results of operations. The Company's
future financial performance will depend, in substantial part, on the continued
development and introduction of new and enhanced versions of its management
information systems and customer acceptance of such new and enhanced products.

    COMPETITION.  The software industry is highly competitive and is
characterized by rapid technological change, rapidly changing customer
preferences and little or no barriers to entry. There are several businesses,
some of which may be better capitalized than the Company currently offering
software similar in type or scope to the Company's products. The Company
believes that the primary competitive factors for the provision of its software
are price, technical expertise and quality, ease of use, variety of value-added
services, reliability and security, customer support and geographic coverage.
The Company's success will depend heavily upon its ability to provide high
quality software and value-added services. Other factors that will affect the
Company's success in this market include the Company's continued ability to
attract additional experienced marketing, sales, and management talent, and the
expansion of worldwide support, training and service capabilities. The Company's
current and prospective competitors generally consist of other independent
software providers such as Globenet and 20/21 Interactive. Some or all of the
Company's actual and potential competitors may have greater market presence,
engineering, customer support and marketing capabilities, and financial,
technological and personnel resources than those available to the Company. As a
result, they may be able to adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than can the Company.

    Because price is a major competitive factor in the market for the Company's
products, if any of the Company's present or future competitors elect to
initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.

    SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS.  The Company has experienced
and expects to continue to experience significant fluctuations in its quarterly
results. Such fluctuations may be caused by many factors, including, but not
limited to: the size and timing of individual orders; seasonality of revenues;
lengthy sales cycle; delays in introduction of products or product enhancements
by the Company or other providers of hardware, software and components for the
Company's systems; competition and pricing in the software industry; market
acceptance of new products; reduction in demand for existing products and
shortening of

                                       13
<PAGE>
product life cycles as a result of new product introductions by competitors;
foreign currency exchange rates; mix of products sold; conditions or events in
the direct sales industry; and general economic conditions. The Company does not
typically maintain a significant backlog and therefore the revenue results for
each quarter depend substantially on orders received and delivered in that
quarter. As a result of the relatively high revenue amount per order and
relatively low unit volume, any lost or delayed sales will have a
disproportionately greater effect on the Company's revenues and quarterly
results relative to companies that have higher unit sales volumes and less
revenue associated with each sale. The Company's sales cycle is typically three
to nine months from the time initial sales contact is made with a qualified
prospect, making the timing of the Company's license fees difficult to predict
and the Company's quarterly results difficult to forecast. The Company's expense
levels are based in part on its forecasts of future revenues. Accordingly, since
the majority of the Company's expenses are relatively fixed in nature, the
Company would not be able to quickly curtail expenses in response to a decline
in revenues, and operating results for a given quarter would be adversely
affected. As a result, revenues for any quarter are subject to significant
variation and the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. To the extent that the Company's
Common Stock is publicly traded, fluctuations in operating results may also
result in volatility in the market price of the Company's Common Stock.

    DEPENDENCE ON DIRECT SALES INDUSTRY; LEGISLATIVE RISKS.  The Company's
business depends substantially upon the capital expenditures of direct sales
companies, which in part depends upon the demand for such companies products. A
recession, new laws or regulations of the activities of direct sales companies,
or other adverse event affecting the direct sales industry in the United States,
the United Kingdom, Asia or other markets served by the Company could affect
such demand, forcing companies in the Company's targeted markets to curtail or
postpone capital expenditures on business information systems. Any such change
in the amount or timing of capital expenditures in its targeted markets would
have a material adverse effect on the Company's financial condition and results
of operations. The Peoples Republic of China has enacted laws restricting the
ability of multi-level marketing companies to operate in China. To date, the
Company has not derived significant revenues from The Peoples Republic of China.
Accordingly, the Company does not believe that such laws will adversely affect
the Company's current operations or financial condition. However, similar
restrictions, if adopted by other countries, could have a materially adverse
effect on the Company's business, results of operations and prospects.

    MANAGEMENT OF GROWTH.  Management believes that the Company's existing
internal controls are sufficient for the current size and level of operations;
however, to manage its growth effectively, the Company will be required to
continue to implement and improve its operating and financial systems and to
expand, train and manage its employee base. There can be no assurance that the
management skills and systems currently in place will be adequate if the Company
grows. In addition, although no acquisitions of companies or products are
currently being negotiated, the Company may make acquisitions in the future. The
Company's management has only limited experience with acquisitions, which
involve numerous risks, including difficulties in the assimilation of acquired
operations and products, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
companies.

    DEPENDENCE ON THIRD PARTY SOFTWARE AND HARDWARE.  The Company's products
incorporate and use software products and computer hardware and equipment
developed by other entities. The fourth generation language ("4GL") set of
development tools used by the Company as well as the relational database
management system used in the Company's products are provided by Ardent
Software, Inc. (a successor to Unidata, Inc.) or its affiliates. The operating
systems on which the Company's products can function (UNIX, NT) have been
developed or are owned by Novell Corporation and Microsoft Corporation. The
computer hardware and equipment sold as part of the Company's turnkey system are
manufactured by Hewlett-Packard Company, International Business Machines
Corporation, and others. There can be no assurance that all of these entities
will remain in business, that their product lines will remain viable

                                       14
<PAGE>
or that these products will otherwise continue to be available to the Company.
If any of these entities ceases to do business, or abandons or fails to enhance
a particular product line, the Company may need to seek other suppliers. This
could have a material adverse effect on the Company's results of operations. In
addition, there also can be no assurance that the Company's current suppliers
will not significantly alter their pricing in a manner adverse to the Company.

    YEAR 2000 COMPLIANCE RISK.  The Company believes that its principal software
products (SUMMIT V and NOW!) are Year 2000 compliant. However, because the
Company's products are designed to work with relational database and other
software products developed and sold by third parties, any failure of these
third party software products to be Year 2000 compliant could result in the
failure of the Company's software products to effectively operate. Any such
failure could harm the Company's reputation in the market and could have an
adverse effect on sales of the Company's products and its financial performance.

    POSSIBLE ADVERSE IMPACT ON MARKET PRICE OF FUTURE SALES OF RESTRICTED
SHARES.  Sales of a substantial number of shares of Common Stock into the public
market in the future could materially adversely affect the prevailing market
price for the Common Stock. As of June 30, 1999, the Company has outstanding an
aggregate of 4,253,515 shares of Common Stock of which approximately 2,750,000
are "restricted securities" (the "Restricted Shares") pursuant to Rule 144
promulgated under the Securities Act. Beginning on the expiration of applicable
lock-up agreements (a substantial majority of which expire in August 1999), the
Restricted Shares subject to such lock-up agreements will become eligible for
sale in the public market pursuant to Rule 144, some of which will be not be
subject to the volume limitations and other restrictions under Rule 144. In
addition, in connection with the proposed acquisition of MMKid, the Company will
issue approximately 25,000,000 shares of Common Stock (or securities convertible
into Common Stock), a portion of which will be registered for resale and a
portion of which will become eligible for resale pursuant to Rule 144 one year
following the date of issuance. Such a large "over-hang" of stock eligible for
sale in the public market may have the effect of (i) depressing the price of the
Company's Common Stock, and (ii) making it difficult or impossible for the
Company to obtain additional debt or equity financing.

    THE COMPANY MAY NOT BE ABLE TO MAINTAIN ITS NASDAQ LISTING; RISK OF
LOW-PRICED SECURITIES.  The Company's Common Stock is currently listed for
trading on the Nasdaq SmallCap Market. To maintain inclusion on the Nasdaq
SmallCap Market, the Company's Common Stock must continue to be registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Company must continue to have net tangible assets of at least
$2,000,000, a public float of at least 500,000 shares with a market value of at
least $1,000,000, at least 300 stockholders, a minimum bid price of $1.00 per
share and at least two market makers. While the Company has satisfied these
maintenance standards to date, there is no assurance that the Company will be
able to maintain the standards for Nasdaq SmallCap Market inclusion with respect
to its Common Stock. If the Company fails to maintain Nasdaq SmallCap Market
listing, the market value of the Common Stock likely would decline and
stockholders likely would find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Common Stock.

    If the Common Stock ceases to be included on the Nasdaq SmallCap Market, the
Common Stock could become subject to Rule 15a-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers which sell such
securities. If the Common Stock becomes subject to the penny stock rules, the
ability of broker-dealers to make a market in or sell the Company's securities
may be adversely affected and the market liquidity for the Company's securities
could be severely adversely affected.

ITEM 2. DESCRIPTION OF PROPERTY

    The Company leases approximately 17,000 square feet of space in the
Vancouver, Washington area.

                                       15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

    The Company acquired from Redwood Technology a license to utilize certain
Ardent Software, Inc. products which were incorporated into the SUMMIT V
software in connection with sales in certain portions of Asia, including China.
The grant of the license by Unidata, Inc., a predecessor of Ardent Software,
Inc., to Redwood Technology and the sublicense by Redwood Technology to Avon
Products or its affiliates have been challenged in a lawsuit (the "U.S. Claim")
filed in the United States District Court for the Western District of Washington
at Tacoma (Case No. C96-5459FDB) by Pacific Unidata, Ltd., the Asia licensee of
Unidata, Inc., as violating the terms of such licensee's agreement with Unidata.
In addition, Pacific Unidata, Ltd. brought an action (the "China Claim") against
Guangzhou Avon Co., Ltd., a Chinese subsidiary of Avon Products ("Avon China"),
in the Guangdong Province Supreme People's Court (the "Chinese Court") seeking
damages against Avon China for infringement of Pacific Unidata, Ltd.'s copyright
and exclusive rights to certain Unidata software in China. In June 1998, the
Chinese Court awarded damages in favor of Pacific Unidata, Ltd. in an amount of
approximately US$12 million plus costs. Avon China has informed the Company that
it intends to appeal the ruling and has indicated an intention to seek
indemnification against Redwood Technology and the Company in the event it is
unsuccessful in its appeal. Although the Company is not a party to the China
Claim, if Unidata, Inc. does not indemnify Redwood Technology and the Company
from damages resulting from the China Claim and the U.S. Claim and the Company
is required to (i) devote significant resources to protect its interests and the
interests of its sublicensees in Asia or (ii) if any sublicensee successfully
seeks indemnification against Redwood Technology or the Company for damages
suffered as a result of claims made by Pacific Unidata, Ltd. and the Company is
required to pay such indemnification directly or as a successor to Redwood
Technology, the Company's financial condition and results of operations could be
materially adversely affected.

    In July 1995, Summit V, Inc. purchased and/or licensed substantially all of
the assets and assumed certain liabilities of Redwood Technology, the developer
of certain of the Company's software technology. Because Redwood Technology may
be deemed to have been rendered insolvent by the sale and license of certain of
its assets to Summit V, Inc. and because of the commonality of ownership and
management of Redwood Technology and Summit V, Inc., the Company is or may be
subject to claims by unsatisfied creditors of Redwood Technology challenging the
Company's rights to the acquired assets (including the SUMMIT V software
technology) or alleging successor liability or other similar claims. Whether or
not litigation ensues, such claims could result in a disruption of the Company's
business which would have a material adverse effect on the Company and its
financial performance. In June 1998, the Company settled a claim for the unpaid
portion of payroll taxes of Redwood Technology in exchange for a payment by the
Company of $135,000. The Company may elect or be required to settle other
obligations of Redwood Technology. In the event that the Company were required
to pay all or a significant portion of the claims of creditors of Redwood
Technology, the Company's business and financial conditions and its ability to
achieve its business plan could be materially and adversely affected.

    In the ordinary course of business, the Company is subject to various legal
proceedings and claims. In the opinion of management, the amount of ultimate
liability with respect to these proceedings will not materially affect the
financial position, results of operations or cash flow of the Company.

    See also "Additional Considerations and Risk Factors--Risk of Creditors
Claims and Successor Liability; Risks of Pending Litigation" in Part I, Item 1
of this Form 10-KSB.

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

    Not applicable.

                                       16
<PAGE>
                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Quotation of the Company's Common Stock, $0.001 par value, commenced on The
Nasdaq Small Cap Market on August 11, 1998 under the symbol "JNKN." The last
reported sale price per share of the Common Stock of the Company as reported on
the Nasdaq Small Cap Market on September 15, 1999 was $1.75. As of September 15,
1999, there were approximately 53 record holders, excluding stock held in street
name, of the Company's Common Stock.

    Following are the high and low closing prices for the Company's Common Stock
of the fiscal year ended June 30, 1999:

<TABLE>
<CAPTION>
                                                                                         HIGH        LOW
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
First Quarter (from August 14, 1998).................................................  $   6.250  $   4.250
Second Quarter.......................................................................      5.000      3.375
Third Quarter........................................................................      4.000      1.188
Fourth Quarter.......................................................................      3.250      1.188
</TABLE>

    The Company has not paid any dividends since its inception and has no
current plans to pay dividends on the Common Stock in the foreseeable future.
The Company intends to reinvest future earnings, if any, in the development and
expansion of its business. Any future determination to pay dividends will depend
upon the Company's results of operations, financial condition and capital
requirements and such other factors deemed relevant by the Company's Board of
Directors.

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

    THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE HEREIN. WHEN USED IN THE FOLLOWING
DISCUSSIONS, THE WORDS "BELIEVES", "ANTICIPATES", "INTENDS", "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH IN "RISK FACTORS" BELOW. READERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF.

GENERAL

    The Company develops, markets, implements and supports specialized software
solutions for network marketing and other companies involved in the direct sales
industry. The Company primarily sells and implements its business information
systems directly. The Company services its clients from its office in the United
States. Substantially all of the Company's revenues are generated from the sale
of its systems, which usually consist of proprietary and third-party software
licenses, implementation and software support services, third-party hardware and
maintenance contracts. The Company's proprietary software licenses are sold on a
packaged or individual module basis, and the license fee is determined in part
by the number of modules and concurrent system users. Maintenance fees are based
on a percentage of software license fees and are billed on a monthly basis.

    Revenues from software licenses are recognized in accordance with the
criteria set forth in Statement of Position 97-2, "Software Revenue
Recognition," (SOP 97-2). In accordance with SOP 97-2, revenue is recognized
when persuasive evidence of an arrangement exists, delivery has occurred, the
system is functionable, the fee is fixed or determinable and collectibility is
probable. Fees associated with multiple element contracts are allocated to the
various elements based on vendor-specific objective evidence of fair value.
Revenue allocated to a specific element is recognized when the basic revenue
recognition criteria

                                       17
<PAGE>
above are met for that element. Customization and training revenue is recognized
as revenue as the services are performed. If sufficient vendor-specific evidence
does not exist to allocate revenue to the elements, all revenue from the
arrangement generally will be deferred until such evidence does exist or until
all elements have been delivered. Software support service revenues are
recognized in the period in which the services are performed. Revenues from
maintenance contracts are recognized ratably over the period of the contract.

    Research and development expenses consist primarily of compensation and
consulting expenses and related equipment and licenses. Under FAS 86, such costs
are expensed as incurred until technological feasibility has been established.
Technological feasibility is established upon completion of a detailed program
design or working model. Capitalized costs are amortized over the economical
life of the product.

    The Company and its predecessors, Summit V, Inc., a Washington corporation
and wholly-owned subsidiary of the Company, as well as Redwood Technology, which
operated certain assets of the Company prior to selling them to Summit V, Inc.
in 1995, have a history of losses. The Company sustained net losses of $265,000,
$1,701,000, and $3,307,000 for the years ended June 30, 1996 1997, and 1999,
respectively.

    Although no customer accounted for more than 10% of the Company's net sales
during fiscal 1998, two customers accounted for more than 10% of the Company's
net sales during fiscal 1999. Net sales to the two customers accounted for
approximately 11% and 14%, respectively. Similar or greater concentration of its
net sales among a limited number of customers may continue in the future. Any
material decrease in net sales to any one of the Company's largest customers
that is not matched by corresponding increases in net sales to new or existing
customers could have a material adverse effect on the Company's financial
condition and results of operations and could threaten its economic viability.
There can be no assurance that the Company will receive orders from any existing
customers or from new customers.

    The Company derived approximately 7.4% and 1.5% of its total revenue from
its United Kingdom operations during 1998 and 1999, respectively. The Company
plans to close the United Kingdom operating unit during fiscal 2000.
International business is subject to various risks common to international
activities, including currency fluctuations. Revenues and expenses of the
Company's United Kingdom operations are translated at the average exchange rate
in effect during the period. Translation adjustments are reported as a separate
component of stockholders' equity (deficit). The Company does not currently
engage in currency hedging transactions.

    The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. Such fluctuations may be
caused by many factors, including, but not limited to the size and timing of
individual orders; seasonality of revenues; lengthy sales cycle; delays in
introduction of products or product enhancements by the Company or other
providers of hardware, software and components for the Company's systems;
competition and pricing in the software industry; market acceptance of new
products; foreign currency exchange rates; mix of products sold; and general
economic conditions.

    The Company is or may be subject to claims of unsatisfied creditors of
Redwood Technologies, Inc. alleging successor liability or other similar basis
for liability. As of June 30, 1999 the Company estimated and recorded a
liability for such claims of approximately $120,000. In June 1998, the Company
settled certain claims by the Internal Revenue Service against Redwood
Technology for $135,000.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1999 AND 1998

    REVENUES:  Total revenues decreased 31.1% to $6,500,000 for 1999 from
$9,437,000 for 1998. The decrease was primarily attributable to decreases in
revenues from software licenses and operations revenue.

                                       18
<PAGE>
    As a result of increased competitive pressures, the Company has accelerated
the development of its next generation management information system. The
Company has incurred and will continue to incur significant losses during the
next three to six months due primarily to decreased demand for its existing
products, as well as the costs associated with the development of the new
product and delays in revenue recognition for sales of existing products that
are linked to or contingent upon delivery of the new management information
system. Such revenues would be recognized at such time as the Company has
completed its obligations under any such sales contracts.

    SOFTWARE LICENSE REVENUES:  Software license revenues decreased 38.1% to
$2,257,000 for 1999 from $3,649,000 for 1998. The decrease in software license
revenues was due to a decrease in system sales and additional modules sold to
new and existing clients. Additionally, during 1999 the Company deferred
software license revenue that was linked to or contingent upon delivery of the
new management information system.

    EQUIPMENT, SOFTWARE AND SUPPLIES REVENUES:  Equipment, software and supplies
revenues increased 29.3% to $1,081,000 for 1999 from $836,000 for 1998. The
increase is attributable to an increase in the number of third party software
licenses sold to new and existing clients, slightly offset by a decrease in
sales of computer hardware. The Company has significantly reduced its emphasis
on selling computer hardware over the past two fiscal years and makes exceptions
only when margins on the overall contract are acceptable.

    SUPPORT AND OPERATIONS REVENUE:  Support and operations revenue decreased
36.2% to $3,162,000 for 1999 from $4,952,000 for 1998. The decrease is
attributable to a loss of revenue associated with the closing of the United
Kingdom office and a significant decrease in revenue recognized from custom
programming jobs.

    COST OF REVENUES:  Total cost of revenues increased 8.7% to $3,500,000 for
1999 from $3,219,000 for 1998. The increase is primarily attributable to an
increase in support and operations costs. As a percentage of revenues, cost of
revenues increased to 53.8% for 1999 from 34.1% for 1998 primarily due to a
significant decrease in revenues.

    COST OF SOFTWARE LICENSES:  The cost of software licenses consists primarily
of amortization of capitalized development costs and the cost of supplies that
are included with the Company's systems that are provided by third-party
suppliers. The cost of software licenses decreased 10.8% to $165,000 for 1999
from $185,000 for 1998 as a result of a decrease in additional modules sold.

    COST OF EQUIPMENT, SOFTWARE AND SUPPLIES:  The cost of equipment, software
and supplies consists primarily of the cost of third-party software, hardware
and related peripheral equipment purchased by the Company from various suppliers
for resale as part of the Company's turnkey systems. These costs increased by
12.7% to $558,000 for 1999 from $495,000 for the same period in 1998. The
increase was due to an increase in third-party software licenses sold which was
offset by a decrease in the amount of third-party hardware sales.

    COST OF SUPPORT AND OPERATIONS:  The cost of support and operations consists
primarily of personnel costs, travel and materials associated with providing
implementation, education and training, consulting and technical services. These
costs increased 9.4% to $2,777,000 for 1999 from $2,538,000 for 1998. The
increase is attributable to a general increase in wages and the movement of
certain NOW! programmers from research and development to operations upon
completion of the NOW! product.

    GROSS PROFIT:  Gross profit decreased by 51.8% to $3,000,000 for 1999 from
$6,219,000 for 1998. Overall gross profit as a percentage of total revenues
decreased to 46.2% for 1999 from 65.9% for 1998, primarily a result of the
significant decrease in customization revenue and the associated decrease in the
gross profit on software support and maintenance. Gross profit on the Company's
software license revenues is significantly higher than on revenues from
equipment, services and maintenance. Gross profit

                                       19
<PAGE>
on software licenses remained constant from 1998 to 1999 at 94.9% and 92.7%,
respectively. The increase in equipment gross profit to 48.4% for 1999 from
40.8% for 1998 was primarily due to an increase in the sale of third-party
software and a decrease is third-party hardware. Gross profit on third-party
software is much higher than on hardware. Gross profit on software support
services and maintenance decreased to 12.2% for fiscal 1999 from 48.7% for 1998
due mainly to the significant decrease in customization revenue coupled with
relatively fixed labor costs.

    SELLING AND MARKETING EXPENSES:  Selling and marketing expenses increased
43.5% to $1,327,000 for 1999 from $925,000 for 1998. The increase primarily
relates to a restructuring of employee responsibilities into the sales role as
well as marketing efforts related to the NOW! product.

    RESEARCH AND DEVELOPMENT EXPENSES:  Research and development expenses
increased 21.4% to $939,000 for the year ended June 30, 1999 from $773,000 for
1998. The increase in research and development expenses relates primarily to the
accelerated development of the next generation of software products.

    GENERAL AND ADMINISTRATIVE EXPENSES:  General and administrative expenses
decreased 9.5% to $3,497,000 for 1999 from $3,864,000 for 1998. The decrease was
due primarily to a decrease in expense related to highly compensated employees
and support personnel.

    INTEREST EXPENSE:  Interest expense increased 179.8% to $559,000 for 1999
from $200,000 for 1998. The increase relates primarily to the non-cash
amortization of the original issue discount on the June 1997 bridge loan. The
loan was paid in full on August 14, 1998.

BACKLOG

    The Company does not typically maintain a significant backlog and therefore
revenues for each quarter depend substantially on orders received and delivered
in that quarter. The average price of the Company's systems sold during the
fiscal year ended June 30, 1999 was approximately $75,000 to $115,000. As a
result of the relatively high revenue amount per order and relatively low unit
volume, any lost or delayed sales will have a disproportionately greater effect
on the Company's revenues and quarterly results relative to companies that have
higher unit sales volumes and less revenue associated with each sale. The
Company's sales cycle is typically three to six months from the time initial
sales contact is made with a qualified prospect, making the timing of the
Company's license fees difficult to predict and the Company's quarterly results
difficult to forecast. The Company's expense levels are based in part on its
forecast of future revenues. Accordingly, since the majority of the Company's
expenses are fixed in nature, the Company would not be able to quickly curtail
expenses in response to a decline in revenues, and operating results for a given
quarter would be adversely affected. As a result, revenues for any quarter are
subject to significant variation and the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. There can be no
assurance that the Company will be profitable on a quarter-to-quarter or
year-to-year basis.

LIQUIDITY AND CAPITAL RESOURCES

    In August 1998, the Company completed an initial public offering of
1,500,000 shares of common stock, of which 1,210,000 shares were sold by the
Company and 290,000 shares were sold by selling shareholders. Net proceeds to
the Company were approximately $4,480,000 after deducting all offering-related
expenses of $1,570,000. The Company used a portion of the proceeds to repay the
outstanding indebtedness of $1,000,000 which was incurred with the 1998 private
placement and approximately $272,000 related to a note payable to a stockholder.
The remaining proceeds were used for product development and upgrades, expansion
of the Company's sales and marketing efforts and general working capital.

                                       20
<PAGE>
    Prior to the initial public offering of common stock the Company financed
its operations primarily through cash flow from operations, private sales of its
equity, private debt placements and log-term equipment financing. The Company
does not have access to a line of credit.

    The Company has employment agreements with two of its executive officers as
well as a Consulting and Non-Competition Agreement with a director and former
officer of the Company. In general, assuming the remaining agreements are not
terminated such agreements provide for total payments of not less than
$1,113,000 through the end of the fiscal year ending June 30, 2002, including
approximately $33,000 per month during the fiscal year ended June 30, 2000.

    For the year ended June 30, 1999, operating activities used net cash of
$2,753,000, attributable to a net loss of $2,440,000, net of depreciation and
amortization of $867,000, an increase in trade receivables and prepaids of
$51,000, net of the provision for doubtful accounts of $394,000, and an increase
in accounts payable and other accrued liabilities of $531,000, offset by an
increase in deferred revenue of $283,000. During 1999, investing activities used
net cash of $389,000, primarily due to the acquisition of property and
equipment. Financing activities provided net cash of $3,644,000 during the year
ended June 30, 1999 resulting from net proceeds from the sale of the Company's
common stock of $4,480,000 which were offset by repayments of notes and loans
payable of $1,410,000.

    For the year ended June 30, 1998, operating activities used net cash of
$62,000 primarily attributable to the increase in trade receivables of $496,000,
an increase in other assets of $97,000, a decrease in accounts payable of
$128,000 and a combined decrease in customer deposits and other accrued
liabilities of $514,000. This was partially offset by net income of $478,000,
and an increase in refundable income taxes of $131,000. In fiscal 1998 the
Company's investing activities used net cash of $331,000 primarily to purchase
property and equipment. During 1998, financing activities provided net cash of
$461,000 primarily from the net proceeds from the sale of the promissory notes
and warrants of $1,000,000 and a decrease in restricted cash of $100,000 which
were offset by repayment of notes payable $264,000 and prepaid offering costs of
$374,000.

    The Company's accounts receivable balances at June 30, 1998 and 1999 were
$1,225,000 and $1,398,000, respectively. Accounts receivable in the over 90-day
category at June 30, 1998 was $308,000, or 25.0% of accounts receivable,
compared to $628,000, or 44.9% of accounts receivable, at June 30, 1999. The
number of days sales in accounts receivable was 42 days and 74 days,
respectively, for the years ended June 30, 1998 and 1999. The increase in
accounts receivable and days sales in accounts receivable from June 30, 1998 to
June 30, 1999 was due to granting additional credit terms to larger customers
that have a strong payment history and extended payment plans to new clients
with strong growth potential. Bad debt expense as a percentage of sales for the
period ended June 30, 1998 and 1999 was 1.8% and 6.1%, respectively. As a
result, the allowance for doubtful accounts increased from $146,000 at June 30,
1998 to $356,000 at June 30, 1999, an increase of $210,000.

    The Company had two customers which accounted for approximately 37.5% of the
accounts receivable at June 30, 1999.

    The Company has experienced a significant decrease in operating funds as a
result of increased competitive pressure and the accelerated development of the
next generation management information system. DUE TO THE COMPANY'S NEGATIVE
CASH FLOWS AND LACK OF CASH RESOURCES, THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS HAVE ISSUED AN EXPLANATORY PARAGRAPH IN THEIR OPINION WHICH
EXPRESSES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING
CONCERN. In August 1999, the Company signed a letter of intent to acquire
Multimedia K.I.D. LTD., an Israeli-based interactive educational software
company. The terms of the proposed transaction include the issuance of 840,000
common shares of Jenkon and 2,416,000 shares of redeemable preferred stock which
will be convertible into an aggregate of 24,160,000 common shares of Jenkon, in
exchange for 100% of the outstanding securities of Multimedia. The acquisition
is contingent upon, among other things, the completion of a $4,000,000 private
placement of convertible promissory notes, the signing of a definitive
acquisition agreement and other customary

                                       21
<PAGE>
terms and conditions. The notes will accrue interest at 12% per annum. Upon
shareholder approval on or before February 28, 2000, the notes will be
convertible into common shares of the Company at a conversion price of $1.25 per
share.

    Based on the Company's current and expected financial position and operating
results, management believes that the funds provided from the private placement
in addition to operating cash flows will be sufficient to meet its financial
needs over the next twelve months. However, there is no assurance that the
Company will be able to complete the private placement.

YEAR 2000

    Like many other companies, Jenkon is subject to risks from the Year 2000
computer issue. The Year 2000 issue exists because many computer programs use
two digit rather than four digit date fields to define the applicable year. As a
result, computer equipment and software and devices with imbedded technology
that are time-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, production
delays, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Incomplete or untimely resolution of the
Year 2000 issue by the Company or critically important suppliers or customers of
the Company could have a materially adverse effect on the Company's business,
financial condition, or results of operations. The Company has undertaken
various initiatives intended to ensure that its computer systems, software and
other operational equipment will function properly with respect to dates in the
Year 2000 and thereafter.

    The Company is in the process of completing what it believes is a reasonable
and thorough review of Year 2000 issues on its operations, liquidity and
financial condition. The review includes identifying the related issues and
risks that could have a material effect on the Company. To date, no significant
issues have been identified with respect to the Company's systems. Identified
issues or reasonably foreseeable circumstances are not expected to have a
material affect on the Company's systems or operations.

    The Company has been surveying its major vendors to assess any potential
impact on its operations caused by key third parties. The process includes
obtaining information as to their efforts associated with Year 2000 compliance.
To date, no significant compliance issues have been identified with these third
parties. The Company plans to continue to update and evaluate compliance issues
with key third parties through 1999.

    The Company currently estimates that the cost of its Year 2000 assessment,
remediation and testing efforts, as well as current anticipated costs to be
incurred by the Company with respect to Year 2000 issues of third parties, will
not exceed $50,000. Any such expenditures will be funded from operating cash
flows. This estimate is subject to change as additional information is obtained
in connection with the Company's assessment of the Year 2000 issue. The Company
has incurred minimal costs to date directly related to its Year 2000 assessment,
remediation, and testing efforts.

    The Company presently believes that Year 2000 issues will not pose
significant problems for the Company. However, if all Year 2000 issues are not
properly identified, or assessment, remediation and testing are not effected
timely with respect to Year 2000 problems that are identified, there can be no
assurance that the Year 2000 issue will not have a material adverse impact on
the Company's business, financial condition or results of operations, or
adversely affect the Company's relationships with customers, venders and others.
Additionally, there can be no assurance that the Year 2000 issues of other
entities, such as one or more of the Company's critical customers or suppliers,
will not have a material adverse impact on the Company's systems or its
business, financial condition or results of operations. Potential infrastructure
failures, such as disruptions in the supply of power, water, transportation,
communications services, or if major institutions, such as the government,
foreign or domestic banking systems, are unable to continue to provide their
services or support resulting in a disruption in services or support to the
Company, the Company may be unable to operate for the duration of the
disruption. A contingency plan

                                       22
<PAGE>
has not been developed for dealing with the most reasonably likely worst case
scenario, and such scenario has not yet been clearly identified. The Company
currently plans to complete such analysis and contingency planning by December
31, 1999. The costs of the Company's Year 2000 assessment, remediation and
testing efforts and the dates on which the Company believes it will complete
such efforts are forward-looking statements that are based upon management's
best estimates.

EURO CURRENCY CONVERSION

    European Union ("EU") finance members have approved 11 of the 15 EU member
states for participation in an economic and monetary union. On January 1, 1999,
the Euro was adopted as the national currency of the participating
countries--Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, Netherlands, Portugal and Spain. Initially, the Euro will be used
for non-cash transactions. Currency of the participating member states ("legacy
currencies") will remain legal tender until January 1, 2002. On this date,
Euro-denominated bills and coins will be issued for use in cash transactions.

    The introduction of the Euro is a significant event with potential
implications for the Company's existing customers within countries participating
in the European Monetary Union. As such, the Company has committed resources to
conduct risk assessments and to take corrective actions, where required, to
ensure that it, and its products are prepared for the introduction of the Euro.
The Summit V system currently supports multiple currencies and the Company
continues development of Euro specific requirements. Development updates are
communicated to upper management on a regular basis.

    The Company has not experienced any significant operational disruptions to
date and does not currently expect the continued implementation of the Euro to
cause any significant operational disruptions. Additionally, the Company has not
incurred and does not expect to incur any significant costs from the continued
implementation of the Euro, including any currency risk, which could materially
affect the Company's liquidity or capital resources.

NEW ACCOUNTING STANDARDS

    Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company has chosen to report
comprehensive income in the statements of operations. Comprehensive income is
comprised of net income and all changes to stockholders' equity (deficit) except
those due to investments by owners and distributors to owners.

    Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new statement requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company adopted SFAS No. 131
during the year ended June 30, 1999 and it had no impact on the Company's
financial position or results of operations.

    Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS No. 132) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company's adoption of SFAS 132 did not have an impact on the
financial position or results of operations.

                                       23
<PAGE>
    Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133) issued by the FASB
is effective for financial statements beginning after June 15, 1999. The new
statement requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. The Company does not expect
adoption of SFAS No. 133 to have an effect on its financial position, or results
of operations and any effect will be limited to the form and content of its
disclosures.

FORWARD-LOOKING STATEMENTS

    When included in this Annual Report on Form 10-KSB, the words "expects,"
"intends," "anticipates," "plans," "projects" and "estimates," and analogous or
similar expressions are intended to identify forward-looking statements. Such
statements, which include statements contained in Item 6 and Item 1 hereof, are
inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those reflected in such forward-looking
statements. For a discussion of certain of such risks, see the subsection of
Item 1 entitled "Risk Factors." These forward-looking statements speak only as
of the date of this Annual Report on Form 10-KSB. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.

ITEM 7.  FINANCIAL STATEMENTS

    See the Consolidated Financial Statements and related Report of Independent
Certified Public Accountants included herewith as pages F-1 through F-21.

ITEM 8.  CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
  DISCLOSURE

    Not applicable

                                       24
<PAGE>
                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

    The current directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME                                                       AGE                            POSITION
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
David Edwards........................................          47   Chief Executive Officer, interim Chief Financial
                                                                    Officer and Chairman of the Board
Robert Cavitt........................................          36   President
Fred Magnotta........................................          34   Vice President, Research and Development
Bob Melander.........................................          49   Vice President, Business Applications
Dan Jensen...........................................          45   Director
Philip Luizzo (1)....................................          34   Director
Joe Albanese (1).....................................          65   Director
</TABLE>

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

(1) Appointed as a director in August 1999.

    DAVID EDWARDS is a founder of the Company and has served as the President,
Chief Executive Officer and as a director of the Company since its inception and
as Chairman of the Board of Directors since November 1997. Prior to founding the
Company, Mr. Edwards served as the Chief Executive Officer of Redwood
Technology, the previous owner of certain of the Company's current assets, from
1991 through 1995.

    ROBERT CAVITT joined the Company when it commenced operations in July 1995
and was named President effective September 1999. Previously, he served as
Executive Vice President of Sales and was appointed as a director of the Company
upon completion of the Company's initial public offering in August 1998. From
1988 to 1995, Mr. Cavitt worked for Redwood Technology in sales and operations.
He has over 11 years of industry experience in sales and implementation of
corporate operating and information systems.

    FRED MAGNOTTA is the newest member of Jenkon's management team, having
joined the Company in April 1999 from Platinum Software. His strength in
technological design and development has enabled Jenkon to progress rapidly into
developing the next generation of software. From March 1997 to April 1999, Mr.
Magnotta managed the development of a customer service and sales force suite of
applications at Platinum Software. He worked with the development of the Encarta
and Bookshelf products while at Microsoft Corporation from January 1995 to April
1997. Prior to Microsoft, Mr. Magnotta worked at Safeco Life Annuities as a
Senior Systems Analyst.

    BOB MELANDER joined the Company in August 1995. Prior to his current
position as Vice President Business Applications, he worked as a
Programmer/Analyst, Product Development Manager, and Director of Customer
Service for the Company. Mr. Melander was directly responsible for the design of
the third and fourth versions of the Company's Summit V product. Mr. Melander
worked as a Senior Systems Analyst at ADP Dealer Services prior to August 1995.

    DAN JENSEN is a founder of the Company, has served as a director of the
Company since its inception and served as the Company's Chairman of the Board
until November 1997. Prior to founding the Company, Mr. Jensen was one of the
founders of Redwood Technology where he served as Chairman of the Board from
inception through June 1995 and as its President and Chief Executive Officer
from inception to November 1991.

    PHILIP LUIZZO was appointed as a board member in August 1999. Mr. Luizzo is
the founder and President of Accufacts Pre-Employment Screening, Inc., a firm
specialized in retrieving background and pre-employment screening information.
Prior to forming Accufacts in 1994, Mr. Luizzo was Vice President of Marketing
at General Modernizing in New York.

                                       25
<PAGE>
    JOSEPH ALBANESE was appointed as a board member in August 1999. Mr Albanese
has been an attorney specializing in commercial and real estate law since 1969.
Prior to his law career, Mr. Albanese was a nuclear physicist at Sperry
Gyroscope Company.

BOARD OF DIRECTORS AND COMMITTEES

    Members of the Company's Board of Directors serve until the next annual
meeting of stockholders and the election and qualification of their successors.
The business of the Company's Board of Directors is conducted through full
meetings of the Board, as well as through meetings of its committees. The
Company has established an audit committee, a majority of the members of which
are independent directors. The Audit Committee will make recommendations to the
Board of Directors regarding the selection of the Company's independent
auditors, review the results and scope of the audit and other services provided
by the Company's independent auditors, and reviews and evaluates the Company's
audit and control functions.

ITEM 10. EXECUTIVE COMPENSATION

    The following table sets forth information concerning compensation of the
Chief Executive Officer and each other executive officer who received annual
compensation in excess of $100,000 for the fiscal year ended June 30, 1999:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                             LONG-TERM
                                                                                                           COMPENSATION
                                                                               ANNUAL COMPENSATION         -------------
                                                                        ---------------------------------     SHARES
                                                 FISCAL                                   ALL OTHER         UNDERLYING
NAME AND PRINCIPAL POSITION                      YEAR(1)      SALARY      BONUS        COMPENSATION(2)        OPTIONS
---------------------------------------------  -----------  ----------  ----------  ---------------------  -------------
<S>                                            <C>          <C>         <C>         <C>                    <C>
David Edwards ...............................        1999   $  200,000  $      -0-               --(2)             -0-
  Chief Executive Officer,                           1998      165,000         -0-               --(2)             -0-
  interim Chief Financial Officer                    1997      165,000         -0-               --(2)             -0-
  and Chairman

Dan Jensen ..................................        1999          -0-         -0-               --(2)             -0-
  Director(3)                                        1998      165,000         -0-               --(2)             -0-
                                                     1997      165,000         -0-               --(2)             -0-

Robert Cavitt ...............................        1999      193,507(4)        -0-              --(2)            -0-
  President                                          1998      153,620(4)        -0-              --(2)         39,113
                                                     1997      143,777(4)        -0-              --(2)        195,567

Steve McKeag ................................        1999      135,000     215,000               --(2)             -0-
  Former Chief Financial                             1998      135,000     100,000               --(2)             -0-
  Officer(5)

Greg Fink ...................................        1999      136,309(4)        -0-              --(2)            -0-
  Former Senior Vice                                 1998      142,453(4)        -0-              --(2)            -0-
  President of Sales(6)

Jim Thompson ................................        1999      150,000         -0-               --(2)             -0-
  Former Chief Technical                             1998      125,000         -0-               --(2)             -0-
  Officer(7)
</TABLE>

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

(1) Pursuant to applicable rules of the Securities and Exchange Commission,
    information with respect to compensation paid in fiscal 1998 is only
    provided for those executive officers with respect to which such
    compensation information was required to be provided in previous Company
    filings. However,

                                       26
<PAGE>
    except as disclosed in the Summary Compensation Table, no executive officer
    of the Company was paid more than $100,000 in salary and bonus in fiscal
    1999.

(2) Perquisites and other personal benefits did not in the aggregate reach the
    lesser of $50,000 or 10% of the total annual salary and bonus reported in
    this table for any named executive officer.

(3) Mr. Jensen served as the Company's Chairman of the Board during the fiscal
    year ended June 30, 1997 and served as an officer of the Company in such
    capacity. As described in "Management-- Employment and Consulting
    Agreements" below, Mr. Jensen resigned as the Company's Chairman of the
    Board in November 1997.

(4) Includes base salary and commission earned during the fiscal year in
    question.

(5) Mr. McKeag resigned as an officer of the Company in May 1999.

(6) Mr. Fink resigned as an officer of the Company in March 1999.

(7) Mr. Thompson resigned as an officer of the Company in August 1999.

OPTION GRANTS DURING FISCAL 1999

    The following table sets forth information on grants of stock options
pursuant to Jenkon International, Inc. Stock Option Plan during the fiscal year
ended June 30, 1999, to the officers identified in the Summary Compensation
Table who were granted options in fiscal 1999:

                       OPTION GRANTS IN FISCAL YEAR 1999

<TABLE>
<CAPTION>
                                                                                % OF TOTAL
                                                                                  OPTIONS
                                                                                GRANTED TO
                                                                    OPTIONS      EMPLOYEES     EXERCISE
NAME                                                                GRANTED     IN 1999(1)       PRICE     EXPIRATION DATE
----------------------------------------------------------------  -----------  -------------  -----------  ---------------
<S>                                                               <C>          <C>            <C>          <C>
Robert Cavitt...................................................      39,113(2)        27.0%   $   1.125     June 19, 2009
</TABLE>

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

(1) The number of shares of Company's Common Stock covered by the options
    granted to the named individuals during the last completed fiscal year of
    the Company equals the percentage set forth below of the total number of
    shares of the Company's common stock covered by all options granted by the
    Company to employees of the Company during such year.

(2) The amounts in the table represent shares of the Company's Common Stock
    covered by stock options granted to the named individual under the Jenkon
    International, Inc. Stock Option Plan. The listed options became exercisable
    as of the grant date of June 19, 1999.

                                       27
<PAGE>
OPTION EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES

    The following table sets forth information concerning stock options which
were exercised during, or held at the end of, fiscal 1999 by the officers named
in the Summary Compensation Table:

                   OPTION EXERCISES AND YEAR-END VALUE TABLE

<TABLE>
<CAPTION>
                                                                                                       VALUE OF UNEXERCISED
                                                                       NUMBER OF UNEXERCISED           IN-THE-MONEY OPTIONS
                                         SHARES                      OPTIONS AT FISCAL YEAR END       AT FISCAL YEAR END(1)
                                        ACQUIRED         VALUE     ------------------------------  ----------------------------
NAME                                   ON EXERCISE     REALIZED    EXERCISABLE    UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
-----------------------------------  ---------------  -----------  -----------  -----------------  -----------  ---------------
<S>                                  <C>              <C>          <C>          <C>                <C>          <C>
David Edwards......................           -0-      $     -0-          -0-             -0-       $     -0-      $     -0-
Dan Jensen.........................           -0-            -0-          -0-             -0-             -0-            -0-
Robert Cavitt......................           -0-            -0-      234,680             -0-          24,446            -0-
Steve McKeag.......................           -0-            -0-      156,454(2)           -0-        272,230            -0-
Jim Thompson.......................           -0-            -0-       97,783             -0-             -0-            -0-
</TABLE>

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

(1) Common Stock valued at $1.75 per share.

(2) Excludes warrants to purchase up to 16,590 shares of Common Stock at a price
    of $2.6845 granted to Mr. McKeag in connection with services rendered to The
    Boston Group, L.P. prior to his employment by the Company.

EMPLOYMENT AND CONSULTING AGREEMENTS

    In August 1998, the Company entered into four-year employment agreements
with each of Messrs. Edwards and Cavitt, which provide for annual base salaries
of $200,000 and $90,000, respectively, subject to annual 5% cost of living
increases. Mr. Cavitt's employment agreement provides for a performance bonus
based on the volume of sales generated by Mr. Cavitt. In addition, each of
Messrs. Edwards and Cavitt will be entitled to discretionary bonuses at the
election of the Board of Directors as well as other benefits and perquisites,
including a minimum of four weeks annual vacation, and health, group life and
disability insurance. In the event the Company terminates the employment of any
of these executive officers without "cause" as defined in their respective
employment agreements, the Company will be required to make a severance payment
equal to one year's base salary with respect to Mr. Edwards and $200,000 with
respect to Mr. Cavitt. Each of these employment agreements contains
non-competition covenants.

    In November 1997, Dan Jensen resigned as Chairman of the Board of the
Company but agreed to remain as a director of the Company. Effective July 1,
1998 Mr. Jensen and the Company entered into a Consulting and Non-Competition
Agreement pursuant to which Mr. Jensen agreed to provide certain consulting
services to the Company and agreed to certain three year covenants regarding
future competition with the Company in exchange for the following payments and
benefits: (i) $30,000 on signing, (ii) $50,000 within three business days
following completion of the Company's initial public offering, (iii) $75,000 on
or before July 31, 2001, (iv) $12,000 per month from August 1, 1998 through
January 31, 1999, (v) $8,000 per month from February 1, 1999 through January 31,
2000, (vi) $4,000 per month from February 1, 2000 through July 31, 2001, and
(vii) reimbursement and payment of certain automobile, insurance, phone, and
other expenses as well as an agreement by Jenkon to assume certain personal
guarantees of Mr. Jensen.

    With respect to any covenants not to compete contained in the agreements
described above, there can be no assurance that, if challenged, a state court
would elect to enforce such provisions in full, if at all.

                                       28
<PAGE>
COMPENSATION OF BOARD OF DIRECTORS

    Beginning September 1998, the Company began paying fees to its non-employee
directors for serving on the Board of Directors and for their attendance at
Board and committee meetings. The fee paid to each non-employee director is
$1,000 per board meeting attended, plus expenses of attending such meetings.

    In addition, the Company intends to grant each independent non-employee
director an option to purchase an aggregate of 15,000 shares of Common Stock
upon appointment of such director. The exercise price of any options granted to
independent non-employee directors shall be the fair market value of a share of
Common Stock on the date of grant. Each such option shall become exercisable as
to one-third of the shares on the third monthly anniversary of the grant date,
one-third on the first yearly anniversary of the grant date, and the remaining
one-third on the second yearly anniversary of the grant date. The options will
expire on the earlier of ten years from the date of grant or three months after
the optionee ceases to be a director of the Company.

    See "Employment and Consulting Agreement" above for a description of the
terms of the Consulting and Non-Competition Agreement between the Company and
Dan Jensen, a director and former officer of the Company.

STOCK OPTION PLAN

    In October 1996 the Company adopted the Jenkon International, Inc. Stock
Option Plan (the "Plan"). The Plan empowers the Company to award or grant to
officers, directors, outside consultants and employees of the Company and its
subsidiaries, Incentive and Non-Qualified Stock Options ("Options") authorized
by the Board of Directors or a committee of the Board of Directors (the
"Committee") formed for purposes of administering the Plan.

    ADMINISTRATION.  The Plan will be administered by the Board of Directors or,
in the discretion of the Board of Directors, the Committee (either one being
referred to herein as the "Administrator"). The Plan provides that any Committee
must consist of at least two directors of the Company who are "outside
directors" as defined in Treasury Regs. Section 1.162-27(e)(3) and "non-employee
directors" as defined in Rule 16b-3(b)(3)(i) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Committee has the
sole authority to construe and interpret the Plan, to make rules and procedures
relating to the implementation of the Plan, to select participants, to establish
the terms and conditions of Options and to grant Options, with broad authority
to delegate its responsibilities to others, except with respect to the selection
for participation of, and the granting of Options to, persons subject to
Sections 16(a) and 16(b) of the Exchange Act.

    ELIGIBILITY CONDITIONS.  All employees (including officers) and directors of
the Company and its subsidiaries and outside consultants selected by the
Administrator will be eligible to receive Options under the Plan. Outside
consultants and non-employee directors are only eligible to receive
Non-Qualified Stock Options under the Plan. The selection of recipients of, and
the nature and size of, Options granted under the Plan will be solely within the
discretion of the Administrator. Except with respect to the exercisability of
Incentive Stock Options and as provided in the following paragraph, there is no
limit on the number of shares of Common Stock or type of option in respect of
which Options may be granted to or exercised by any person.

    SHARES SUBJECT TO PLAN.  The maximum number of shares of Common Stock in
respect of which Options may be granted under the Plan (the "Plan Maximum") is
1,000,000. However, options for no more than 250,000 shares may be issued to any
optionee in any calendar year. For the purpose of computing the total number of
shares of Common Stock available for Options under the Plan, the above
limitations shall be reduced by the number of shares of Common Stock subject to
issuance upon exercise or settlement of Options previously granted, determined
at the date of grant of such Options. However, if any Options previously granted
are forfeited, terminated, settled in cash or exchanged for other Options or
expire

                                       29
<PAGE>
unexercised, the shares of Common Stock previously subject to such Options shall
again be available for further grants under the Plan. The shares of Common Stock
which may be issued to participants in the Plan upon exercise of an Option may
be either authorized and unissued Common Stock or issued Common Stock reacquired
by the Company. No fractional shares may be issued under the Plan.

    The maximum number of shares of Common Stock issuable upon the exercise of
Options granted under the Plan is subject to appropriate equitable adjustment in
the event of reorganization, stock split, stock dividend, combination of shares,
merger, consolidation or other recapitalization of the Company.

    TRANSFERABILITY.  No Option granted under the Plan, and no right or interest
therein shall be assignable or transferable by a participant except by will or
the laws of descent and distribution.

    TERM, AMENDMENT AND TERMINATION.  The Plan will terminate on October 6,
2006, except with respect to Options then outstanding. The Board of Directors of
the Company may amend or terminate the Plan at any time, except that the Board
of Directors may not, without approval of the stockholders of the Company, make
any amendments that would (1) increase the total number of shares available for
issuance (except as permitted by the Plan to reflect changes in capital
structure), (2) materially change the eligibility requirements, or (3)
materially increase the benefits accruing to participants under the Plan.

    INCENTIVE STOCK OPTIONS.  Options designated as Incentive Stock Options,
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), in an amount up to the Plan Maximum may be granted under
the Plan. The number of shares of Common Stock in respect of which Incentive
Stock Options are first exercisable by any participant in the Plan during any
calendar year shall not have a fair market value (determined at the date of
grant) in excess of $100,000 (or such other limit as may be imposed by the
Code). To the extent the fair market value of the shares for which options are
designated as Incentive Stock Options that are first exercisable by any optionee
during any calendar year exceed $100,000, the excess amount shall be treated as
Non-Qualified Stock Options. Incentive Stock Options shall be exercisable for
such period or periods, not in excess of ten years after the date of grant, as
shall be determined by the Administrator.

    NON-QUALIFIED STOCK OPTIONS.  Non-Qualified Stock Options may be granted for
such number of shares of Common Stock and will be exercisable for such period or
periods as the Administrator shall determine.

    OPTIONS EXERCISE PRICES.  The exercise price of any Option granted under the
Plan shall be at least 85% of the fair market value of the Common Stock on the
date of grant. The exercise price of any Incentive Stock Options shall be at
least 100% of the fair market value on the date of grant, except that the
exercise price of any Incentive Stock Option granted to any participant in the
Plan who owns in excess of 10% of the outstanding voting stock of the Company
shall be 110% of the fair market value of the Common Stock on the date of grant.
Fair market value per share of Common Stock shall be determined as the closing
price per share on the last trading day if the Common Stock is listed on an
established stock exchange or the Nasdaq National market, or as the average of
the closing bid and asked prices per share if the Common Stock is quoted by the
Nasdaq SmallCap Market, the Nasdaq Electronic Bulletin Board or the National
Quotation Bureau pink sheets, or as the amount determined in good faith by the
Administrator if the Common Stock is neither listed for trading on an exchange
or quoted by the Nasdaq National Market, Nasdaq Small Cap Market, Nasdaq
Electronic Bulletin Board or National Quotation Bureau pink sheets.

    EXERCISE OF OPTIONS.  Each Option shall become exercisable according to the
terms specified in the option agreement governing such Option. Except as
provided below, no Option may be exercised unless the holder thereof remains in
the continuous employ or service of the Company. No Option shall be exercisable
after the earlier of ten years from the date of grant or three months after
employment or service as a director or consultant of the Company or its
subsidiary terminates (one year if such

                                       30
<PAGE>
termination is due to the participant's death or disability). Options shall be
exercisable upon the payment in full of the applicable option exercise price in
cash or, if approved by the Administrator, by instruction to a broker directing
the broker to sell the Common stock for which such Option is exercised and remit
to the Company the aggregate exercise price of the Option or, in the discretion
of the Administrator, upon such terms as the Administrator shall approve, in
shares of the Common Stock then owned or purchasable by the optionee (at the
fair market value thereof at exercise date). The Administrator also has
discretion to extend or arrange for the extension of credit to the optionee to
finance the purchase of shares on exercise.

    GRANT OF OPTION.  As of June 30, 1999, the Company had options outstanding
to purchase a total of 633,923 shares of Common Stock to certain employees of
the Company, including executive officers of the Company, at an exercise price
equal to the fair market value per share of the Company's Common Stock at the
time of grant.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    If the acquisition of MMKid is consummated, the Company will issue to MMKid
stockholders 840,000 common shares of Jenkon and 2,416,000 shares of redeemable
preferred stock which will be convertible into an aggregate of 24,160,000 common
shares of Jenkon, in exchange for 100% of the outstanding securities of
Multimedia. The acquisition is contingent upon the signing of a definitive
acquisition agreement and other customary terms and conditions. Assuming all
shares of Redeemable Preferred Stock are converted into Common Stock, former
stockholders of MMKid would hold over 75% of Jenkon's fully-diluted Common
Stock, assuming the sale and subsequent conversion into Common Stock of
$4,000,000 in Notes issued in a private placement subsequent to June 30, 1999.

    The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 1, 1999, for (i) each of
the Company's directors, (ii) by each of the executive officers identified in
the Summary Compensation Table, (iii) all executive officers and directors of
the Company as a group and (iv) each person who beneficially owns 5% or more of
the outstanding shares of Common Stock. The Company believes that the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.

<TABLE>
<CAPTION>
                                                                          SHARES BENEFICIALLY
                                                                               OWNED(1)
                                                                        -----------------------
<S>                                                                     <C>             <C>
                                                                         NUMBER OF      PERCENT
NAME                                                                     SHARES(1)      OWNED(3)
----------------------------------------------------------------------  -----------     -------
David Edwards(2)......................................................      815,796      18.29%
Dan Jensen(2).........................................................      778,496      17.46
Robert Cavitt.........................................................      234,680(4)    5.26
Steve McKeag..........................................................      223,044(5)    5.00
Jim Thompson..........................................................       97,783(6)    2.19
All directors and executive officers as a group (5 persons)...........    2,149,799(7)   48.20
</TABLE>

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

(1) Shares of Common Stock which the person has the right to acquire within 60
    days of October 1, 1999 are deemed outstanding in calculating the percentage
    of ownership of the persons, but not deemed outstanding as to any other
    person.

(2) The business address of each of Mr. Edwards and Mr. Jensen is c/o the
    Company at 7600 N.E. 41st Street, Suite 350, Vancouver, Washington 98662.

(3) Percentages based on 4,459,970 shares of Common Stock outstanding as of
    October 1, 1999.

(4) Consists of shares issuable upon currently exercisable options to purchase
    an aggregate of 234,680 shares of Common Stock.

                                       31
<PAGE>
(5) Consists of (i) 156,454 shares of Common Stock issued subsequent to June 30,
    1999, upon exercise of an option to purchase up to 156,454 shares, (ii)
    16,590 shares of Common Stock that are issuable upon exercise of an
    outstanding warrant, and (iii) 50,000 shares of Common Stock issued
    subsequent to June 30, 1999 upon exercise of an option to purchase 50,000
    shares.

(6) Consists of shares issuable upon currently exercisable options to purchase
    an aggregate of 97,783 shares of Common Stock.

(7) Includes currently exercisable options and warrants to acquire an aggregate
    of 349,053 shares of Common Stock.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PRIVATE PLACEMENTS

    In June 1998, the Company completed a private placement (the "1998 Private
Placement") of $1,000,000 of unsecured promissory notes (the "1998 Notes") and
warrants (the "1998 Warrants") to purchase an aggregate of 117,321 shares at an
exercise price of $.6392 per share. Meridian Capital Group, Inc. and Trautman
Kramer & Company Incorporated acted as placement agents with respect to the 1998
Private Placement and, as a result, received (i) commissions equal to 10% of the
gross proceeds sold by them, plus (ii) a non-accountable expense allowance equal
to 2% of the gross proceeds sold by them. The 1998 Notes had an interest rate of
7% per annum and were repaid in full upon completion of the Company's initial
public offering in August 1998.

    The 1998 Warrants are not exercisable until one year from the date of grant
and have a term of five years from the date of grant. Such warrants have a
provision for cashless exercise pursuant to which the holder will receive upon
exercise the number of shares of Common Stock otherwise issuable upon such
exercise, less the number of shares of Common Stock having an aggregate current
market price on the date of exercise equal to the exercise price per share
multiplied by the number of shares of Common Stock for which such warrants are
being exercised.

OTHER TRANSACTIONS

    See "Management--Employment and Consulting Agreements" for a discussion of
the terms of a Consulting and Non-Competition Agreement between the Company and
Dan Jensen, a director and former officer of the Company.

    In August 1999, the Company signed a letter of intent to acquire Multimedia
K.I.D. LTD., an Israeli-based interactive educational company that designs,
manufactures and sells innovative software and activity systems for children and
adults. The terms of the proposed transaction include the issuance of 840,000
common shares of Jenkon and 2,416,000 shares of redeemable preferred stock which
will be convertible into an aggregate of 24,160,000 common shares of Jenkon, in
exchange for 100% of the outstanding securities of Multimedia. The acquisition
is contingent upon the signing of a definitive acquisition agreement and other
customary terms and conditions as well as the completion of a $4,000,000 private
placement of convertible promissory notes. The notes will accrue interest at 12%
per annum. Upon shareholder approval on or before February 28, 2000, the notes
will be convertible into common shares of the Company at a conversion price of
$1.25 per share.

    At June 30, 1999 and 1998, the Company had a receivable due from an officer
of approximately $117,000 and $37,000, respectively.

    In August 1998, the Company purchased software products for $50,000 from
Jenetek, a company owned by a director of the Company.

                                       32
<PAGE>
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

    (a) Exhibits

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
       3.1   Articles of Incorporation of the Company, as amended*

       3.2   Bylaws of the Company, as amended*

       4.1   Form of Representatives' Warrant Agreement, including form of Representatives' Warrant.*

       4.2   Dealer Manager's Warrant Agreement, dated as of July 1, 1996 between the Company and The Boston Group,
               L.P.*

       4.3   Form of Warrant to purchase Common Stock issued in connection with the 1998 Private Placement*

       4.4   Subscription Supplement and Registration Rights Agreement with respect to 1996 private placement*

      10.1   Form of Employment Agreement of David Edwards*

      10.2   Form of Employment Agreement of Robert Cavitt*

      10.3   Consulting and Non-Competition Agreement of Dan Jensen*

      10.4   Form of Indemnification Agreement with Officers and Directors*

      10.5   Jenkon International, Inc. Stock Option Plan*

      10.6   Lease Agreement--Corporate Headquarters, Vancouver, Washington*

      10.7   Form of Software Service Agreement*

      10.8   Value Added Reseller Agreement, dated January 17, 1997, between the Company and Unidata, Inc.*

      10.9   Sublease Agreement, dated April 1, 1998, between the Company and S&P Company*

      11     Statement re: Computation of Earnings Per Common Share

      22     List of Subsidiaries*

      27     Financial Data Schedule
</TABLE>

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

*   Incorporated by reference to the referenced document filed as an exhibit to
    the Company's Registration Statement on Form SB-2, Commission File No.
    333-56023, filed on June 4, 1998, and amended on July 15, 1998 and August 3,
    1998).

    (b) Reports on Form 8-K.

       None

                                       33
<PAGE>
                                   SIGNATURES

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

Date: October 1, 1999

<TABLE>
<S>                             <C>  <C>
                                JENKON INTERNATIONAL, INC.

                                By:              /s/ DAVID EDWARDS
                                     -----------------------------------------
                                                   David Edwards
                                       CHIEF EXECUTIVE OFFICER, INTERIM CHIEF
                                      FINANCIAL OFFICER, CHAIRMAN AND DIRECTOR
</TABLE>

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

<TABLE>
<CAPTION>
             NAME                        CAPACITY                  DATE
------------------------------  --------------------------  -------------------

<C>                             <S>                         <C>
                                Chief Executive Officer,
      /s/ DAVID EDWARDS           Interim
------------------------------    Chief Financial Officer,  September 15, 1999
        David Edwards             Chairman and Director

        /s/ DAN JENSEN
------------------------------  Director                    September 15, 1999
          Dan Jensen

      /s/ ROBERT CAVITT
------------------------------  President                   September 15, 1999
        Robert Cavitt

     /s/ CLIFFORD DEGROOT
------------------------------  Controller (Principal       September 15, 1999
       Clifford DeGroot           Accounting Officer)
</TABLE>

                                       34
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

                                    CONTENTS

<TABLE>
<S>                                                                                    <C>
Report of Independent Certified Public Accountants...................................        F-2

Consolidated Balance Sheets as of June 30, 1999 and 1998.............................        F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years
  ended June 30, 1999 and 1998.......................................................        F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended June
  30, 1999 and 1998..................................................................        F-5

Consolidated Statements of Cash Flows for the years ended June 30, 1999 and 1998.....        F-6

Notes to Consolidated Financial Statements...........................................        F-7
</TABLE>

                                      F-1
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Jenkon International Inc. and Subsidiaries
Vancouver, Washington

    We have audited the accompanying consolidated balance sheets of Jenkon
International, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders' equity (deficit), and cash flows for the years 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 audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Jenkon International, Inc. and Subsidiaries as of June 30, 1999 and 1998, and
the results of their consolidated operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.

    The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1(c) to the financial statements, the Company has a history of losses and
negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1(c). The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

    As discussed in Note 1 to the consolidated financial statements, in 1999 the
Company adopted Statement of Position 97-2, "Software Revenue Recognition".

                                          BDO Seidman, LLP

Los Angeles, CA
August 26, 1999, except for Note 13, as to
  which the date is September 10, 1999

                                      F-2
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             JUNE 30,
                                                                       --------------------
                                                                         1999       1998
                                                                       ---------  ---------
<S>                                                                    <C>        <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents (Note 1).................................  $ 703,043  $ 200,557
  Restricted cash (Notes 1 and 3)....................................         --    200,000
  Trade receivables, net of allowance for doubtful accounts of
    $355,800 and $146,500 (Note 1)...................................  1,042,333  1,078,268
  Prepaid and other assets (Note 6)..................................    176,276     88,998
  Refundable income taxes............................................      6,010     24,308
                                                                       ---------  ---------
Total current assets.................................................  1,927,662  1,592,131
PROPERTY AND EQUIPMENT, net (Notes 2 and 3)..........................  1,106,731  1,088,926
CAPITALIZED SOFTWARE COSTS, net of accumulated amortization of
  $555,523 and $442,278..............................................    132,215    226,486
PREPAID FUNDING AND OFFERING COSTS (Note 5)..........................         --    374,364
OTHER ASSETS.........................................................    241,980    160,537
                                                                       ---------  ---------
Total assets.........................................................  $3,408,588 $3,442,444
                                                                       ---------  ---------
                                                                       ---------  ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
  Accounts payable...................................................  $ 424,288  $ 563,924
  Accrued vacation...................................................    166,935    152,077
  Deferred revenue...................................................    708,485    425,684
  Other accrued liabilities..........................................    152,125    543,016
  Bridge loans (Note 5)..............................................         --    591,964
  Notes payable--current portion (Note 3)............................    100,110    410,213
                                                                       ---------  ---------
Total current liabilities............................................  1,551,943  2,686,878
NOTES PAYABLE, net of current portion (Note 3).......................      6,419    106,529
                                                                       ---------  ---------
Total liabilities....................................................  1,558,362  2,793,407
                                                                       ---------  ---------
COMMITMENTS AND CONTINGENCIES (Notes 3, 6, 7, 8, and 13)
SERIES A, REDEEMABLE CONVERTIBLE PREFERRED STOCK (Note 5)
  $0.001 par value; 5,000,000 shares authorized; Series A, 1,500,000
  shares issued and outstanding as of June 30, 1998..................         --  2,310,174
STOCKHOLDERS' EQUITY (DEFICIT) (Note 5)
  Common stock, par value $0.001; 20,000,000 shares authorized;
    4,409,970 and 1,955,674 shares issued, 4,253,515 and 1,799,220
    shares outstanding...............................................      4,410      1,956
  Additional paid-in capital.........................................  7,389,263    601,483
  Stock subscriptions receivable (Note 6)............................     (8,500)    (8,500)
  Foreign currency translation adjustment............................       (254)   (28,190)
  Accumulated deficit................................................  (5,194,693) (1,887,886)
  Treasury stock, at cost, 156,454 shares............................   (340,000)  (340,000)
                                                                       ---------  ---------
Total stockholders' equity (deficit).................................  1,850,226  (1,661,137)
                                                                       ---------  ---------
Total liabilities and stockholders' equity (deficit).................  $3,408,588 $3,442,444
                                                                       ---------  ---------
                                                                       ---------  ---------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                        AND COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JUNE 30,
                                                                      ---------------------
                                                                         1999       1998
                                                                      ----------  ---------
<S>                                                                   <C>         <C>
NET SALES (Notes 1 and 9)
  Software license fees.............................................  $2,256,962  $3,649,060
  Equipment, software and supplies sales............................   1,081,230    836,156
  Support and operations revenue....................................   3,161,853  4,952,201
                                                                      ----------  ---------
Total net sales.....................................................   6,500,045  9,437,417
                                                                      ----------  ---------
COST OF REVENUES
  Cost of software license fees.....................................     165,326    185,413
  Cost of equipment, software and supplies sold (Note 10)...........     557,975    495,091
  Cost of support and operations....................................   2,776,790  2,538,076
                                                                      ----------  ---------
Total cost of revenues..............................................   3,500,091  3,218,580
                                                                      ----------  ---------
GROSS PROFIT........................................................   2,999,954  6,218,837

OPERATING EXPENSES
  Selling and marketing.............................................   1,326,523    924,654
  Product research, development and enhancements....................     938,575    772,962
  General and administration........................................   3,497,337  3,863,974
                                                                      ----------  ---------
Total operating expenses............................................   5,762,435  5,561,590
                                                                      ----------  ---------
INCOME (LOSS) FROM OPERATIONS.......................................  (2,762,481)   657,247

OTHER INCOME (EXPENSE)
  Interest expense..................................................    (559,468)  (199,925)
  Interest income...................................................      49,303     22,102
  Other income (expense)............................................     (34,161)     3,950
                                                                      ----------  ---------
INCOME (LOSS) BEFORE INCOME TAX.....................................  (3,306,807)   483,374

PROVISION FOR INCOME TAX (Note 4)...................................          --      4,900
                                                                      ----------  ---------
NET INCOME (LOSS)...................................................  $(3,306,807) $ 478,474
                                                                      ----------  ---------
                                                                      ----------  ---------
NET INCOME (LOSS) PER SHARE (Note 11)
  Basic.............................................................  $     (.83) $    0.27
  Diluted...........................................................  $     (.83) $    0.14
                                                                      ----------  ---------
                                                                      ----------  ---------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Note 11)
  Basic.............................................................   3,992,632  1,799,220
  Diluted...........................................................   3,992,632  3,392,549
                                                                      ----------  ---------
                                                                      ----------  ---------
COMPREHENSIVE INCOME (LOSS) AND ITS COMPONENTS CONSIST OF THE
  FOLLOWING:
NET INCOME (LOSS)...................................................  $(3,306,807) $ 478,474
FOREIGN CURRENCY TRANSLATION ADJUSTMENT.............................      27,936        (98)
                                                                      ----------  ---------
COMPREHENSIVE INCOME (LOSS).........................................  $(3,278,871) $ 478,376
                                                                      ----------  ---------
                                                                      ----------  ---------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                       YEARS ENDED JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                          FOREIGN
                            COMMON STOCK     ADDITIONAL      STOCK        CURRENCY                   TREASURY STOCK
                          -----------------   PAID-IN    SUBSCRIPTIONS   TRANSLATION  ACCUMULATED  ------------------
                           SHARES    AMOUNT   CAPITAL     RECEIVABLE     ADJUSTMENT     DEFICIT    SHARES    AMOUNT       TOTAL
                          ---------  ------  ----------  -------------   ----------   -----------  -------  ---------  -----------
<S>                       <C>        <C>     <C>         <C>             <C>          <C>          <C>      <C>        <C>
BALANCE, JULY 1, 1997...  1,955,674  $1,956  $ 161,683      $(8,500)      $(28,092)   $(2,366,360) 156,454  $(340,000) $(2,579,313)

Issuance of warrants
  associated with a
  private placement
  (Note 5)..............         --     --     439,800           --             --            --        --         --      439,800
Increase in foreign
  currency translation
  adjustment............         --     --          --           --            (98)           --        --         --          (98)
Net income..............         --     --          --           --             --       478,474        --         --      478,474
                          ---------  ------  ----------  -------------   ----------   -----------  -------  ---------  -----------
BALANCE, JUNE 30,
  1998..................  1,955,674  1,956     601,483       (8,500)       (28,190)   (1,887,886 ) 156,454   (340,000)  (1,661,137)

Initial public offering,
  net of offering
  expenses (Note 5).....  1,210,000  1,210   4,478,850           --             --            --        --         --    4,480,060
Conversion of redeemable
  convertible preferred
  stock to common stock
  (Note 5)..............  1,244,296  1,244   2,308,930           --             --            --        --         --    2,310,174
Decrease in foreign
  currency translation
  adjustment............         --     --          --           --         27,936            --        --         --       27,936
Net loss................         --     --          --           --             --    (3,306,807 )      --         --   (3,306,807)
                          ---------  ------  ----------  -------------   ----------   -----------  -------  ---------  -----------
BALANCE, JUNE 30,
  1999..................  4,409,970  $4,410  $7,389,263     $(8,500)      $   (254)   $(5,194,693) 156,454  $(340,000) $ 1,850,226
                          ---------  ------  ----------  -------------   ----------   -----------  -------  ---------  -----------
                          ---------  ------  ----------  -------------   ----------   -----------  -------  ---------  -----------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (NOTE 1)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JUNE 30,
                                                                      ---------------------
                                                                         1999       1998
                                                                      ----------  ---------
<S>                                                                   <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss).................................................  $(3,306,807) $ 478,474
  Adjustments to reconcile net income (loss) to net cash used in
    operating activities:
    Depreciation and amortization...................................     458,749    368,509
    Amortization of original issue discount.........................     408,036     31,763
    Provision for doubtful accounts.................................     393,904    165,473
    Foreign currency translation adjustment.........................      27,936      4,216
    Loss on disposal of fixed assets................................       6,467         --
    Increase (decrease) from changes in operating assets and
      liabilities:
      Trade receivables.............................................    (357,969)  (496,232)
      Prepaid and other assets......................................     (87,278)    (5,477)
      Refundable income taxes.......................................      18,298    131,345
      Other assets..................................................     (81,443)   (97,381)
      Accounts payable..............................................    (139,636)  (128,375)
      Accrued vacation..............................................      14,858     35,905
      Deferred revenue..............................................     282,801   (495,241)
      Other accrued liabilities.....................................    (390,891)   (55,002)
                                                                      ----------  ---------
Net cash used in operating activities...............................  (2,752,975)   (62,023)
                                                                      ----------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment................................    (385,929)  (331,438)
  Proceeds from sale of property and equipment......................      16,152         --
  Additions to capitalized software costs...........................     (18,973)        --
                                                                      ----------  ---------
Net cash used in investing activities...............................    (388,750)  (331,438)
                                                                      ----------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Restricted cash...................................................     200,000    100,000
  Gross proceeds from initial public offering.......................   6,050,000         --
  Registration and financing costs..................................    (736,500)        --
  Additions to prepaid funding and offering costs...................    (459,076)  (374,364)
  Repayment of Bridge Loans.........................................  (1,000,000)        --
  Payments on notes payable.........................................    (410,213)  (264,354)
  Proceeds from private placements..................................          --  1,000,000
                                                                      ----------  ---------
Net cash provided by financing activities...........................   3,644,211    461,282
                                                                      ----------  ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS...........................     502,486     67,821
CASH AND CASH EQUIVALENTS, beginning of year........................     200,557    132,736
                                                                      ----------  ---------
CASH AND CASH EQUIVALENTS, end of year..............................  $  703,043  $ 200,557
                                                                      ----------  ---------
                                                                      ----------  ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:
    Interest........................................................  $   25,513  $ 159,495
    Income taxes....................................................  $    6,010  $   4,859
                                                                      ----------  ---------
                                                                      ----------  ---------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT'S PLANS

(A) COMPANY ORGANIZATION AND NATURE OF BUSINESS

    Jenkon International, Inc. (a Delaware corporation) (Parent), through its
wholly-owned subsidiaries, Jenkon International, Inc. (a Washington
Corporation), Summit V, Inc. (the United States operating entity) and Jenkon
International Limited (the United Kingdom operating entity), supplies software
solutions to the Direct/Network Marketing industry. Jenkon International, Inc.
and Subsidiaries (the "Company") has developed and markets a management
information system software package called Summit V, as well as a compatible
fully integrated software based voice response system called Touchtalk, that
offers independent direct sales personnel the ability to access an information
base of the company they represent via touch-tone telephone. The Company's
product line also includes a PC-based software package called NOW! which allows
direct two-way communication between Distributors and the companies that they
represent via the Internet, and JOL (Jenkon-On-Line), an outsourcing solution
that allows companies to manage their direct sales network without significant
staffing and overhead expenses.

(B) SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of the Parent and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

CASH AND CASH EQUIVALENTS

    All liquid assets with an initial maturity of three months or less are
considered to be cash equivalents for purposes of the statements of cash flows.

    At June 30, 1998, the Company had restricted cash held as collateral for
certain capital leases of $200,000.

CONCENTRATION OF CREDIT RISK

    The Company places its cash and temporary cash investments with high credit
worthy institutions. At June 30, 1998, the Company had $200,000 held as a
certificate of deposit at a bank, which served as collateral for certain capital
leases. At June 30, 1999 and 1998, the Company had $830,823 and $415,315 at the
same bank. These balances are insured by the FDIC up to $100,000 per company.

    The Company sells its products and services primarily to customers in the
Direct/Network Marketing Industry throughout the world. Credit is extended based
on an evaluation of the customer's financial condition and collateral is
generally not required.

    At June 30, 1999 and 1998, the Company had two and three customers,
respectively, which represented approximately 37.5% and 40.4% of accounts
receivable (see also Note 9).

PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the related asset, which ranges from 3 to 7 years.

                                      F-7
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. COMPANY ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT'S PLANS
(CONTINUED)
    Amortization of leasehold improvements is computed using the straight-line
method over the lesser of the estimated life of the asset or the remaining term
of the lease.

IMPAIRMENT OF LONG-LIVED ASSETS

    Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,"
established guidelines regarding when impairment losses on long-lived assets,
which include plant and equipment and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The Company
periodically reviews such assets for possible impairments and expected losses,
if any, are recorded currently.

CAPITALIZED SOFTWARE COSTS

    Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred (and
recorded as "Product research, development and enhancements expense" in the
consolidated statements of operations) until technological feasibility has been
established. Technological feasibility is established upon completion of a
detailed program design or working model. Thereafter, all software production
costs are capitalized and reported at the lower of unamortized cost or net
realizable value until the product is available for general release to
customers. Capitalized software costs are amortized based on current and future
expected revenue for each product subject to an annual minimum based on
straight-line amortization over the remaining estimated life of the product, not
to exceed 5 years. The Company evaluates the recoverability of all capitalized
software costs on a quarterly basis by comparing the net realizable value,
determined pursuant to management's estimates of future product cash flows, with
the unamortized capitalized software cost balance.

    For the years ended June 30, 1999 and 1998, amortization of capitalized
software development costs amounted to approximately $113,000 for each period
and is included in "Cost of software license fees" in the consolidated
statements of operations.

FOREIGN CURRENCY TRANSLATION

    Assets and liabilities of Jenkon International Limited, where the functional
currency is the British pound, are translated at the current exchange rate at
the balance sheet date. Income and expenses are translated at the average
exchange rate in effect during the year or period. Resulting translation
adjustments are accumulated as a separate component of stockholders' equity
(deficit).

    Realized gains and losses related to other foreign currency transactions are
reported as income or expense in the current year. Such gains or losses were not
material for the years ended June 30, 1999 and 1998.

REVENUE RECOGNITION

    The Company adopted Statement of Position 97-2, "Software Revenue
Recognition", ("SOP 97-2") effective July 1, 1998. In accordance with SOP 97-2,
the Company recognizes revenue on sales of internally-developed software and
turnkey systems when the following criteria are met; (i) persuasive evidence of
an arrangement exists, (ii) delivery has occurred and the system is
functionable, (iii) the fee is fixed or determinable and (iv) collectibility is
probable. Also in accordance with SOP 97-2, the Company allocates the fee of a
multiple element contract to the various elements based on vendor-specific
objective

                                      F-8
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. COMPANY ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT'S PLANS
(CONTINUED)
evidence of fair value. Revenue allocated to a specific element is recognized
when the basic revenue recognition criteria above are met for that element. If
sufficient vendor-specific objective evidence for all elements does not exist to
allocate revenue to the elements, all revenue from the arrangement generally
would be deferred until such evidence does exist or until all elements have been
delivered. Revenues related to installation of systems requiring substantial
future performance by the Company are recognized using the
percentage-of-completion method based on meeting key milestone events over the
terms of the contract. Customization and training revenue is recognized as
revenue as the services are performed. Future sales of the Company's existing
products may be contingent upon delivery of the future software products. This
would defer a portion or all of the revenue, until the Company has delivered all
elements of the sales contract. The adoption of SOP 97-2 during the year
resulted in deferred revenue of $231,430 at June 30, 1999.

SUPPORT AND OPERATIONS REVENUE

    Support and operations revenue includes software and hardware maintenance
contracts and service revenues.

    Maintenance contracts for hardware outside of the original manufacturer's
warranty are written between the customer and the Company and are priced at
market rates. The Company then sub-contracts with a third-party vendor
specializing in on-site hardware maintenance for the same coverage as the
Company has contracted with its customers. Revenues and the corresponding
third-party contract expenses are recognized ratably over the contractual period
(usually one year). Revenues resulting from Company personnel providing
installation, training, custom modification programming, and network consulting
services are recorded as "Service revenue" and are recognized as the services
are provided. These services are not essential to the functionality of any other
element of the transaction.

DISCOUNTS, RETURNS AND EXCHANGES

    Discounts are determined at the time the contract is signed. Any cost
associated with returns and exchanges are insignificant and are recorded as
incurred. The Company provides no warranties which are not supported by
third-party contracts or software support contracts. Discounts are applied
against the appropriate revenue account.

DEFERRED REVENUE

    Deferred revenue is recorded when either (i) a portion or the entire
contract amount cannot be recognized as revenue due to lack of sufficient
vendor-specific objective evidence of fair value, (ii) a sale of the Company's
products is contingent upon delivery of future software products, or (iii)
customer deposits are received in advance for software license fees, equipment
or services. Such amounts are included in the consolidated balance sheets under
the caption "Deferred revenue," and are recognized as revenue in accordance with
the Company's revenue recognition policies.

FEDERAL INCOME TAXES

    Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the temporary differences are expected to reverse. A valuation allowance is
recognized, when it is more likely than not that some portion or all of the
deferred tax asset will not be

                                      F-9
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. COMPANY ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT'S PLANS
(CONTINUED)
realized. State income taxes are not significant as the Company operates
primarily in the State of Washington, where corporate income tax is not
assessed.

ACCOUNTING ESTIMATES

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

EMPLOYEE STOCK COMPENSATION

    The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), as of January 1, 1996,
which establishes a fair value method of accounting for stock-based compensation
plans and for transactions in which a company acquires goods or services from
non-employees in exchange for equity instruments. In accordance with SFAS No.
123, the Company has chosen to continue to account for stock-based employee
compensation utilizing the intrinsic value method prescribed in APB 25.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the fair market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.

    Also, in accordance with SFAS No. 123, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of
stock-based employee compensation is measured at the grant date on the value of
the award and is recognized over the service period. The value of the stock-
based award is determined using a pricing model where compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.

EARNINGS (LOSS) PER SHARE

    The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," (SFAS No. 128) during 1998. SFAS No. 128 requires
presentation of basic and diluted earnings per share. Basic earnings (loss) per
share is computed by dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding for the reporting
period. Diluted earnings per share is computed based on the same shares plus the
potential shares issuable upon assumed exercise of outstanding stock options or
other security contracts. During the year ended June 30, 1999, these dilutive
securities were not included in the loss per share, as inclusion would reduce
the loss per share.

NEW ACCOUNTING PRONOUNCEMENTS

COMPREHENSIVE INCOME

    During the year ended June 30, 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS
No. 130) issued by the FASB, which is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company has chosen to
report comprehensive income in the

                                      F-10
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. COMPANY ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT'S PLANS
(CONTINUED)
consolidated statements of operations. Comprehensive income is comprised of net
income and all changes to stockholders' equity (deficit) except those due to
investments by owners and distributions to owners.

SEGMENT INFORMATION

    Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
This Statement requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company adopted SFAS No. 131
during the year ended June 30, 1999 and it had no impact on the Company's
financial position or results of operations and cash flows.

PENSIONS AND POSTRETIREMENT BENEFITS

    Statement of Financial Accounting Standards No. 132 (SFAS No. 132),
"Employers' Disclosures about Pensions and Other Postretirement Benefits,"
issued by the Financial Accounting Standards Board is effective for financial
statements with fiscal years beginning after December 15, 1997. This Statement
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
Adoption of SFAS No. 132 did not have an impact on its financial position or
results of operations and cash flows.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

    Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivative Instruments and Hedging Activities," issued by the
Financial Accounting Standards Board is effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 requires companies to recognize all derivative
contracts as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. The Company does not expect adoption of SFAS No. 133 to have an effect
on its financial position, or results of operations and any effect will be
limited to the form and content of its disclosures.

(C) GOING CONCERN UNCERTAINTY AND MANAGEMENT'S PLANS

    The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. However, there is substantial doubt about the Company's
ability to continue as a going concern because of the magnitude of its losses
during the year ended June 30, 1999 and due to negative cash flows from the
Company's operations. The Company's continued existence is

                                      F-11
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. COMPANY ORGANIZATION, SIGNIFICANT ACCOUNTING POLICIES AND MANAGEMENT'S PLANS
(CONTINUED)

dependent upon its ability to raise substantial capital, to increase sales, to
significantly improve operations, and ultimately become profitable.

    The Company believes that future investments and certain sales-related
efforts will provide sufficient cash flow for it to continue as a going concern
in its present form (see Note 13). However, there can be no assurance that the
Company will achieve such results. Accordingly, the consolidated financial
statements do not include any adjustments related to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities or any other adjustments that might be necessary should the Company
be unable to continue as a going concern.

2. PROPERTY AND EQUIPMENT

    Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                             JUNE 30,
                                                       --------------------
                                                         1999       1998
                                                       ---------  ---------
<S>                                                    <C>        <C>
Furniture and fixtures...............................  $ 137,532  $ 133,046
Computer systems and related equipment...............  1,539,356  1,174,843
Vehicles.............................................     37,458    127,781
Leasehold improvements...............................    278,052    271,808
                                                       ---------  ---------
                                                       1,992,398  1,707,478

Accumulated depreciation.............................   (885,667)  (618,552)
                                                       ---------  ---------
Property and equipment, net..........................  $1,106,731 $1,088,926
                                                       ---------  ---------
                                                       ---------  ---------
</TABLE>

    Depreciation expense for the years ended June 30, 1999 and 1998 was $345,505
and $255,255.

                                      F-12
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. NOTES PAYABLE

    A summary of notes payable is as follows:

<TABLE>
<CAPTION>
                                                                 JUNE 30,
                                                           --------------------
                                                             1999       1998
                                                           ---------  ---------
<S>                                                        <C>        <C>
Note payable to an individual, who is a related party,
  with interest payable at 18% per year, in monthly
  installments of the greater of $10,000 or the
  individual monthly compensation of the two major
  shareholders and secured by their shares in the
  Company. The note-holder also receives monthly payments
  equal to 1% of the Company's gross margin until fully
  paid. The note was paid in full in August 1998.........  $      --  $ 173,142

Note payable to a company for purchase of fixed assets,
  payable in monthly installments of $768, including
  interest at 8.9%, collateralized by the related asset.
  This note was paid in full in August 1998..............         --     25,327

Note payable to a company for purchase of fixed assets,
  payable in monthly installments of $491, including
  interest at 11.3%, through August 2001, collateralized
  by the related asset...................................     11,291     15,645

Note payable to a company for purchase of fixed assets,
  payable in monthly installments of $16,747, including
  interest at 7.98%, through November 1999,
  collateralized by the fixed assets and a Certificate of
  Deposit in the amount of $0 and $200,000 at June 30,
  1999 and 1998, respectively............................     82,090    268,350

Note payable to a company for purchase of fixed assets,
  payable in monthly installments of $1,930, including
  interest at 8.20%, through December 1999,
  collateralized by the fixed assets and the above
  mentioned Certificate of Deposit in the amount of $0
  and $200,000 at June 30, 1999 and 1998, respectively...     13,148     34,278
                                                           ---------  ---------
Total notes payable......................................    106,529    516,742
Less current portion.....................................    100,110    410,213
                                                           ---------  ---------
Notes payable, less current portion......................  $   6,419  $ 106,529
                                                           ---------  ---------
                                                           ---------  ---------
</TABLE>

    Aggregate maturities of long-term debt in the next five years ending June
30, 1999 are as follows:

<TABLE>
<CAPTION>
YEAR                                                                                  AMOUNT
----------------------------------------------------------------------------------  ----------
<S>                                                                                 <C>
2000..............................................................................  $  100,110
2001..............................................................................       5,450
2002..............................................................................         969
                                                                                    ----------
                                                                                    $  106,529
                                                                                    ----------
                                                                                    ----------
</TABLE>

                                      F-13
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES

    The provision (benefit) for income taxes in the consolidated statements of
operations represents current U.S. federal income tax. State income taxes are
not included as the Company operates primarily in the State of Washington, where
corporate income tax is not assessed.

    The provision for income taxes differs from the expected statutory federal
income taxes as follows:

<TABLE>
<CAPTION>
                                                                                JUNE 30,
                                                                    --------------------------------
                                                                          1999             1998
                                                                    ----------------  --------------
                                                                      AMOUNT      %    AMOUNT     %
                                                                    -----------  ---  ---------  ---
<S>                                                                 <C>          <C>  <C>        <C>
Provision (benefit) at the federal statutory rate.................  $(1,020,000) (34)% $ 164,000  34%
Permanent differences.............................................       37,000    1   (111,200) (23)
Tax credits.......................................................      (75,000)  (3)        --   --
Change in valuation allowance on net deferred tax assets..........    1,058,000   36    (47,900) (10)
                                                                    -----------  ---  ---------  ---
Provision for income tax..........................................  $        --   --% $   4,900    1%
                                                                    -----------  ---  ---------  ---
                                                                    -----------  ---  ---------  ---
</TABLE>

    Temporary differences which give rise to deferred tax assets and
(liabilities) were as follows:

<TABLE>
<CAPTION>
                                                             JUNE 30,
                                                       ---------------------
                                                          1999       1998
                                                       ----------  ---------
<S>                                                    <C>         <C>
Current:
  Allowance for doubtful accounts....................  $  121,000  $  49,800
  Accrued vacation...................................      56,800     51,700
                                                       ----------  ---------
                                                          177,800    101,500
                                                       ----------  ---------
Non-current:
  Property and equipment.............................  $  (67,200) $ (65,400)
  Amortization of intangibles........................     102,700     77,000
  Tax credits........................................     166,000         --
  Net operating loss carryforward....................   1,194,400    234,000
                                                       ----------  ---------
Gross deferred tax asset.............................   1,573,700    347,100
Less: valuation allowance............................  (1,573,700)  (347,100)
                                                       ----------  ---------
Net deferred tax asset...............................  $       --  $      --
                                                       ----------  ---------
                                                       ----------  ---------
</TABLE>

    The Company has recorded a 100% valuation allowance on the net deferred tax
asset since management can not determine if it is more likely than not that the
deferred tax assets will be realized.

    The Company's ability to utilize the net operating loss carryforward is
dependent upon its ability to generate taxable income in future periods which
may be limited due to ownership changes as defined under Section 382 of the
Internal Revenue Code of 1986. Any unused annual limitation may be carried over
to future years until the net operating losses expire. Utilization of net
operating losses may also be limited in any one year by alternative minimum tax
rules.

    During the year ended June 30, 1998, the Company utilized its net operating
loss carryback, which resulted in an income tax benefit of $88,000.

                                      F-14
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONTINUED)
    At June 30, 1999, the Company has net loss operating carryforward of
approximately $3,513,000 which will expire at various dates through 2019.

5. STOCKHOLDERS' EQUITY (DEFICIT)

    On June 27, 1996, Jenkon International, Inc. (a Delaware corporation)
acquired by way of a stock-for-stock reorganization, the 8,750 issued and
outstanding common stock shares of Jenkon International, Inc. (a Washington
corporation) and in exchange issued 1,955,674 common stock shares to the
shareholders of Jenkon International, Inc. (a Delaware corporation) in
proportion to their shareholdings.

PRIVATE PLACEMENT

    In September 1996, the Company completed a private placement of 1,500,000
shares of Preferred Series A stock and simultaneously purchased 78,227 shares of
common stock from each Dan Jensen, the Company's then current Chairman of the
Board of Directors and David Edwards, the Company's Chief Executive Officer and
then current President.

    The sale of Preferred Series A stock and the purchase of common stock were
executed at $2.00 per share. The net proceeds to the Company from the sale of
preferred stock was approximately $2,310,000 (net of offering costs) and was
utilized as working capital.

    In August 1998, all 1,500,000 outstanding shares of the Company's Series A
preferred stock were converted into 1,244,296 shares of common stock.

STOCK SPLIT

    In June 1998, the Board of Directors declared a .782271-to-one reverse stock
split. All stock related data in the consolidated financial statements reflect
the stock split for all periods presented.

BRIDGE LOANS

    In June 1998, the Company completed a $1,000,000 private placement of bridge
loans. Net proceeds were $880,000 after a placement fee of $120,000. The bridge
loan accrued interest at an annual rate of 7%. The Company issued 11,732
warrants for each $100,000 of bridge loans, for a total of 117,321 warrants, at
a per share exercise price of $.6392. The Company valued the warrants at fair
value. The original issue discount of $439,800 was determined based on the fair
value of the warrants to total fair value of warrants and debt. The original
issue discount and placement fees were amortized over the twelve month term of
the bridge loans as interest expense. Upon completion of the initial public
offering, the bridge loans were repaid in full. For the years ended June 30,
1999 and 1998, amortization of the original issue discount and placement fees
were $408,036 and $31,763, respectively.

INITIAL PUBLIC OFFERING (IPO)

    In August 1998, the Company completed an initial public offering of
1,500,000 shares at $5.00 per share, of which 1,210,000 shares were offered by
the Company and 290,000 shares by selling shareholders. Net proceeds to the
Company were approximately $4,480,000 after deducting all offering-related
expenses of $1,570,000. The Company used a portion of the proceeds to repay the
outstanding indebtedness of $1,000,000 which was incurred with the 1998 private
placement and approximately $272,500 related to other indebtedness (Note 3). The
remaining proceeds are being used in the development of new products

                                      F-15
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
and upgrades, expansion of the Company's sales and marketing efforts and general
working capital. In connection with the initial public offering, the Company
issued warrants to purchase 150,000 shares of common stock at an exercise price
of $8.25 (165% of the initial public offering price) to underwriters. The
warrants expired unexercised in September 1998. At June 30, 1998, the Company
had prepaid funding costs of $374,364, which were offset against the gross
proceeds from the IPO.

    In connection with the IPO, the Company awarded a $120,000 bonus to its
Chief Financial Officer, which was paid fully by June 30, 1999.

STOCK OPTION PLANS

    The Company has a common stock option plan for certain executives and key
employees. The option's maximum term is ten years. Granted options vest over
various time frames, ranging from one to three years after the grant date.

WARRANTS

    In connection with the Company's private placement of Preferred Stock in
1996, the Company issued warrants to purchase an aggregate of 161,760 shares of
common stock to the Dealer Manager. The exercise price of these warrants is
$2.6845 per share, which is subject to adjustment in certain circumstances.

    In connection with the Company's 1998 private placement of debt, the Company
issued warrants to purchase 117,321 shares of common stock at an exercise price
of $.6392.

    The following summarizes stock option and warrant activity during the years
ended June 30, 1998 and 1999:

<TABLE>
<CAPTION>
                                                                                      WEIGHTED
                                                                           OPTIONS     AVERAGE
                                                                             AND      EXERCISE
                                                                          WARRANTS      PRICE
                                                                          ---------  -----------
<S>                                                                       <C>        <C>
Outstanding at July 1, 1998.............................................    650,678   $    1.78
Granted.................................................................    214,341        1.95
                                                                          ---------       -----
Outstanding at June 30, 1998............................................    865,019        1.82
Granted.................................................................    144,613        1.66
Expired/canceled........................................................    (96,628)       2.17
                                                                          ---------       -----
Outstanding at June 30, 1999............................................    913,004   $    1.70
                                                                          ---------       -----
                                                                          ---------       -----
</TABLE>

                                      F-16
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

    Information relating to stock options and warrants at June 30, 1999
summarized by exercise price are as follows:

<TABLE>
<CAPTION>
                      OUTSTANDING                 EXERCISABLE
           ---------------------------------  --------------------
                         WEIGHTED-AVERAGE                WEIGHTED
EXERCISE              ----------------------              AVERAGE
PRICE PER                LIFE      EXERCISE              EXERCISE
  SHARE     SHARES     (MONTHS)      PRICE     SHARES      PRICE
---------  ---------  -----------  ---------  ---------  ---------
<S>        <C>        <C>          <C>        <C>        <C>
$0.0128      156,454        89.0   $  0.0128    156,454  $  0.0128
$0.6392      117,321        48.0   $  0.6392    117,321  $  0.6392
$1.1250       39,113       119.5   $  1.1250         --  $  1.1250
$1.1880       20,000       117.0   $  1.1880         --  $  1.1880
$1.3750       15,500       119.5   $  1.3750         --  $  1.3750
$2.0000       20,000       118.5   $  2.0000         --  $  2.0000
$2.1732      254,238        93.3   $  2.1732    254,238  $  2.1732
$2.2190       50,000       117.5   $  2.2190         --  $  2.2190
$2.5567       39,113        96.5   $  2.5567     39,113  $  2.5567
$2.6845      161,760        33.5   $  2.6845    161,760  $  2.6845
$3.8350       39,505       103.0   $  3.8350     39,505  $  3.8350
---------  ---------       -----   ---------  ---------  ---------
$0.0128-
$3.8350      913,004        80.7   $  1.7035    768,391  $  1.6239
---------  ---------       -----   ---------  ---------  ---------
---------  ---------       -----   ---------  ---------  ---------
</TABLE>

    All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of the grant,
and in accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair value of the grant dates consistent with the method
of SFAS No. 123, the Company's net income (loss) and income (loss) per share for
the years ended June 30, 1999 and 1998 would have been the pro forma amounts
indicated in the table below:

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                        ---------------------
                                                           1999       1998
                                                        ----------  ---------
<S>                                                     <C>         <C>
Net income (loss)
  As reported.........................................  $(3,306,807) $ 478,474
  Pro forma...........................................  (3,443,431)   423,934
Earnings (loss) per share
  As reported.........................................  $     (.83) $     .27
  Pro forma...........................................        (.86)       .24
Diluted:
  As reported.........................................  $     (.83) $     .14
  Pro forma...........................................        (.86)       .13
                                                        ----------  ---------
                                                        ----------  ---------
</TABLE>

    The fair value of the option and warrant grants are estimated on the date of
grant using the minimum value method in accordance with SFAS No. 123, with the
following weighted average assumptions for

                                      F-17
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
grants in 1999 and 1998; expected life of options and warrants of 5 years,
expected volatility of 61% and 0%, respectively, risk-free interest rate of 5.4%
and 6.0%, respectively, and 0% dividend yield.

    The weighted average fair value at date of grant for options granted during
fiscal 1999 and 1998 approximated $0.94 and $0.68.

    The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. Additional awards in future years are anticipated.

6. RELATED PARTY TRANSACTIONS

    Stock subscription receivable represents amounts due from officers of the
Company.

    At June 30, 1999 and 1998, the Company had a receivable due from an officer
of $116,563 and $37,000, respectively.

SOFTWARE PURCHASE AGREEMENT

    In August 1998, the Company purchased software products for $50,000 from a
related party.

CONSULTING/NON-COMPETE AGREEMENT

    In June 1998, Mr. Jensen and the Company entered into a
Consulting/Non-Compete Agreement, which is effective July 1, 1998, pursuant to
which Mr. Jensen agreed to provide certain consulting and software development
services to the Company in exchange for the following payments and benefits: (i)
$75,000 upon signing, (ii) $75,000 at the end of the three year term, (iii)
$12,000 per month from the effective date of the agreement through December 31,
1998, (iv) $8,000 per month from January 1, 1999 through December 31, 1999, (v)
$4,000 per month from January 1, 2000 through November 30, 2000, (vi)
reimbursement and payment of certain automobile, insurance, phone, computer and
other expenses, as well as an agreement by Jenkon to assume certain personal
guarantees of Mr. Jensen.

    In accordance with the terms of the non-compete agreement, the Company
transferred ownership of a vehicle to Mr. Jensen in October 1998, which had a
net book value of $22,344 on the date of transfer, in exchange for $15,000.

7. COMMITMENTS AND CONTINGENCIES

    The Company leases its facilities under noncancellable operating leases
which expire at various dates through September 2001.

    The Company leases certain equipment under agreements which are classified
as capital leases. Equipment leases have purchase options at the end of the
original lease term.

                                      F-18
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    Future minimum payments, by year and in the aggregate, under noncancellable
capital and operating leases with initial or remaining terms of one year or more
consist of the following at June 30, 1999:

<TABLE>
<CAPTION>
                                                                         CAPITAL    OPERATING
YEAR                                                                      LEASES      LEASES
----------------------------------------------------------------------  ----------  ----------
<S>                                                                     <C>         <C>
2000..................................................................  $  103,144  $  248,926
2001..................................................................       5,898     106,302
2002..................................................................         983      23,694
                                                                        ----------  ----------
Total minimum lease payments..........................................     110,025  $  378,922
                                                                                    ----------
                                                                                    ----------
Less amount representing interest.....................................       3,496
                                                                        ----------
Present value of net minimum lease payments...........................     106,529
Less current portion..................................................     100,110
                                                                        ----------
                                                                        $    6,419
                                                                        ----------
                                                                        ----------
</TABLE>

    The Company's rental expense for operating leases was $352,511 and $391,171
for the years ended June 30, 1999 and 1998.

    The Company may be required to devote significant resources to protect its
interests and the interests of its sublicensees in Asia. This could materially
adversely affect the Company's financial condition and results of operations.

    In the ordinary course of business, the Company is subject to various legal
proceedings and claims. In the opinion of management, the amount of ultimate
liability with respect to these proceedings will not materially affect the
financial position, results of operations or cash flows of the Company.

EMPLOYMENT AGREEMENTS

    The Company has two four-year employment agreements with employees of the
Company. The annual base salaries for the four-year employment agreements are
$200,000 and $90,000. These agreements are subject to a 5% cost of living
increase and other benefits. In the event the Company terminates any of the
employment agreements without cause, it will be required to make a severance
payment equal to one year's base salary.

POTENTIAL LIABILITY

    In July 1995, the Company through Summit V, Inc. purchased and/or licensed
substantially all of the assets and assumed certain contractual obligations and
indebtedness from Redwood Technology, Inc. the developer of a substantial
portion of the Company's Summit V software technology.

    As Redwood Technology may be deemed to have been rendered insolvent by the
sale and license of certain of its assets to the Company, and because of common
ownership and management of Redwood Technology and the Company, the Company may
be subject to claims by unsatisfied creditors of Redwood Technology.

    During 1996 the Company established a predecessor liability of $400,000.
During the year ended June 30, 1999 and 1998 the amount was reduced to
approximately $120,000 and $175,000, respectively due to settlements with some
unsatisfied creditors, including a settlement with the IRS for $135,000.

                                      F-19
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. EMPLOYEE BENEFIT PLAN

    The Company's employees are covered by a 401(k) defined contribution benefit
plan. The plan provides for employee tax-deferred contributions up to the
maximum percentage of eligible compensation allowed by tax of code section
401(k). The Company may make matching contributions equal to a discretionary
percentage. For the years ended June 30, 1999 and 1998, the Company made no
contributions to the plan.

9. MAJOR CUSTOMERS

    The Company had two customers which accounted for 11.2% and 14.4% of the
Company's sales during the year ended June 30, 1999. The Company had no
customers that accounted for more than 10% of the Company's sales for the year
ended June 30, 1998.

10. CONCENTRATION OF SUPPLIERS

    The Company is dependent on third-party equipment manufacturers and
distributors for all its supply of computer equipment and some of its software
accessories. Purchases from individual suppliers that exceed 10% of total
purchases in each period were as follows: for the year ended June 30, 1999: one
supplier at 15.8% of total purchases, and for the year ended June 30, 1998: one
supplier at 12% of total purchases.

11. EARNINGS (LOSS) PER SHARE

    The following is a reconciliation of the weighted average number of shares
used to compute basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                         --------------------
                                                           1999       1998
                                                         ---------  ---------
<S>                                                      <C>        <C>
Basic weighted average shares outstanding..............  3,992,632  1,799,220
Diluted effect of stock options and warrants...........         --    390,377
Conversion of preferred stock..........................         --  1,202,952
                                                         ---------  ---------
Diluted weighted average shares outstanding............  3,992,632  3,392,549
                                                         ---------  ---------
                                                         ---------  ---------
</TABLE>

    Options and warrants to purchase 913,004 shares of common stock were
outstanding during the year ended June 30, 1999 but were not included in the
computation of diluted loss per common share because the effect would be
antidilutive.

12. GEOGRAPHICAL INFORMATION

    The Company develops and markets management information system software
products to the direct/ network marketing industry. Substantially all of the
Company's revenues result from the sale of the Company's software products.
There is not enough difference between the types of software products
manufactured and distributed by the Company for the Company to account for these
products separately or to justify segmented reporting by product type.

                                      F-20
<PAGE>
                  JENKON INTERNATIONAL, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. GEOGRAPHICAL INFORMATION (CONTINUED)
    The following table sets forth information regarding net sales of the
Company by geographic region:

<TABLE>
<CAPTION>
                                                       YEAR ENDED JUNE 30,
                                                       --------------------
                                                         1999       1998
                                                       ---------  ---------
<S>                                                    <C>        <C>
Domestic.............................................  $6,014,836 $8,264,212
Foreign..............................................    485,209  1,173,205
                                                       ---------  ---------
Total net sales......................................  $6,500,045 $9,437,417
                                                       ---------  ---------
                                                       ---------  ---------
</TABLE>

    Substantially all identifiable assets of the Company are located in the
United States.

13. SUBSEQUENT EVENTS

    In August 1999, the Company signed a non-binding letter of intent to acquire
Multimedia K.I.D. LTD., an Israeli-based interactive educational company that
designs, manufactures and sells innovative software and activity systems for
children and adults. The terms of the proposed transaction include the issuance
of 840,000 shares of common stock and 2,416,000 shares of redeemable preferred
stock which has no voting or conversion rights unless and until the shareholders
of the Company have approved the grant of voting rights to such shares and will
be convertible into an aggregate of 24,160,000 shares of Company Common Stock,
in exchange for 100% of the outstanding securities of Multimedia. The
acquisition is contingent upon signing of a definitive acquisition agreement,
the completion of a private placement of convertible notes resulting in net
proceeds to the Company of at least $4,000,000 and other customary terms and
conditions.

    In connection with the proposed acquisition, the Company is in the process
of completing a $4,500,000 private placement of convertible promissory notes.
The notes will accrue interest at 12% per annum. Upon shareholder approval on or
before February 28, 2000, the notes will be convertible into common shares of
the Company at a conversion price of $1.25 per share.

                                      F-21