================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB/A
                                   AMENDMENT 1

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

           For the quarterly period ended   December 31, 1999
                                          -----------------------------

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

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


                                 HEARTSOFT, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

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

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

                                 (918) 362-3600
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

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

The Company is amending its 10-QSB for the quarter ending December 31, 1999 as a
result of recently discovering two agreements for consulting services, one dated
September 20, 1998, which will have an impact on the Company's financial
statements and a second dated February 1, 1999, which will not affect the
Company's financial statements. Additionally, the Company is amending its 10-QSB
to include sales of unregistered securities. The Company is also amending its
financial statements to reflect adjustments to the quarterly financial
information as a result of the audit of the March 31, 2000, financial
statements.

Part I. Financial Information - Items 1 and 2 and Part II. Other Information -
Items 2 and 6 have been amended.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of December 31, 1999. 10,869,130

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




















                                       2
<PAGE>




                       HEARTSOFT, INC. - QUARTERLY REPORT
                                TABLE OF CONTENTS

PART I.   FINANCIAL INFORMATION                                       PAGE

          Item 1:    Balance Sheet as of December 31, 1999              4

          Statements of Operations For the Three and Nine
           Month Periods December 31, 1999 and
           December 31, 1998                                            5

          Statements of Cash Flows - Nine Months Ending
          December 31, 1999 and December 31, 1998                       6

          Item 2: Notes to Financial Statements                         7

          Item 3: Management's Discussion, Analysis of Financial
          Condition, and Results of Operations                          8


PART II.  OTHER INFORMATION

          Item 2. Changes in Securities.                               15

          Item 6. Exhibits and Reports on Form 8-K.                    16

          Signature Page                                               17
















                                       3
<PAGE>

PART I-- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
                                  BALANCE SHEET
                             As of December 31, 1999
                                   (unaudited)
ASSETS
CURRENT ASSETS
    Cash                                                                105,661
    Accounts Receivable                                                  32,916
    Inventories                                                          38,789
    Prepaid Expenses                                                     24,058
                                                                     ----------
Total Current Assets                                                    201,424

Plant, Property and Equipment
    Plant, Property and Equipment                                       205,114
    Accumulated Depreciation                                           (106,663)
                                                                     ----------
Total Plant, Property and Equipment                                      98,451

OTHER ASSETS
    Developed Software, net                                             685,132
    Other                                                                 4,239
                                                                     ----------
Total Other Assets                                                      689,371
                                                                     ----------
Total Assets                                                            989,246
                                                                     ==========

LIABILITIES
CURRENT LIABILITIES
    Accounts Payable                                                    175,077
    Accrued Liabilities                                                 198,498
    Current Portion - long-term Debt                                    139,945
                                                                     ----------
Total Current Liabilities                                               513,520

LONG TERM LIABILITIES
    Loans Payable - Long-term                                           213,146
                                                                     ----------
Total Liabilities                                                       726,666
                                                                     ----------

EQUITY
    Preferred Stock                                                         758
    Common Stock                                                          5,435
    Additional Paid in Capital                                        4,381,463
    Accumulated Deficit                                              (4,125,076)
                                                                     ----------
Total Equity                                                            262,580
                                                                     ----------

Total Liabilities and Shareholders' Equity                              989,246
                                                                     ==========

                                       4
<PAGE>

                            STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE><CAPTION>
                                                   Three Month Period Ended        Nine Month Period Ended
                                                          December 31                     December 31
                                                     1999            1998            1999            1998
                                                  ----------      ----------      ----------      ----------
<S>                                                   <C>            <C>             <C>             <C>
Net Sales                                             80,804         108,321         271,877         371,894

Costs and Expenses:
    Cost of Production                                32,260          29,556          80,003          92,370
    Sales and Marketing                              153,126          59,833         266,345         203,709
    General and Administrative                       293,828         208,658         616,224         525,955
    Depreciation & Amortization                       29,286          26,222          87,858         180,494
                                                  ----------      ----------      ----------      ----------

Total Operating Expenses                             508,500         324,269       1,050,430       1,002,528
                                                  ----------      ----------      ----------      ----------

Operating Loss                                      (427,696)       (215,948)       (778,553)       (630,634)

Other Income and (Expense):
    Gain on sale of interest in
       Software Library                                 --              --              --           165,513
    Interest expense                                 (27,981)        (59,135)        (49,246)       (102,168)
    Other, net                                       (15,991)         24,486         (18,357)        (46,269)
                                                  ----------      ----------      ----------      ----------

                                                     (43,972)        (34,649)        (67,603)         17,076
                                                  ----------      ----------      ----------      ----------

Loss before income taxes                            (471,668)       (250,597)       (846,156)       (613,558)

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

Net Loss                                            (471,668)       (250,597)       (846,156)       (613,558)
                                                  ==========      ==========      ==========      ==========

Net loss per common share - basic and diluted          (0.04)          (0.03)          (0.08)          (0.09)
</TABLE>
                                       5
<PAGE>


                            STATEMENTS OF CASH FLOWS
                      Nine Month Periods Ended December 31
                                   (unaudited)
<TABLE><CAPTION>
                                                             1999              1998
                                                          -----------      -----------
<S>                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                  $  (846,156)     $  (613,558)
Adjustments to reconcile net loss to net cash used in
    operating activities:
        Depreciation and amortization                          87,858          180,494
         Gain on sale of interest in software library            --            165,513
        Changes in current assets:
            Accounts receivable                                 4,903          249,439
            Inventories                                        17,025          (11,574)
            Other assets                                      (14,968)         (69,153)
             Accounts payable                                 (50,263)          71,125
            Notes payable - current                          (108,230)         (63,478)
            Accrued expenses                                   61,095           79,686
                                                          -----------      -----------

Total cash used in operating activities                      (848,736)         (11,506)

CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software development costs                       (155,503)         (97,441)
Proceeds from the sale of property                               --             47,783
Payments for the purchase of property                         (70,640)            --
                                                          -----------      -----------

Total cash used in investing activities                      (226,143)         (49,658)

CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt                                     --           (175,429)
Proceeds from issuance of stock                             1,138,951          244,757
                                                          -----------      -----------

Total cash provided by financing activities                 1,138,951           69,328
                                                          -----------      -----------

Net increase in cash                                           64,072            8,164
Cash at beginning of period                                    41,589            4,411
                                                          -----------      -----------

Cash at end of period                                     $   105,661      $    12,575
                                                          ===========      ===========
</TABLE>

                                       6
<PAGE>

ITEM 2. NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICY
--------------------------

INTERIM FINANCIAL STATEMENTS

Management has compiled the interim financial statements for the period ending
December 31, 1999 in accordance with the standards set forth in generally
accepted accounting principles. In the opinion of management, all adjustments
required to make a fair representation of the Company have been included. This
compilation has not been audited or reviewed and accordingly management does not
express an opinion or any other form of assurance on them.

REVENUE RECOGNITION

Revenues from the sale of software products are recognized upon shipment,
provided that no significant obligations remain outstanding and collection of
the receivable is probable. In October 1999, with the addition of Ms. Nita Seng,
the Company changed its policy regarding shipment of product on preview. As of
October, the Company would no longer accept orders for shipment on a preview
basis. Allowances for estimated returns are provided at the time of the sale.
The Company continually evaluates the adequacy of allowances for returns and
doubtful accounts primarily based upon evaluation of historical and expected
sales experience. To the extent the future market, customer mix, channels of
distribution, product pricing and general economic and competitive conditions
change, the estimated allowances required for returns and doubtful accounts may
also change.

NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS
--------------------------------------------

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

Upon issuance of the common stock, it was determined that the Company had not
previously given accounting recognition to the agreement. The value of the
agreement, based on the September 20, 1998, trading price of the common stock
into which the preferred stock was to have been convertible, was $240,000. This
value has been allocated to general and administrative expenses over the term of
the agreement. The Company's legal counsel has advised that the preferred stock
called for in the agreement could not have been validly issued prior to the time
the services were rendered. As a result, the obligation will be reported as an
accrued liability as it is accrued over the period October 1998 through March
2001. For the nine months ended December 31, 1999 and December 31, 1998, a total
of $72,500 and $26,989, respectively, were recognized as general and
administrative expense for these consulting advisory services.

                                       7
<PAGE>

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

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

ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

                                 HEARTSOFT, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                DECEMBER 31, 1999

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-QSB contains "forward-looking" statements
regarding potential future events and developments affecting the business of
Heartsoft, Inc., a Delaware corporation ("Heartsoft," or the "Company,"
including its subsidiary). Such statements relate to, among other things:

-    future operations of Heartsoft, including the impact of any year 2000
     issues encountered by Heartsoft;

-    the development of new products and distribution channels and product
     sales;

-    competition for customers for Heartsoft's products;

-    the uncertainty of developing or obtaining rights to new products that will
     be accepted by the market;

-    the timing of the introduction of new products into the market;

-    the limited market life of Heartsoft's products; and

-    other statements about Heartsoft or the educational software market.

                                       8
<PAGE>

Forward-looking statements may be indicated by the words "expects," "estimates,"
"anticipates," "intends," "predicts," "believes" or other similar expressions.
Forward-looking statements appear in a number of places in this Form 10-QSB and
may address the intent, belief or current expectations of Heartsoft and its
Board of Directors and Management with respect to Heartsoft and its business.
Heartsoft's ability to predict results or the effect of any future events on
Heartsoft's operating results is subject to various risks and uncertainties.
Some of these risks and uncertainties include competition for products and
customers, the Company's ability to develop or obtain rights to new products and
the limited market life of Heartsoft's current products.

RISK FACTORS

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY

The Company's quarterly revenues and operating results have varied significantly
in the past and are likely to vary substantially in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including:

-    changes in the level of operating expenses;

-    demand for the Company's products;

-    the introduction of new products and product enhancements by the Company or
     its competitors;

-    changes in customer budgets;

-    competitive conditions in the industry; and

-    general economic conditions.

Further, the Company's customers often experience delays associated with
internal authorization procedures when purchasing the Company's products. For
these and other reasons, the sales cycles for the Company's products are
typically lengthy and subject to a number of significant risks outside the
Company's control including customers' budgetary constraints and internal
authorization reviews. The Company historically has operated with little backlog
because its software products are generally shipped as orders are received. The
Company can not ensure that it will be profitable in future quarters.

RAPID TECHNOLOGICAL CHANGE

The educational software market is subject to rapid technological change, new
product introductions, evolving industry standards and changes in customer
demands. The introduction of new technologies and the emergence of new industry
standards can render existing products obsolete and unmarketable. The Company's
future success will depend in part on its ability to enhance existing products
and to develop new products that meet changing client requirements. The Company
is in the process of developing a secure Internet browser for children. The
development of any new products utilizing the Internet involves significant
technical risks. The Company may not be successful in developing and marketing
product enhancements or new products. The Company could experience difficulties
that delay or prevent the successful development and marketing of product
enhancements or new products. The Company cannot

                                       9
<PAGE>

guarantee that any new products and product enhancements it may introduce will
achieve market acceptance.

INTENSE COMPETITION

The educational software market is highly competitive and rapidly changing. A
number of companies offer products similar to the Company's products and target
the same customers as the Company. The Company believes its ability to compete
depends upon many factors including:

-    the timely development and introduction of new products and product
     enhancements;

-    product functionality;

-    product performance;

-    price;

-    product reliability;

-    customer service and support;

-    sales and marketing efforts; and

-    product distribution.

Some of the Company's primary and potential competitors are substantially larger
than the Company and have significantly greater financial, technical and
marketing resources as well as established channels of distribution. As a
result, these competitors may be able to respond more quickly to emerging
technologies and changes in customer requirements and can devote greater
resources to their businesses. The Company also expects that competition will
increase as a result of software industry consolidation. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or prospective customers. Accordingly, new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which would have a
material adverse effect on the Company's business, operating results and
financial condition. The Company can not ensure it will be able to compete
successfully against current or future competitors.

MANAGEMENT OF CHANGING BUSINESS; DEPENDENCE ON MANAGEMENT AND KEY EMPLOYEES

The Company has experienced significant changes in its business, including an
expansion in the Company's staff and customer base, and the expansion of its
product lines. Such changes have placed and may continue to place a significant
strain on the Company's management and operations. In order to manage such
change in the future, the Company must continue to enhance its operational,
financial and management information systems and to hire, train and manage
employees. If the Company is unable to implement these systems and manage such
changes effectively, the Company's business, operating results and financial
condition could be materially and adversely affected.

The Company believes that its future success will also depend in large part upon
its ability to attract and retain highly skilled technical, managerial and
marketing personnel. Competition for

                                       10
<PAGE>

such personnel is intense. The Company cannot ensure that it will be successful
in attracting and retaining the personnel it requires to continue growing.
Because of the Broken Arrow, Oklahoma (Tulsa Metropolitan area) location of the
Company's headquarters, the Company may have difficulty in attracting and
retaining qualified management and technical employees who may be required to
move to become employed by the Company.

The Company's success depends to a significant extent on the performance and
continued services of its senior management and certain other key employees. The
loss of one or more of senior management and key employees could have a material
adverse effect upon the Company. In October 1999, the Company began entering
into employment agreements with its key employees in order to reduce the risk of
loss of key employees.

PROTECTION OF INTELLECTUAL PROPERTY

The Company's success is heavily dependent upon its confidential and proprietary
intellectual property. The Company presently has no patents or patent
applications pending. Rather, the Company relies primarily on a combination of
copyright, trademark and trade secrets laws, confidentiality procedures and
contractual provisions to protect its proprietary rights. Trade secret and
copyright laws afford only limited protection. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as well as the laws of the United
States. The Company cannot guarantee that its means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology.

The Company does not believe that any of its products infringe upon the
proprietary rights of third parties. However, third parties could claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers such as itself will
increasingly be subject to infringement claims as the number of products in the
educational software market increase and the functionality of such products
overlap. Defense of any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all. Any dispute regarding the proprietary rights of third
parties could have a material adverse effect upon the Company's business,
operating results and financial condition.

MANAGEMENT OF GROWTH

The Company is experiencing a period of transition and product introductions
that has and may continue to place a significant strain on its resources.
Expansion of the Company's product lines, additional product development and
product introductions, or acquisitions of other technologies, will further place
a strain on the Company's resources and personnel when added to the day-to-day
activities of the Company. In particular, the Company is currently developing a
new secure Internet browser for children, INTERNET SAFARI-Registered Trademark-,
scheduled to be released during the first quarter of the calendar year 2000.

                                       11
<PAGE>

RISK OF PRODUCT DEFECTS

Prior to release of new products or upgrades to existing products, the Company
conducts exhaustive testing of those products. However, despite testing, new
products or enhancements may contain undetected errors or "bugs" that are
discovered only after a product has been installed and used by customers. There
can be no assurance that such errors will not be discovered in the future. Such
errors can cause delays in shipments that materially and adversely affect the
Company's competitive position and operating results. Although the Company has
not experienced material adverse effects resulting from any such errors to date,
the Company cannot ensure that its new products or releases will be error free
even after commencement of commercial shipments. Discovery of errors in the
Company's products after the commencement of commercial shipping could result in
the following:

-    loss of revenues;

-    delays in market acceptance;

-    diversion of development resources;

-    damage to the Company's reputation; and

-    increased service and warranty costs.

Any of these occurrences could have a material adverse effect upon the Company's
business, financial condition and results of operations.

DEPENDENCE ON PRINCIPAL PRODUCTS

To date, the Company has derived substantially all of its revenue from the sale
of its 40 educational products. Accordingly, the Company's results will depend
on continued market acceptance of these existing products and acceptance of its
new products, including INTERNET SAFARI-Registered Trademark-. Failure to
achieve such acceptance could have a material adverse effect on the Company's
financial condition and results of operations.

DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENT OF EXISTING PRODUCTS

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

LIMITED RESOURCES

Although the Company believes that its current cash reserves and cash flows from
operations will be adequate to fund its operations for at least the next twelve
months, such resources may be inadequate. Consequently, the Company may require
additional operating funds during or after such period. Additional financing may
not be available on favorable terms or at all. The

                                       12
<PAGE>

Company is currently planning a private placement of equity to be completed by
the first calendar quarter of 2000. If the Company raises additional funds by
selling stock, the percentage ownership of the Company's current shareholders
will be reduced. If the Company cannot raise adequate funds to satisfy its
capital requirements, the Company may have to limit its operations
significantly. The Company's future capital requirements depend upon many
factors, including:

-    the rate at which the Company expands its sales and marketing operations;

-    the extent to which the Company develops its products;

-    the rate at which the Company updates its technology;

-    the Company's ability to complete its planned private placement;

-    the rate at which the Company expands; and

-    the response of competitors to the Company's product and service offerings.

OVERVIEW

Heartsoft, Inc. is a publicly held Delaware Corporation, incorporated January
15, 1988, and traded OTC (Symbol: HTSF). Presently, 30,000,000 shares of common
stock are authorized, with 10,869,137 shares issued and outstanding. During the
period from October, 1999 to December, 1999, the high and low bids for the
Company's stock, as reported by the National Association of Securities Dealers,
Inc, were $4.84374 and $1.25 respectively.

Heartsoft is engaged in the design and publishing of its own proprietary
educational software products for distribution to the education market and
consumer market. To date, Heartsoft's Core Products Division has designed and
published more than 40 educational software titles. One of the Company's best
selling proprietary titles is THINKOLOGY-Registered Trademark-, a software
series that teaches young children the skills of critical thinking and higher
order reasoning skills. Released in late 1998, THINKOLOGY-Registered Trademark-
has garnered the prestigious Media & Methods Portfolio Award for 1999.
THINKOLOGY-Registered Trademark- has also received several favorable reviews in
top educational and consumer magazines, including FamilyPC and Multimedia
Schools.

Other popular Heartsoft titles include:

-    TOMMY THE TIME TURTLE, an animated turtle that teaches children ages 5-7
     how to tell time;

-    COIN CHANGER, which introduces children ages 5-7 to the denominations of
     coins; and

-    the HEARTSOFT BESTSELLER SITE LICENSE, which consists of 12 of the
     Company's top selling titles under a license allowing the teacher to copy
     the software for every computer in the school.

Three of the Company's best selling products, HEARTSOFT BESTSELLER SITE LICENSE
(covering 12 software titles) and HEARTSOFT K-8 LIBRARY (containing

                                       13
<PAGE>

all 38 titles in the current product line) and its most recent release,
THINKOLOGY-Registered Trademark-, sell from prices ranging from approximately
$400 to $1,400, depending on the configuration. Further, each product license
allows multiple use of the software throughout the school. Within the consumer,
or home market, the Company's products sell in the price range from
approximately $10 to over $100 depending on configuration and educational
support materials.

During the third Fiscal quarter of 1999, the Company continued development of
INTERNET SAFARI-Registered Trademark-, a secure Internet browser for children.
This proprietary product has been under in-house development and is expected to
be available during the first calendar quarter of 2000. INTERNET
SAFARI-Registered Trademark- is designed for children ages 4 through 12 years to
help simplify their use of the Internet. INTERNET SAFARI-Registered Trademark-
will offer its young users access to the Internet with an exciting cartoon
interface built around a safari theme with jungle sounds, music and animation.
The new browser will also utilize artificial intelligence combined with advanced
image detection and analysis software to protect users from inappropriate
Internet content such as adult content, pornography, violence, hate crimes, etc.
INTERNET SAFARI-Registered Trademark- will be distributed to both the consumer
and educational markets.

NET REVENUES
------------
Net Sales of the Company's educational software for the three months ended
December 31, 1999 were $80,804 compared to $108,321 for the same period ending
December 31, 1998 a decrease of 25%. Net sales for the nine months ending
December 31, 1999 were $271,877 compared to $371,894 for the same period one
year ago, a year to date decrease of 27%. The decrease can be attributed to
various reasons, including preparation for Y2K. (See Industry Trends) It is
anticipated that software sales will begin an upward trend during the first half
of calendar 2000.


INDUSTRY TRENDS
---------------
The educational technology industry is composed of hardware, which includes
infrastructure; and software sales to schools. Sales in these categories tend to
run counter to one another and in any given year will be proportionally much
higher in one category than the other. The software industry as a whole finished
calendar 1999 with sales significantly down from the previous year. Technology
budgets for schools continued to be focused on hardware and infrastructure, with
software purchases postponed while school districts worked to bring the Internet
to all classrooms and examined Y2K issues at the administrative level.
Additionally, Federal Title I funds traditionally allocated for software
expenditures were not released until late in the 4th calendar quarter. These
funds are traditionally available for expenditures in September.

COST OF PRODDUCTION
-------------------
Cost of production account for all costs associated with the acquisition of
components, assembly of the finished products, warehousing, shipping and payroll
for all personnel associated with the production and shipping of the finished
product. Cost of production for the quarter ending December 31, 1999 was $32,260
compared to $29,556 for the same period one year ago.

                                       14
<PAGE>


OPERATING EXPENSES
------------------
General and administrative (G&A) expenses increased a total of 41% for the
quarter ended December 31, 1999 ($293,828) when compared to the quarter ended
December 31, 1998 ($208,658). G&A expenses rose primarily as a result of the
Company recognizing expenses related to legal and accounting costs for
compliance to new SEC guidelines. G&A expenses for the nine months ended
December 31, 1999 rose 17% or $90,269 when compared to December 31, 1998. This
increase is the result of costs associated with additional office space as well
as cost for consulting advisory services noted in Note 2 to the financial
statements.

Sales and Marketing expenses increased 156% for the quarter ended December 31,
1999 ($153,126) versus the quarter ended December 31, 1998 ($59,833) and rose
31% for the comparable nine month period. This increase can be credited to the
growth of the Sales and Marketing division of the Company and to the final
development stages of Internet Safari. In October 1999 the Company began an
extensive expansion of the sales and marketing team as part of the strategic
business plan. This expansion involved the addition of Ms. Nita Seng as VP of
Sales and Marketing along with an Inside Sales Manager and 4 inside Sales
Representatives; as well as the addition of two employees to the development
staff.

The company forecasts higher than average expenses through the Fiscal year
ending March 31, 2000 as additional sales staff will be added and expenses
related to introducing Internet Safari are scheduled.

NET INCOME
----------
For the nine months ending December 31, 1999 the Company reports a loss of
$846,156 compared to $613,558 for the same period one year ago. Unforeseen
trends in software buying for the school market (see Industry Trends) and
implementation of the planned growth of the company attribute to the loss.
Management anticipates that the decline in software sales during the nine months
ended in December will not continue as industry forecasters predict that the
impact of Y2K will not carry into Fiscal Year 2001. The Company's 5-year growth
plan calls for additional sales staff and marketing personnel to be added during
Fiscal years 2000 and 2001. The Company hopes that the implementation of this
growth strategy will position the Company as a leader in the educational
software market.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of December 31, 1999, the Company's principal sources of liquidity included
cash and accounts receivables of $138,577. As the Company continues to expand
their sales and marketing capabilities they foresee the need for additional
funding during the calendar year 2000. The Company anticipates this additional
funding to be made available through debt and equity instruments.

PART II -- OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES.

           During the quarter ended December 31, 1999, the Company has issued
the following securities without registering the securities under the Securities
Act of 1933:

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<PAGE>

--------------------------------- ----------------------------------------------
         CLASS OF PERSONS                    CONSIDERATION
--------------------------------- ----------------------------------------------
Individual                        A total of 100,000 shares were issued for
                                  repayment of debt.
--------------------------------- ----------------------------------------------
Individuals                       A total of 10,000 shares were issued for
                                  investor relation services.
--------------------------------- ----------------------------------------------
Individual                        A total of 300,000 shares of common stock that
                                  were issued in error were returned.
--------------------------------- ----------------------------------------------
Individuals                       A total of 32,000 shares of common stock were
                                  granted for conversion of convertible
                                  preferred stock.
--------------------------------- ----------------------------------------------
Employees                         A total of 50,000 shares were issued for
                                  services.
--------------------------------- ----------------------------------------------

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


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

      A.   Exhibits:

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

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


      B.   Reports on Form 8-K:

           None.




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<PAGE>
                                   SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                               HEARTSOFT, INC.
                                         ---------------------------
                                                (Registrant)


Date:    July 13, 2001                   /s/ Benjamin P. Shell
                                         --------------------------------------
                                         Benjamin P. Shell, Chairman & Chief
                                         Executive Officer



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





















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