MULTIMEDIA K I D INC
10KSB, 2000-09-28
COMPUTER PROGRAMMING SERVICES
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITES
     EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition period of to

                          Commission File No. 000-24637
                             MULTIMEDIA K.I.D., INC.
             (Exact Name of Registrant as Specified in Its Charter)

           DELAWARE                                       91-1890338
(State of Other Jurisdiction of                           (I.R.S. Employer
  Incorporation or Organization)                          Identification Number)

23 Halutzat Hapardesanut Street, Petach Tikvah, 49221  Israel
(Address of Principal Executive Offices)                            (Zip Code)

                               011-972-3-930-7302
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12 (b) of the Act:
                                      NONE

          Securities registered pursuant to Section 12 (g) of the Act:
                          COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period of that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. YES [ x ] NO [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

     As of September 18, 2000, the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was $21,809,623, based on
the closing sales price for such shares as quoted by the Nasdaq SmallCap Market.
The Registrant's revenues for the fiscal year ended June 30, 2000 were
$2,322,749.

     The aggregate number of shares of the Registrant's Common Stock, $.001 par
value, outstanding on September 18, 2000, was 34,209,722.

Transitional Small Business Disclosure Format (check one)

Yes_________   No___X___

                       DOCUMENTS INCORPORATED BY REFERENCE

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     Portions of the Registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on or about
November 17, 2000, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934, are incorporated by reference into Part III of this
Report.

                                       2

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                             MULTIMEDIA K.I.D., INC.

                                2000 Form 10-KSB

                                TABLE OF CONTENTS

PART I

Item 1.       Description of Business
Item 2.       Description of Properties
Item 3.       Legal Proceedings
Item 4.       Submission of Matters to a Vote of Security Holders

PART II

Item 5.       Market for Common Equity and Related Stockholder Matters
Item 6.       Management's Discussion and Analysis of Operation
Item 7.       Financial Statements
Item 8.       Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure

PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons;
              Compliance With Section 16(a) of the Exchange Act
Item 10.      Executive Compensation
Item 11.      Security Ownership of Certain Beneficial Owners and Management
Item 12.      Certain Relationships and Related Transactions
Item 13.      Exhibits and Reports on Form 8-K

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ITEM I.  DESCRIPTION OF BUSINESS.

          Unless the context otherwise requires, "MKID," "us," "we," and "our"
refer to Multimedia K.I.D., Inc. and its subsidiaries and "MKID-Israel" refers
to Multimedia K.I.D. - Intelligence in Education Ltd., our Israeli subsidiary.

GENERAL

         On December 16, 1999, Multimedia K.I.D. - Intelligence in Education
Ltd., an Israeli company, and the holders of all of MKID-Israel's shares entered
into a Stock Exchange Agreement and Plan of Reorganization. Under this
agreement, MKID-Israel became a wholly-owned subsidiary of Multimedia K.I.D.,
Inc., a Delaware corporation, formerly known as Jenkon International, Inc.

         For financial accounting purposes, this transaction was treated as a
reverse acquisition of Jenkon by MKID-Israel. As a result, all our financial
statements included in this report covering periods prior to December 16, 1999
reflect only the results of operations, financial position and cash flows of
MKID-Israel on a stand-alone basis. All consolidated financial statements of
MKID for periods commencing December 16, 1999 include the results of operations,
financial position and cash flows of Jenkon from and after that date.

         On March 15, 2000, MKID entered into a Management Services Agreement
and on April 6, 2000 entered into a definitive Stock Purchase Agreement with
JIA, Inc., a company partly owned by management of Summit V, Inc. (previously a
wholly owned subsidiary of MKID), for the sale of all the outstanding stock of
Summit V. Summit V was Jenkon's direct sales software operating division. The
sale of Summit V to JIA, Inc. was approved by our stockholders at a Special
Meeting held on May 31, 2000 and completed on or about June 2, 2000.

         The description of our business assumes that for all periods discussed,
our business consisted of only the business of MKID-Israel and that we did not
own Summit V.

INTRODUCTION

         We develop computerized educational systems designed to enhance
learning within a technologically-based environment. Our educational systems are
designed for kindergartens, schools and special education, as well as enrichment
centers that provide additional educational opportunities for children. Our
systems combine interactive software, playful instructive aides and electronic
interfaces. These products have been marketed and installed in many countries
around the world. Our products provide educational, three dimensional
computerized environments that combine physical components such as wooden
blocks, task cards, worksheets and books with the latest computer-based
technologies. We believe that the combination of tangible objects with software,
including the links between the two, distinguishes our products from our
competitors' products.

         In 1997, we were granted a Computer Software Award from the office of
the Prime Minister of Israel in the category "Special Innovation and Invention
in Education."

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BUSINESS STRATEGY

         Our objective is to expand market penetration and to become a leader in
the development of educational systems and related products. We cannot be sure
we will be able to achieve this goal. In order to achieve this objective, our
strategy includes the following elements:

Provide a Comprehensive Solution. We believe that the educational market is
experiencing two important trends: after school learning centers and Internet
learning. Internet learning, or e-learning, involves individual learning,
whereas the learning center approach is based on group learning with
supervision. The Clinton administration has adopted the use of learning centers
as a key component of its education policy and Congress allocated $450 million
for learning centers for fiscal year 2000. Our approach is to provide products
that integrate the group learning approach of learning centers with the
individual learning approach of Internet learning. We believe that our
enrichment centers are well suited for after-school learning centers because
they combine recreational and fun activities with the learning process. In
addition, these centers may provide e-learning benefits when they are connected
to a Web site.

Implement our Web strategy. We are in the final stages of integrating our Web
sites with our MyK.I.D. system. We believe that this development will facilitate
the integration of group learning and individual learning within the same
environment. This integration will allow a child using the MyK.I.D. system at
school to continue his learning process at home because he will be connected
both to other students and to his teachers through the Internet.

Expand Geographic Market Penetration. We believe that international markets
provide significant opportunities for us to increase sales of our products. We
intend to expand our geographic presence by entering into marketing alliances
with distributors in other countries. We have already entered into marketing
alliances or joint ventures with distributors in the United States, Brazil and
India. We recently received an order in the United States for more than $1
million for Action K.I.D. centers. We provide our marketing partners with
exclusive marketing rights in their territories as well as training and
marketing support to ensure proper distribution of our products.

Leverage Current and Future Customer Base. We believe that as our end user base
expands, the use of our educational systems will encourage other educators to
utilize our systems and thus open new opportunities for us. Additionally, we
believe that the educational methodology inherent in our products promotes
change in the educational structure of learning institutions that utilize our
products. We believe this change will provide further opportunities for us to
sell additional products.

          The success of our business strategy will depend in part upon our
access to capital resources to fund expansion as well as other factors such as
market demand for our products. See "Risks Relating to Our Business."

                                       5

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PRODUCTS

         Our products are designed to provide a comprehensive educational
environment that promotes the learning development process. Our products are
interactive, multi-dimensional, multimedia systems dedicated to pre-schools, the
early years of elementary school and special needs. We believe each product
provides a complete, coherent system that delivers hundreds of hours of
learning. Our products are computer-based and feature electronic interfaces,
activity mats and dozens of three-dimensional objects that interact with a
computer. Although our products have been developed in English, the systems we
sell have been translated into more than 20 different languages.

         Action K.I.D. Action K.I.D. is an interactive multi-dimensional,
multi-activity education center designed for ages 4 and up. The Action K.I.D.
system is typically enclosed within a 100 x 30 x 10 foot area. The computerized
center integrates an auditory communications system, a video photography
station, and vibrant visual instructional material into a programmed wooden
playground-like structure, complete with a labyrinth, balance beam, bridge,
ramps and ladders to create an interactive learning wonderland for children.
Built into the structure is a touch system comprised of step-on keypads, a
variety of hand buttons, touch screens, and other elements that receive, convey
and record real-time information relevant to the task at hand. Action K.I.D. is
a platform that can be used for a variety of applications. An Action K.I.D.
learning center generally sells in a range of $300,000 and $600,000 per center.

         My K.I.D. My K.I.D. is a language learning oriented system. The My
K.I.D. software system interfaces with an interactive activity unit, playful
instructive items and colorful activity mats and is designed for ages 6-12. The
system incorporates multimedia software and is designed for individual or group
work, depending on educational needs. My K.I.D. focuses on developing language
arts, and does so by integrating vocabulary from various fields and emphasizing
the different aspects of language including grammar, expressive writing, reading
comprehension and listening skills. This product is expected to be the first to
implement our Web strategy. The My K.I.D. system generally sells in a range of
$400 and $600 per system.

         K.I.Ducation. K.I.Ducation is a content learning oriented system. The
K.I.Ducation system is a comprehensive computer-assisted learning system
designed for ages 5-11. The system, with its built-in electronic panel, features
soft-touch keys and icons, and the ability to function as a keyboard and mouse.
The subjects addressed by the K.I.Ducation system are derived from a broad range
of fields including nature, hygiene, electricity, arithmetic, biology and other
fields commonly covered in educational settings. The system comes with a
learning kit that includes hundreds of colorful objects including template mats,
task cards, picture cards, wood blocks, soft sponge numbers and dice. In
addition, the system includes a creative workshop where a child can design a
variety of objects using a computer. The objects will be associated with the
content that is the subject of the learning. Design with the computer will
involve the use of a two-dimensional medium for the design of three-dimensional
objects. When the design is completed, the user may print out his design and use
this paper version to build a three-dimensional object, thereby improving his
tangible-abstract capabilities. The K.I.Ducation system generally sells in a
range of $1,200 and $2,000.


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          K.I.D. Grid. K.I.D. Grid is a platform easily adopted for a variety of
applications. Designed for all ages, K.I.D. Grid is a learning system featuring
a large, colorful, touch-activated electronic mat linked to a PC. The mat has
more than 100 illuminated touchpads featuring a wide combination of letters,
numbers, shapes and graphic symbols. The K.I.D. Grid system generally sells in a
range of $1,200 and $2,000.

         EDULine. EDUline is a basic skills learning oriented system. The
EDULine family of systems includes a number of different systems that all
combine an activity table, interactive software, three-dimensional objects,
instructive tools and electronic interfaces and is designed for ages 2-11. Each
system in the EDULine family is designed to provide flexibility to enable
adaptation to all learning populations. One of the systems in the EDULine family
was developed to address special education needs with such items as a Tactile
Table and Illuminated Keyboard. The EDUline system generally sells in a range of
$1,250 and $9,000.

         Home Products. We have several home products that are similar to or
derivatives of our institutional systems. We believe that the demand for our
home products will be directly linked to the effectiveness of our Web strategy.

PRODUCT DEVELOPMENT

         We are currently developing a number of product enhancements and
applications, which we believe will enhance the effectiveness of our product
line as well as allow us access to new markets. We believe that the ability to
use our systems in connection with a Web site will increase functionality and
make our system more attractive to potential purchasers. The Web site is being
designed to facilitate home-classroom communication for users and their parents,
as well as educators who use the products. One such application that is
currently being developed is a Web site based on the My K.I.D. system. This Web
site will provide an e-learning environment with group, collaborative, and
instructed learning. Additionally, we are currently developing an application
based on the Action K.I.D. system that targets adults in management-level
positions and is intended to impart management strategies such as teamwork,
accuracy, independence and following instructions. We are also planning the
development of a virtual helmet that will allow users of our systems to receive
instructions and other applications.

CUSTOMERS

         Our products have been installed in many countries around the world. We
market our products under our name, as well as under the name PMD in certain
markets. Typical end users of our products include school systems and learning
centers. A small portion of our end users purchase our home products.

         The following table sets forth the geographic distribution of our sales
for the twelve months ended June 30, 2000 and 1999:

--------------------------------------------------------------------------------
                       JUNE 30, 2000                  JUNE 30, 1999
--------------------------------------------------------------------------------
                  Revenues     Percent of total   Revenues    Percent of total
--------------------------------------------------------------------------------


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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Romania           --           --                $331,000      22.2%
--------------------------------------------------------------------------------
United States     $459,000     22.0%              251,000      16.9
--------------------------------------------------------------------------------
Israel           1,841,000     78.0               760,000      51.0
--------------------------------------------------------------------------------
Other               23,000                        146,000       9.9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
     Total      $2,323,000    100.00%          $1,488,000     100.0%
--------------------------------------------------------------------------------

         Our sales have historically been dependent upon a few major independent
distributors and customers. The following table sets forth our revenues from
major individual independent distributors and customers for the twelve months
ended June 30, 2000 and 1999 as well as the percentage of total revenues for the
periods:

--------------------------------------------------------------------------------
                      JUNE 30, 2000                  JUNE 30, 1999
--------------------------------------------------------------------------------
                Revenues     Percent of total  Revenues     Percent of total
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Company A       $545,000        23.5%          $444,000        29.9%
--------------------------------------------------------------------------------
Company B        803,000        34.5              --
--------------------------------------------------------------------------------
Company C        459,000        19.7            251,000        16.9
--------------------------------------------------------------------------------
Company D        252,000        10.9              --
--------------------------------------------------------------------------------
Company E           --           --             316,000        21.2
--------------------------------------------------------------------------------
Company F           --           --             331,000        22.2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
     Total    $2,059,000       88.6%         $1,342,000        90.2%
--------------------------------------------------------------------------------


SALES AND MARKETING

         Sales. The majority of our sales are made directly to our independent
distributors who then sell the products to the end-user. We have agreements with
independent distributors in the United States, Brazil and India. These
agreements provide for exclusive marketing rights of our products inside
specified geographic areas. A small portion of our sales is made directly to
end-users through our direct sales force located in Israel. Additionally,
although our independent distributor in the United States has exclusive
marketing rights in the United States to market Action K.I.D. centers and K.I.
Ducation products, we expect to open a direct sales office in the United States
to focus additional marketing efforts to opportunities there for our other
products. We also attend various technological education shows and participate
in seminars organized by academic bodies.

         We train our independent distributors and internal sales and service
employees to provide service and customer support. We use specialized classroom
training, instructional videos and partner-sponsored seminars to educate our
partners about product information. In addition, our technical staff has
prepared comprehensive training manuals, written in over 20 different languages,
relating to specific training procedures. Our technical personnel are
continuously updated and retrained as new products are developed. Our
independent distributors and end-user customers receive informational bulletins
and continued training seminars.


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         Marketing. Currently, marketing outside Israel is generally conducted
by independent distributors. We are continually providing these distributors
with new and updated marketing materials to ensure proper training of their
sales and marketing personnel. We also expect to use our Web site to transfer
instructional materials to the teachers utilizing our products.

COMPETITION

         The market for educational products is highly competitive and is
characterized by rapidly changing customer preferences and little or no barriers
of entry. There are numerous businesses, many of which are better capitalized
than us, currently offering software and other products directed at the same
customer base. We believe that the primary competitive factors for the provision
of our systems are performance specifications, sales price, customer service,
brand name and service record. Our success will depend heavily upon our ability
to provide high quality systems that meet end user specifications and are
competitively priced. Other factors that will affect our success in this market
include our ability to attract additional experienced marketing, sales, and
management talent and the expansion of worldwide training capabilities.

         Our competitors and prospective competitors vary greatly from small
private multimedia publishers to large international corporations. We believe
that our products are differentiated from nearly all our competitors by the
combination of technology, software and instructive aides that are incorporated
into our products. Most of our competitors have greater market presence,
engineering, marketing, sales and distribution capabilities, and financial,
technological and personnel resources than those available to us. As a result,
they may be able to adapt more swiftly to new or emerging technologies and
changes in customer specifications, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than we can.

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

         We believe that several factors will enable us to effectively compete,
including a longer product shelf life for our products than the shelf lives of
regular multimedia educational products, ease of product adaptation, and a
relatively short development cycle due to significant development experience and
existing platforms. In addition, some of our products are specifically developed
and tailored for school use, thereby making it easier for teachers to integrate
our products into the classroom.

RESEARCH AND DEVELOPMENT

         Our research and development activities have primarily been directed
towards the development of the My K.I.D and Action K.I.D. systems, including our
Web site. Research and development expenses were $1,905,146 for the year ended
June 30, 2000, $319,467 for the six months ended June 30, 1999 and $697,611 for
the year ended December 31, 1998.


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         From time to time we have received royalty-bearing grants from the
Office of the Chief Scientist in Israel and the Israel-U.S. Binational Research
and Development Foundation. The amounts of these grants have not been material.
As a recipient of grants from the Office of the Chief Scientist, we are
obligated to perform all manufacturing activities for projects subject to the
grants in Israel unless we receive an exemption. Know-how from the research and
development which is used to produce products may not be transferred to third
parties without the approval of the Office of the Chief Scientist. Such approval
is not required for the export of any products resulting from such research or
development.

INTELLECTUAL PROPERTY

         We rely on a combination of trade secret laws and contractual
restrictions to establish and protect our technology. We are in the process of
registering certain trademarks. We cannot be sure that the steps taken by us
will be adequate to prevent misappropriation of our technology or that our
competitors will not independently develop technologies and products that are
substantially equivalent or superior to our technology and products. In
addition, there can be no assurance that licenses for any intellectual property
that may be required for us to provide services or develop products would be
available on reasonable terms, if at all.

         We have not historically required trade secrecy and confidentiality
agreements to be executed by our employees or independent software developers in
order to protect our rights in our proprietary technology. We are in the process
of requiring employees, contractors and distributors to execute such agreements.
No assurance can be given that such measures will be effective in protecting our
rights in its present or future technology.

         We have filed applications with the Israeli Registry of Trademarks for
My K.I.D. and five of the animated figures incorporated into the product.
Additionally, we intend to file for U.S. trademarks for the same. There can be
no assurance that tradename protection can be obtained for these names. Although
we do not believe that our 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 us, there can
be no assurance that third parties will not assert such claims against us in the
future or that such claims will not be successful. We 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 our 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
our ability to sell product in the United States or abroad. Such a judgement
could have a material adverse effect on our business, financial condition or
results of operations.

         The laws of certain foreign countries where we distribute or intend to
distribute our products do not effectively protect technology, trademarks or
tradenames that we use in our business and consider proprietary. We have not
undertaken to investigate such laws or to assure that available protection is
obtained.

EMPLOYEES


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         As of June 30, 2000, we employed a total of 31 persons worldwide,
including 13 in research and development, three in sales and marketing two
in management and administration and 13 in production and technical support
departments. As of June 30, 2000, all of our employees were located in Israel.

         Israeli labor laws and regulations are applicable to our employees in
Israel. These laws principally concern matters such as paid annual vacation,
paid sick days, length of the workday, pay for overtime, insurance for
work-related accidents, severance pay and other conditions of employment.
Israeli law generally requires severance pay, which may be funded by Manager's
Insurance, described below, upon the retirement or death of an employee or
termination of employment without cause (as defined under Israeli law). This
insurance policy provides a combination of savings plans, insurance and
severance pay, if the employee is legally entitled thereto, upon termination of
employment. Furthermore, Israeli employees and employers are required to pay
predetermined sums to the National Insurance Institute. Since January 1, 1995,
such amounts also include payments for national health insurance. The payments
to the National Insurance Institute are approximately 14.5% of wages (up to a
specified amount), of which the employee contributes approximately 66% and the
employer contributes approximately 34%.

         Although not legally required, we regularly contribute to a "Manager's
Insurance" fund or to a privately managed pension fund on behalf of our
employees located in Israel. These funds provide employees with a lump sum
payment upon retirement (or a pension, in case of a pension fund) and severance
pay, if legally entitled thereto, upon termination of employment. We provide for
payments to a Manager's Insurance Fund and pension fund contributions in the
amount of 13.3% of an employee's salary on account of severance pay and
provident payment or pension, with the employee contributing 5.0% of his salary.
We also pay an additional 2.5% of certain of our employees' salaries in
connection with disability payments. In addition, we administer an Education
Fund for our Israeli employees and pay 7.5% thereto, with the employees
contributing 2.5% of their salary.

         Furthermore, our Israeli employees are subject to certain provisions of
the collective bargaining agreements between the Histadrut (General Federation
of Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists Associations) by order of the Israeli Ministry of
Labor and Welfare. These provisions principally concern cost of living
increases, recreation pay and other conditions of employment. We generally
provide our Israeli employees with benefits and working conditions above the
required minimums. Our employees, as a group, are not currently represented by a
labor union. To date, we have not experienced any work stoppages.

RISK FACTORS

         We believe that the occurrence of any one or some combination of the
following factors could have a material adverse effect on our business,
financial condition or results of operations.

RISKS RELATING TO OUR BUSINESS


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WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE.

         We have and continue to experience significant and continuing losses
including a loss before discontinued operations of $7 million for the year ended
June 30, 2000. Our ability to achieve profitability and positive cash flow from
operations is dependent upon our ability to substantially grow our revenue base
and achieve operating efficiencies. We may not be able to achieve profitability
and even if we achieve profitability, we may not be able to sustain it.

IF WE ARE UNABLE TO MAINTAIN OUR NASDAQ LISTING, OUR STOCK PRICE WOULD LIKELY
DECLINE.

         Our common stock is currently listed for trading on the Nasdaq SmallCap
Market. We cannot be certain that we will be able to maintain the standards for
Nasdaq SmallCap Market inclusion with respect to our common stock. If our common
stock ceases to be included on the Nasdaq SmallCap Market, the market value of
our common stock would likely decline and stockholders would find it more
difficult to dispose of, or obtain accurate quotations as to the market value
of, our common stock. In addition, our common stock could become subject to the
penny stock rules of the Exchange Act, which imposes additional sales practice
requirements on broker-dealers that sell these securities. If our common stock
becomes subject to the penny stock rules, the ability of broker-dealers to make
a market in or sell our securities may be adversely affected and the market
liquidity for our securities could be severely adversely affected.

WE MAY NEED ADDITIONAL FINANCING TO CONTINUE OUR GROWTH.

         To the extent that we are unsuccessful in generating significant cash
flow from operations in order to fund operating losses and investments in
product development, sales and marketing, we will need to rely on outside
financing sources for working capital. We currently have no significant bank
line of credit and additional financing may not be available to us on acceptable
terms or at all. We may be required to curtail our operations significantly if
adequate financing is not available. We could be required to obtain funds
through arrangements with strategic partners or others that may require us to
relinquish rights to certain of our technologies or potential markets.

WE DEPEND ON INDEPENDENT DISTRIBUTORS TO SELL OUR PRODUCTS. IF THESE PARTIES DO
NOT SUCCEED IN SELLING OUR PRODUCTS, OR IF WE ARE NOT ABLE TO MAINTAIN OUR
RELATIONSHIPS WITH THEM, OUR REVENUES AND INCOME WILL SUFFER.

         We sell our products primarily through independent distributors that
are not under our direct control. We are highly dependent on their active
marketing and sales efforts. In the year ended June 30, 2000, our top three
distributors and direct customers accounted for over76% of our revenue.
Typically, our arrangements with them do not prevent them from selling products
of other companies, including our competitors. As a result, they may give higher
priority to products of other companies. We also may not be able to maintain our
existing relationships. If one or more of our major distributors terminate their
relationship with us, we may be unsuccessful in replacing them. The loss of one
or more of our


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<PAGE>

distributors will impair our ability to sell our products and result in lower
revenues and income.

IF WE FAIL TO EXPAND OUR DISTRIBUTION CHANNELS, DIRECT SALES FORCE AND BUSINESS
RELATIONSHIPS, OUR REVENUE GROWTH AND BUSINESS MAY BE HARMED.

         If we fail to expand our distribution channels, direct sales force and
business relationships, revenue may not grow or it may decline and as a result
the business may be seriously harmed. To date, we have sold our products
primarily through our independent distributors. The ability to achieve
significant revenue growth will largely depend on our success at developing
future distribution channels, recruiting and training sufficient direct sales
personnel and establishing and maintaining additional relationships. Our
products require a sophisticated sales effort targeted at the senior management
of our prospective customers. New distributors and hires require training and
take time to achieve full productivity. We may be unable to find new qualified
distributors or individuals in the future.

BECAUSE THE MARKET FOR OUR PRODUCTS IS CHARACTERIZED BY RAPID TECHNOLOGICAL AND
OTHER CHANGES, OUR SUCCESS DEPENDS ON OUR ABILITY TO CONTINUALLY DEVELOP NEW AND
MORE TECHNOLOGICALLY-ADVANCED PRODUCTS AND PRODUCT ENHANCEMENTS.

         The markets for our products are characterized by technological change,
evolving industry standards and frequent new product introductions and
enhancements. The introduction of products embodying new technologies and the
emergence of new industry standards could render our existing products and
products currently under development obsolete and unmarketable. Our future
success will depend upon our ability to enhance our current products and develop
and successfully introduce and sell new products that keep pace with market
developments and respond to evolving end-user specifications. Any failure by us
to anticipate or respond adequately to technological developments or end-user
specifications, or any significant delays in product development or
introduction, could damage our competitive position in the marketplace and
reduce revenues. We cannot be certain that we will be successful in developing
and marketing new products or product enhancements on a timely basis or that we
will not experience significant delays in the future.

THE MARKET FOR OUR PRODUCTS IS HIGHLY COMPETITIVE, AND BECAUSE MANY OF OUR
COMPETITORS HAVE MUCH GREATER RESOURCES THAN WE HAVE, IT MAY BE DIFFICULT FOR US
TO ACHIEVE PROFITABILITY.

         The market for educational software products is highly competitive and
is characterized by technological change, rapidly changing customer preferences
and little or no barriers to entry. There are many businesses, many of which are
better capitalized than ours, currently offering products similar in type or
scope to our products. Our success will depend heavily upon our ability to
provide high quality products that meet the demand of educators and consumers.
Other factors that will affect our success in this market include our ability to
attract additional experienced marketing, sales, and management talent, and the
expansion of worldwide support, training, and service capabilities. Our current
and prospective competitors vary greatly from small private multimedia
publishers with 10-20 employees to large international corporations with
revenues in excess of $300 million in annual sales.


                                       13

<PAGE>

Some or all of our 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 us. 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 we can.

         Because price is a major competitive factor in the market for our
products, if any of our present or future competitors elect to initiate and
support prolonged price competition to gain market share, we likely would be
forced to lower our prices, possibly for a protracted period, which would have a
material adverse effect on our financial condition.

BECAUSE WE DEPEND ON A LIMITED NUMBER OF SUBCONTRACTORS TO MANUFACTURE AND
ASSEMBLE OUR PRODUCTS, OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO RETAIN OR
REPLACE THEM.

         We use third-party subcontractors located in Israel to assemble our
products. We have not entered into contracts with any of our suppliers or
subcontractors. The reliance on third-party subcontractors involves several
risks, including the potential absence of adequate capacity as we expand and
reduced control over product quality, delivery, schedules, manufacturing yields
and costs.

         Certain key components used in our products are currently available
from only a limited number of sources. We may not be able to find alternative
sources in a timely manner, if at all, if any of our suppliers were unwilling or
unable to provide us with key components. The inability to obtain sufficient key
components as required, or to develop alternative sources if and as required in
the future, could result in delays or reductions in product shipments which, in
turn, could have a material adverse effect on our end-user relationships,
business and results of operations.

WE HAVE A HISTORY OF QUARTERLY FLUCTUATIONS IN OUR RESULTS OF OPERATIONS AND
EXPECT THESE FLUCTUATIONS TO CONTINUE.

         We have experienced and expect to continue to experience significant
fluctuations in our quarterly results. These fluctuations may be caused by many
factors, including, but not limited to:

o   the size and timing of individual orders;
o   seasonality of revenues;
o   lengthy sales cycle;
o   delays in introduction of products or product enhancements by us or other
    providers of components for our products;
o   competition and pricing in the educational products industry;
o   market acceptance of new products;
o   reduction in demand for existing products and shortening of product life
    cycles;
o   foreign currency exchange rates;
o   mix of products sold;
o   conditions or events in the education industry; and


                                       14

<PAGE>


o   general economic conditions.

         We do 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 price of some of
our products and relatively low unit volume of these products, any lost or
delayed sales will have a disproportionately greater effect on our revenues and
quarterly results relative to companies that have higher unit sales volumes and
less revenue associated with a particular product.

         Our sales cycle varies greatly with different products. For higher
priced products, the typical sales cycle is three to six months from the time
initial sales contact is made with a qualified prospect, making the timing of
our revenues difficult to predict and our quarterly results difficult to
forecast. Our sales cycle relating to lower priced products is anywhere from two
weeks to two months. Our expense levels are based in part on our forecasts of
future revenues. Accordingly, since a large portion of our expenses are fixed in
nature, we 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 we believe that period-to-period comparisons of our
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.

IF WE CANNOT ADEQUATELY MANAGE OUR GROWTH, OUR BUSINESS COULD SUFFER.

         To manage our growth effectively, we will be required to continue to
implement and improve our operating and financial systems and to expand, train
and manage our employee base. We cannot assure you that we have made adequate
allowances for the costs and risks associated with our expansion, or that our
systems procedures and managerial controls will be adequate to support our
operations. Any delay in implementing, or transitioning to, new or enhanced
systems, procedures or controls may seriously harm our ability to record and
report financial and management information on a timely and accurate basis. We
expect operating expenses and staffing levels to increase substantially in the
future. In particular, we intend to hire a significant number of employees in
the near future, including increasing the size of our product development staff.
If we are unable to successfully manage our expansion, our business could
suffer.

WE MAY SEEK TO EXPAND OUR BUSINESS THROUGH ACQUISITIONS THAT COULD RESULT IN
DIVERSION OF RESOURCES AND EXTRA EXPENSES, WHICH COULD DISRUPT OUR BUSINESS AND
HARM OUR FINANCIAL CONDITION.

         Although no acquisitions of companies or products are currently being
negotiated, we may make acquisitions in the future. Our management has 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. Acquired businesses
may not be successfully integrated with our operations or with our technology.
If any acquisition or joint venture were to occur, we may not receive the
intended benefits of the


                                       15

<PAGE>

acquisition or joint venture. If future acquisitions disrupt our operations, our
business could suffer.

BECAUSE WE ARE DEPENDENT ON THIRD-PARTY SUPPLIERS FOR SOME OF OUR SOFTWARE AND
HARDWARE, THE LOSS OF ONE OR MORE OF THESE SUPPLIERS COULD CAUSE PRODUCTION
DELAYS AND A REDUCTION OF REVENUES.

         Our products incorporate and use software products and computer
hardware and equipment developed by other entities. Our operating systems on
which our products can function, Windows 95-98 and NT, have been developed or
are owned by Microsoft Corporation. The computer hardware and equipment sold as
part of our turnkey systems are manufactured by the Pentium Company, an Israeli
company, and others. We cannot be certain that these product lines will remain
viable or that these products will otherwise continue to be available to us. If
any of these entities abandons or fails to enhance a particular product line, we
may need to seek other suppliers. This could have a material adverse effect on
our results of operations. In addition, we cannot be certain that our current
suppliers will not significantly alter their pricing in a manner adverse to us.

UNDETECTED HARDWARE AND SOFTWARE ERRORS MAY INCREASE OUR COSTS AND IMPAIR THE
MARKET ACCEPTANCE OF OUR PRODUCTS. WE COULD BE SUBJECT TO WARRANTY CLAIMS AND
PRODUCT RECALLS, WHICH COULD BE VERY EXPENSIVE AND HARM OUR FINANCIAL CONDITION.

         We offer complex products that by their nature are susceptible to
undetected software errors or failures. Future products may experience failures
when first introduced or as new versions are released. Any product recall as a
result of errors or failures, and the associated negative publicity, could
result in the loss of or delay in market acceptance of our products and harm our
business and reputation. Any significant product returns or warranty claims
could result in significant additional costs to us and could adversely affect
our results of operations.

WE DEPEND ON A LIMITED NUMBER OF KEY PERSONNEL WHO WOULD BE DIFFICULT TO
REPLACE. IF WE LOSE THE SERVICE OF THESE INDIVIDUALS, OUR BUSINESS COULD BE
HARMED.

Our continued growth and success substantially depends on the performance of our
executive officers and key employees. We rely on our ability to attract, retain
and motivate highly qualified personnel, especially our management and highly
skilled development teams. The loss of the services of any of the executive
officers or key employees could cause us to incur increased operating expenses
and divert senior management resources to search for replacements. The loss of
their services could also harm our reputation if our customers become concerned
about our future operations as the result of employee departures. We do not have
key person life insurance policies on any of our employees.

         Our future success also depends on our ability to identify, hire, train
and retain additional highly qualified technical and managerial personnel.
Competition for these personnel is especially intense in the software industry.
If we fail to recruit and retain sufficient qualified employees our business
could be harmed.


                                       16

<PAGE>


WE ARE SUBJECT TO THE RISKS OF CONDUCTING BUSINESS ON AN INTERNATIONAL BASIS.

         To date, we have sold our products primarily in Europe, the U.S.,
Israel, and, to a lesser extent, in South America. We are subject to the risks
inherent in international business activities, including:

o   the burden of complying with a wide variety of foreign laws and regulations;
o   import or currency control restrictions;
o   exposure to local taxation;
o   tariffs and other trade barriers;
o   staffing and managing foreign operations;
o   transportation delays; and
o   seasonal reduction of business activities.

         Our ability to penetrate some international markets may be limited due
to the above factors, as well as, different technical standards or product
requirements for our products in different markets.

OUR FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY CIRCUMSTANCES RELATING TO
THE SALE OF SUMMIT V, INC.

         In June 2000, we sold our subsidiary Summit V, Inc. to JIA, Inc., an
affiliate of some of our former directors, officers and employees. The purchase
price paid by JIA for Summit V was $1,175,000, a portion of which was delivered
in cash and the remainder of $1,001,738, was delivered in the form of two
promissory notes. One note, in the original principal amount of $675,000, is due
and payable on June 2, 2001. The other note, in the original amount of $326,738,
was due and payable in full on June 16, 2000 and is secured by 300,000 shares of
our common stock. JIA failed to make complete payment on this note, but
continues to pay the note down in smaller installments. Due to the uncertainty
of collectibility, we have recorded an allowance reserve of $200,000 with
respect to the amounts due on these notes. We cannot be certain that we will be
able to successfully collect all amounts owed under these notes or that, if
Summit V is not successfully operated after such sale, creditors of Summit V
will not seek payment from us. If JIA fails to meet its payment obligations
under the notes, or if creditors of Summit V seek payment of Summit V's
obligations from us, our financial condition could be materially and adversely
affected.

OUR PROPRIETARY TECHNOLOGY IS DIFFICULT TO PROTECT AND UNAUTHORIZED USE OF OUR
PROPRIETARY TECHNOLOGY BY THIRD PARTIES MAY IMPAIR OUR ABILITY TO COMPETE
EFFECTIVELY.

         Our success and ability to compete depend, in part, upon our technology
and proprietary rights. We may not be able to prevent the misappropriation of
our technology and our competitors may independently develop technologies that
are substantially equivalent or superior to ours. We have applied for six
trademarks with the Israeli Registry of Trademarks and intend to file for
similar trademark protection in the U.S. To protect our unpatented proprietary
know-how, we rely on a combination of technical leadership, trade secrets and
confidentiality and non-disclosure agreements. These agreements and measures may
not be adequate to protect our technology from third-party infringement. It may
be possible for a


                                       17

<PAGE>


third party to copy or otherwise obtain and use our technology without
authorization or to develop similar technology independently.

OUR BUSINESS MAY SUFFER IF WE ARE SUED FOR INFRINGING THE INTELLECTUAL RIGHTS OF
THIRD PARTIES.

         We are subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights of other companies. Many
participants in the education software industry have an increasing number of
patents and patent applications and have frequently demonstrated a readiness to
commence litigation based on allegations of patent and other intellectual
property infringement. Third parties may assert infringement claims in the
future with respect to our current or future products. These claims may require
us to enter into license arrangements or result in protracted and costly
litigation, regardless of the merits of these claims. Any necessary licenses may
not be available or, if available, may not be obtainable on commercially
reasonable terms.

RISKS RELATING TO OUR OPERATIONS IN ISRAEL

POTENTIAL POLITICAL, ECONOMIC OR MILITARY INSTABILITY IN ISRAEL MAY ADVERSELY
AFFECT OUR RESULTS OR OPERATIONS.

         Our principal offices and many of our subcontractors and suppliers are
located in Israel. Accordingly, political, economic and military conditions in
Israel directly affect our operations. Since the establishment of the State of
Israel in 1948, a number of armed conflicts have taken place between Israel and
its Arab neighbors. A state of hostility, varying in degree and intensity, has
led to security and economic problems for Israel. The future of peace efforts
between Israel and its Arab neighbors remains uncertain. Any future armed
conflicts or political instability in the region would likely negatively affect
business conditions and harm our results of operations. Furthermore, several
countries restrict business with Israel and Israeli companies. These restrictive
laws and policies may seriously harm our operating results, financial condition
or the expansion of our business.

OUR RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED BY THE OBLIGATION OF OUR
PERSONNEL TO PERFORM MILITARY SERVICE.

         Most of our executive officers and employees are in Israel and are
obligated to perform annual military reserve duty. In addition, in the event of
a military conflict or war, these persons could be required to serve in the
military for extended periods of time. Our operations could be disrupted by the
absence for a significant period of one or more of our executive officers or key
employees or a significant number of other employees due to military service.
Any disruption in our operations would harm our business.

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST OUR OFFICERS AND
DIRECTORS AND OUR ISRAELI AUDITORS OR TO ASSERT U.S. SECURITIES LAW CLAIMS IN
ISRAEL.

         Service of process upon our Israeli directors and officers and the
Israeli auditors named herein may be difficult to effect within the United
States. Almost all of these people


                                       18

<PAGE>


reside outside the United States. Any judgment obtained in the United States
against us or these individuals or entities may not be enforceable within the
United States.

         There is doubt as to the enforceability of civil liabilities under the
Securities Act and the Securities Exchange Act in original actions instituted in
Israel. However, subject to specified time limitations, Israeli courts may
enforce a U.S. final executory judgment in a civil matter, provided that:

o    adequate service of process has been effected and the defendant has had a
     reasonable opportunity to be heard;

o    the judgment and its enforcement are not contrary to the law, public
     policy, security or sovereignty of the State of Israel;

o    the judgment was obtained after due process before a court of competent
     jurisdiction according to the rules of private international law prevailing
     in Israel;

o    the judgment was not obtained by fraudulent means and does not conflict
     with any other valid judgment in the same matter between the same parties;

o    an action between the same parties in the same matter is not pending in any
     Israeli court at the time the lawsuit is instituted in the U.S. court; and

o    the U.S. court is not prohibited from enforcing the judgments of Israeli
     courts.

         If a foreign judgment is enforced by an Israeli court, it generally
will be payable in new Israeli shekels, which can then be converted into
non-Israeli currency and transferred out of Israel. The usual practice in an
action to recover an amount in non-Israeli currency is for the Israeli court to
render judgment for the equivalent amount in new Israeli shekels at the rate of
exchange on the date of payment, but the judgment debtor also may make payment
in non-Israeli currency. Pending collection, the amount of the judgment of an
Israeli court stated in new Israeli shekels ordinarily will be linked to the
Israel Consumer Price Index plus interest at the annual rate (set by Israeli
law) prevailing at that time. Judgment creditors bear the risk of unfavorable
exchange rates.

RISKS RELATING TO THE MARKET FOR OUR COMMON STOCK

A LIMITED NUMBER OF OUR STOCKHOLDERS MAY BE ABLE TO CONTROL US.

         Four of our stockholders collectively own approximately 56.2% of our
outstanding common stock. Accordingly, these stockholders, acting together, may
have the power to control the outcome of all matters submitted for the vote of
our stockholders, including the election of directors and the approval of
significant change in control transactions. Their combined equity interest in us
may have the effect of making certain transactions more difficult and may result
in delaying, deferring or preventing a change in control of MKID.

OUR STOCK PRICE HAS FLUCTUATED AND COULD CONTINUE TO FLUCTUATE SIGNIFICANTLY.


                                       19

<PAGE>


         The market price for our common stock has been volatile. The following
factors may cause significant fluctuations in the market price of our ordinary
shares:

o  fluctuations in our quarterly revenues and earnings or those of our
   competitors;
o  shortfalls in our operating results compared to levels forecast by securities
   analysts;
o  announcements concerning us or our competitors;
o  announcements of technological innovations;
o  the introduction of new products;
o  changes in product price policies involving us or our competitors;
o  market conditions in the industry; and
o  the conditions of the securities markets.

          The factors discussed above may depress or cause volatility of our
share price, regardless of our actual operating results.

EXECUTIVE OFFICERS OF THE REGISTRANT

          The following table sets forth information with respect to our
executive officers.


NAME                    AGE     TITLE
----                    ---     -----

Pessie Goldenberg       47      Executive Vice Chairman of the Board
Yeshayahu Orbach        49      President, Chief Executive Officer and Director
Cliff DeGroot           28      Chief Financial Officer


          PESSIE GOLDENBERG is a founder and has served as Executive Vice
Chairman of the Board since September 2000. From January 1996 until September
2000, Mr. Goldenberg served as Chief Executive Officer of MKID and was appointed
as a Director in December 1999. Prior to founding MKID-Israel, Mr. Goldenberg
founded P.M.D. Technological and Education Systems Ltd., the previous owner of
certain of the MKID assets. Since 1992, he has served as the Managing Director
of PMD.

          YESHAYAHU ORBACH has served as President, Chief Executive Officer and
Director since September 2000. From January 1996 to September 2000, Mr. Orbach
served as President and Chief Executive Officer of OPGAL Optronic Industries
Ltd., an Israeli technology company. From October 1994 to December 1995, Mr.
Orbach served as General Manager and Chief Operating Officer of Edusoft Ltd., an
Israeli educational software company.

          CLIFF DEGROOT has served as Chief Financial Officer since August 2000.
From March 1999 to August 2000, Mr. DeGroot served as Controller of Jenkon
International, Inc. From January 1995 to March 1999, Mr. DeGroot served as an
auditor with Grant Thornton LLP, an international accounting firm. Mr. DeGroot
is a certified public accountant.


                                       20

<PAGE>


ITEM 2.  DESCRIPTION OF PROPERTY.

         We lease approximately 3,150 square meters of office and 180 square
meters of factory space in Petach-Tikva, Israel. We also lease approximately 180
square meters of factory and warehouse space in Rosh Ha'ain, Israel. We believe
our facilities are adequate for our present needs and that suitable space would
be available to accommodate our future needs.

ITEM 3.  LEGAL PROCEEDINGS.

         We acquired from Redwood Technology a license to utilize Ardent
Software, Inc. products incorporated into the Summit V software in connection
with sales in 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, have been challenged in a
lawsuit filed in the United States District Court for the Western District of
Washington by Pacific Unidata, Ltd., the Asia licensee of Unidata, Inc., as
violating the terms of the licensee's agreement with Unidata. In addition,
Pacific Unidata, Ltd. brought a related action against a Chinese subsidiary of
Avon Products in China. In June 1998, the Chinese court awarded damages in favor
of Pacific Unidata, Ltd. in an amount of approximately $12 million plus costs.
Avon China has informed us that it intends to appeal the ruling and has
indicated an intention to seek indemnification against Redwood Technology and us
in the event it is unsuccessful in its appeal. Although we are not a party to
the China claim or the U.S. claim, if Unidata, Inc. does not indemnify Redwood
Technology and us from damages resulting from the China claim and the U.S.
claim, our 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 Summit V'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 and because of the commonality of ownership
and management of Redwood Technology and Summit V, we are or may be subject to
claims by unsatisfied creditors of Redwood Technology challenging Summit V's
rights to the acquired assets (including the Summit V software technology) or
alleging successor liability or other similar claims.

         In November 1999, AmeriPlan Corporation, a Texas corporation, filed a
demand for arbitration seeking a refund of approximately $100,000 in payments
owing for software and services provided by us. AmeriPlan also is seeking an
undetermined amount of consequential damages. We have denied that we owe
AmeriPlan any of these amounts and have also filed a counterclaim for
approximately $250,000 that is still owing under the parties' agreements. The
arbitration hearing is scheduled for November 2000.

We intend to vigorously pursue this litigation.

         We have been indemnified against the above claims as part of the sale
of our Summit V subsidiary. These claims, however, could result in a disruption
of our business that could have a material adverse effect on us and our
financial performance.


                                       21

<PAGE>


         Other than as described above, we are not currently a party to any
material lawsuit, claim or proceeding.

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

         See our Current Report on Form 8-K, dated May 31, 2000, filed with the
Securities and Exchange Commission, with respect to a Special Meeting of
Stockholders we held on May 31, 2000.

PART II

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

         Quotation of our common stock commenced on the Nasdaq SmallCap Market
on August 11, 1998 under the symbol "JNKN." On or about May 3, 2000, we changed
our symbol to "MKID." The last reported sale price per share of our common stock
as reported on the Nasdaq SmallCap Market on September 18, 2000 was $1.00. As of
September 18, 2000, there were approximately 110 record holders, excluding stock
held in street name, of our common stock.

         Following are the high and low per share closing prices for our common
stock as reported on the Nasdaq SmallCap Market for each quarter since August
11, 1998:

                                                    High                Low
                                                    ----                ---
FISCAL 1999

     First Quarter (from August 11, 1998)          $6.250             $4.250
     Second Quarter                                 5.000              3.375
     Third Quarter                                  4.000              1.188
     Fourth Quarter                                 3.250              1.188

FISCAL 2000
     First Quarter                                  2.250              1.375
     Second Quarter                                 4.750              1.250
     Third Quarter                                  6.375              3.938
     Fourth Quarter                                 4.250              1.500

FISCAL 2001
     First Quarter (through September 18, 2000)     1.906              0.562


     We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future and intend to
retain any earnings to fund future growth and the operation of our business.


                                       22

<PAGE>


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

         The following discussion and analysis should be read in conjunction
with our consolidated financial statements, including the notes thereto,
appearing elsewhere in this report.

GENERAL

         On December 16, 1999, MKID-Israel and the holders of all of
MKID-Israel's shares entered into a Stock Exchange Agreement and Plan of
Reorganization with Jenkon. Under this agreement, MKID-Israel became a
wholly-owned subsidiary of Jenkon, which changed its name to Multimedia K.I.D.,
Inc. As set forth in Note 2 in our financial statements, for financial reporting
purposes this merger is treated as the acquisition of Jenkon by MKID-Israel and
is accounted for under the purchase method of accounting. Accordingly, our
reported results of operations for all periods prior to December 16, 1999
reflect only the results of operations of MKID-Israel.

         Therefore, results of operations and financial position of Jenkon
(reflected in periodic reports filed by Jenkon covering periods ended prior to
December 16, 1999) and of MKID-Israel prior to December 16, 1999 are not
comparable to our consolidated results of operations subsequent to such date
which will reflect the results of Jenkon (only since such date) and MKID-Israel
(for the entire period).

         We have a history of concentrated revenue from single independent
distributors and customers. During the year ended June 30, 2000, four
distributors and customers accounted for 88.6% of total revenues while four
distributors and customers accounted for 90.2% of total revenues for the
twelve months ended June 30, 1999. Similar or greater concentration of our total
revenues among a limited number of customers or distributors may continue in the
future. Any material decrease in total revenues among a limited number of
customers or distributors may continue in the future. Any material decrease in
total sales to any one of our largest customers or distributors that is not
matched by corresponding increases in total sales to new or existing customers
or distributors could have a material adverse effect on our financial condition
and results of operations and could threaten our economic viability. We cannot
assure that we will receive orders from any existing customers or distributors
or from new customers or distributors.

         We recorded a non-cash compensation expense of $1,748,500 in the year
ended June 30, 2000 for issuance of stock to an executive officer. This expense
was allocated in accordance with the general allocation of the officer's salary
with $175,000 allocated to cost of revenues, $1,171,500 to research and
development and $402,000 to selling, general and administrative.

RESULTS OF OPERATIONS

         Our audited statement of operations contained in the financial
statements contained in Item 7 of this Report include:


                                       23

<PAGE>


o   the year ended June 30, 2000;
o   the six months ended June 30, 1999; and
o   the year ended December 31, 1998.

         In order for the discussion and analysis of the results of operations
for the year ended June 30, 2000 that follows to compare periods of similar
duration, the discussion and analysis compares our consolidated results for the
year ended June 30, 2000 to the unaudited twelve month period ended June 30,
1999. The following table sets forth our consolidated results of operations for
the year ended June 30, 2000 (which appear in Item 7 of this Report) and for the
twelve months ended June 30, 1999 (which financial statements are not included
herein).


<TABLE>
<CAPTION>
                                                             YEAR ENDED JUNE 30,        TWELVE MONTHS ENDED
                                                             2000                       JUNE 30, 1999
                                                                                        (unaudited)
<S>                                                          <C>                        <C>
Net revenues                                                 $ 2,322,749                $ 1,488,486
Cost of revenues                                               1,060,667                    595,462
                                                             -----------                -----------
     Gross profit                                              1,262,082                    893,024
                                                             -----------                -----------

Operating expenses
      Product research, development and enhancements           1,905,146                    630,663
      Selling, general and administrative expenses             1,687,427                    487,273
      Acquisition expenses                                       116,563                       --
      Goodwill amortization                                      112,154                       --
                                                             -----------                -----------
       Total operating expenses                                3,821,290                  1,117,936
                                                             -----------                -----------

Loss from continuing operations                               (2,559,208)                  (224,912)
Other income (expense)
       Interest expense                                       (4,828,879)                   (71,491)
       Interest income                                             9,573                       --
                                                             -----------                -----------

Loss before income tax and discontinued operations            (7,378,514)                  (296,403)
Provision for income tax                                            --                         --
                                                             -----------                -----------
Loss before discontinued operations                           (7,378,514)                  (296,403)
Loss from discontinued operations                             (1,452,764)                      --
Gain on sale of discontinued operations                          364,492                       --
                                                             -----------                -----------
Net  loss                                                    ($8,466,786)               ($  296,403)
                                                             ===========                ===========
</TABLE>


COMPARISON OF YEAR ENDED JUNE 30, 2000 AND JUNE 30, 1999

         Revenues. Net revenues for the year ended June 30, 2000 increased to
$2,322,749 from $1,488,486 in the twelve months ended June 30, 1999 due
primarily to sales resulting from


                                       24

<PAGE>


a joint marketing project with an independent distributor and a general increase
in sales to both local and international markets.

         Cost of Revenues. Cost of revenues increased to $1,060,667 for the year
ended June 30, 2000 from $595,462 in the twelve months ended June 30, 1999. The
increase is a result of a combination of the costs associated with the increase
in sales and the inclusion of $174,850 in non-cash compensation expense
associated with the issuance of stock to an officer.

         Gross Profit. Our gross profit margin, expressed as a percentage of net
revenues, decreased to 54.3% in the year ended June 30, 2000 from 60.0% in the
twelve months ended June 30,1999. The decrease was due to the non-cash
compensation expense. Excluding the effects of this non-cash expense, the gross
profit margin for the year ended June 30, 2000 would have been 61.4%.

         Product Research, Development and Enhancements. Product research,
development and enhancement expenses increased to $1,905,146 for the year ended
June 30, 2000 from $630,663 for the same period in 1999. The increase is
primarily a result of non-cash compensation expense of $1,171,500 allocated to
research and development.

         Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,687,427 for the year ended June 30, 2000
from $487,273 for the twelve months ended June 30, 1999. The increase is
primarily due to significant legal and accounting expenses incurred related to
the sale of Summit V, the Special Meeting of the Stockholders, the reverse
acquisition, an allocation of $402,000 of non-cash compensation expense and
additional expenses associated with meeting our public company filing
requirements.

         Acquisition Expenses. Acquisition expenses for the year ended June 30,
2000 were $116,563. There were no acquisition expenses for the twelve months
ended June 30, 1999. These expenses are comprised of internal costs associated
with the reverse acquisition including the forgiveness of debt.

         Goodwill Amortization. Goodwill amortization for the year ended June
30, 2000 was $112,154. There was no goodwill amortization in the twelve months
ended June 30, 1999. The amortization was related to the goodwill created in the
reverse merger and the Summit V subsidiary. All goodwill as of the date of the
sale of Summit V was written of at the time of the sale and was considered in
the gain on sale of the discontinued operations.

         Interest Expense. Interest expense increased to $4,828,879 for the year
ended June 30, 2000 from $71,491 for the twelve months ended June 30, 1999.
Interest expense for the twelve months ended June 30, 2000 is comprised
primarily of the amortization of the original issue discount of $4,449,000
recorded with the convertible debt. The original issue discount was a result of
the difference between the conversion price of the Convertible Promissory Notes
and the fair market value of our stock at the time the Convertible Promissory
Notes were issued. The original issue discount was amortized over the life of
the Convertible Promissory Notes. The convertible notes were converted into
shares of our common stock in June 2000.


                                       25

<PAGE>


         Loss from Discontinued Operations. The loss from discontinued
operations for the year ended June 30, 2000 was $1,452,764. The loss represents
the operations of our discontinued Summit V subsidiary through the date of sale.

         Gain on Sale of discontinued operations. The gain on the sale of
discontinued operations for the year ended June 30, 2000 was $364,492. There was
no gain in the twelve months ended June 30, 1999. The gain was a result of the
sale of our subsidiary, Summit V, Inc.

LIQUIDITY AND CAPITAL RESOURCES

         For the year ended June 30, 2000, operating activities used net cash of
$2,851,915 primarily due to a net loss of $8,466,786, a change in net assets of
discontinued operations of $477,201, an increase in trade accounts receivable of
$1,308,773 and an increase in inventory, prepaids and other assets of $418,502
offset by depreciation and amortization of $4,645,210, a non-cash charge for
stock issued to an officer of $1,748,508, and a loss from discontinued
operations of $1,452,764. Investing activities provided net cash of $140,465 due
to the proceeds from the sale of our discontinued operations of $353,262 and
cash acquired in purchase of $129,154 offset by the purchase of equipment of
$104,175 and investment in short-term investments of $237,776. Financing
activities provided net cash of $3,428,157 during the year ended June 30, 2000
primarily as a result of the net proceeds from the sale of convertible
promissory notes of $3,140,234 and loan proceeds of $1,000,000 offset by
payments made against an amount owed to a company under common control of
$677,072 and loan payments of $259,060.

         Our accounts and long-term receivables balance at June 30, 2000 was
$2,411,025. Of this balance, approximately $1,784,000, or 74%, was in the over
90-day category. The number of days sales in accounts and long-term receivables
was 286 days. We provide extended payment terms on larger sales to some of our
distributors. We had no bad debts during the year ended June 30, 2000.

         As of June 30, 2000, our working capital was $2,589,792. We believe
that our operating capital is sufficient to maintain the current operations
through June 30, 2001. We intend to raise additional operating capital in order
to execute our business plan, however, no assurances can be given that we will
be successful in our efforts.

         We receive grants from the Office of the Chief Scientist in Israel.
These grants commit us to pay royalties in an amount of 3-5% of proceeds from
the sale of products developed with the grant funds received. The amount of the
grant is linked to the dollar and bears interest at LIBOR. Royalties paid are
limited to the grant received. We have not paid any royalties through June 30,
2000.

EURO CURRENCY CONVERSION

         European Union 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 will


                                       26

<PAGE>


remain legal tender until January 1, 2002. On this date, Euro-denominated bills
and coins will be issued for use in cash transactions.

         We have not experienced any significant operational disruptions to date
and do not currently expect the continued implementation of the Euro to cause
any significant operational disruptions. Additionally, we have not incurred and
do not expect to incur any significant costs from the continued implementation
of the Euro, including any currency risk, which could materially affect our
liquidity or capital resources.

RECENT ACCOUNTING PRONOUNCEMENTS

         The Financial Accounting Standards Board Issued Interpretation ("FIN")
No. 44. "Accounting for Certain Transactions involving Stock Compensation", an
Interpretation of APB Opinion No. 25, FIN 44 clarifies the application or
Opinion No. 25 for (a) the definition of an employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequences of various modifications
to the terms of a previously fixed stock option award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 2, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. The adoption of this
standard had no material effect, if any, on our financial position or results of
operations.

         The Securities and Exchange Commission issued Staff Accounting Bulletin
No. 101, Revenue Recognition ("SAB 101") which broadly addresses how companies
report revenues in their financial statements effective the fourth fiscal
quarter of years beginning after December 31, 1999. We are currently evaluating
the effect, if any, of the adoption of this policy on our financial position or
results of operations.

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.

ITEM 7.  FINANCIAL STATEMENTS.

     The Financial Statements required by this item are filed as part of this
Form 10-KSB. See Index to Consolidated Financial Statements on page F-1 of this
Form 10-KSB.

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

     Not applicable.


                                       27

<PAGE>




PART III

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

         The information contained under the heading "Proposal No. 1-Election of
Directors" in our definitive Proxy Statement relating to our Annual Meeting of
Stockholders to be held on or about November 17, 2000, to be filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission is incorporated herein by reference. For information
concerning our executive officers and other significant employees, see
"Business-Executive Officers of the Registrant" in Item 1 above of this Report.

ITEM 10.  EXECUTIVE COMPENSATION.

         The information contained under the heading "Executive Compensation" in
our Proxy Statement is incorporated herein by reference.

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

         The information contained under the heading "Security Ownership of
Common Stock by Certain Stockholders and Management" in our Proxy Statement is
incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information contained under the heading "Certain Relationships and
Related Transactions" in our Proxy Statement is incorporated herein by
reference.

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

(a)    Exhibits

       3.1      Certificate 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 in connection with
                the 1998 private placement.*
       4.4      Subscription Agreement and Registration Rights Agreement in
                connection with the 1996 private placement.*
       10.1     Form of Employment Agreement with Pessie Goldenberg.**
       10.2     Form of Employment Agreement with Shaike Orbach.
       10.3     Form of Employment Agreement with Cliff DeGroot.


                                       28

<PAGE>

       10.4     Form of Indemnification Agreement with Officers and Directors.*
       10.5     Stock Option Plan.*
       10.6     Lease Agreement, Israel offices.***
       21.1     Subsidiaries of the Company.
       23.1     Consent of BDO International
       23.2     Consent of Moshe Harpaz
       27.1     Financial Data Schedule.

-----------------------------
*   Incorporated by reference to the referenced document filed as an exhibit to
    the Company's registration statement on Form SB-2, File No. 333-56023, filed
    on June 4, 1998.

**  Incorporated by reference to the referenced document filed as an exhibit to
    the Company's Form 10-KT, filed on March 30, 2000.

*** English summary of Hebrew original.

(b)     Reports on Form 8-K:

        Current Report on Form 8-K, Item 2 and Item 5, dated April 6, 2000.
        Current Report on Form 8-K, Item 5, April 30, 2000. Current Report on
        Form 8-K, Item 1, Item 2 and Item 5, May 31, 2000.


                                       29

<PAGE>





                                  EXHIBIT INDEX


EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------

    3.1     Certificate 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 in connection with the 1998
            private placement.*
    4.4     Subscription Agreement and Registration Rights Agreement in
            connection with the 1996 private placement.*
   10.1     Form of Employment Agreement with Pessie Goldenberg.**
   10.2     Form of Employment Agreement with Shaike Orbach.
   10.3     Form of Employment Agreement with Cliff DeGroot.
   10.4     Form of Indemnification Agreement with Officers and Directors.*
   10.5     Stock Option Plan.*
   10.6     Lease Agreement, Israel offices.***
   21.1     Subsidiaries of the Company.
   23.1     Consent of BDO International
   23.2     Consent of Moshe Harpaz
   27.1     Financial Data Schedule.

-----------------------------
*  Incorporated by reference to the referenced document filed as an exhibit to
the Company's registration statement on Form SB-2, File No. 333-56023, filed on
June 4, 1998.

** Incorporated by reference to the referenced document filed as an exhibit to
the Company's Form 10-KT, filed on March 30, 2000.


<PAGE>




                                   SIGNATURES

         Pursuant to the requirements of section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Petach
Tikvah, Israel, on September 28, 2000.


                                      MULTIMEDIA K.I.D., INC.



                                      By: /s/ Yeshayahu Orbach
                                          --------------------------------
                                          Yeshayahu Orbach
                                          President and Chief Executive Officer

              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 registrant and in the capacities and on the dates indicated.



<TABLE>
<CAPTION>
       SIGNATURE                        TITLE                            DATE
       ---------                        -----                            ----
<S>                          <C>                                 <C>

/s/ Yeshayahu Orbach
------------------------
YESHAYAHU ORBACH              President, Chief Executive           September 28, 2000
                              Officer and Director (Principal
                              Executive Officer)

/s/ Cliff Degroot
------------------------
CLIFF DEGROOT                 Chief Financial Officer and          September 28, 2000
                              Secretary (Principal Financial
                              Officer)

/s/ David Rubner
------------------------
DAVID RUBNER                  Chairman of the Board                September 28, 2000

/s/ Pessie Goldenberg
------------------------
PESSIE GOLDENBERG             Executive Vice Chairman of           September 28, 2000
                              the Board

/s/ E. Bruce Fredrikson
------------------------
E. BRUCE FREDRIKSON           Director                             September 28, 2000

/s/ J.R. Kennedy
------------------------
J.R. KENNEDY                  Director                             September 28, 2000
</TABLE>


                                       30

<PAGE>


                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                                    CONTENTS



   REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                      F-2

   REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                      F-3

   CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 AND 1999                F-4

   CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
     LOSS FOR THE YEAR ENDED JUNE 30, 2000, THE SIX MONTHS
     JUNE 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998                    F-6

   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
     PREFERRED STOCK FOR THE YEAR ENDED JUNE 30, 2000, THE SIX MONTHS
     ENDED JUNE 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998              F-7

   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE
     30, 2000, THE SIX MONTHS ENDED JUNE 30, 1999
     AND THE YEAR ENDED DECEMBER 31, 1998                                  F-8

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                             F-10

                                      F-1


<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Multimedia K.I.D. Inc. and Subsidiaries
Petach Tikva, Israel

     We have audited the accompanying consolidated balance sheets of Multimedia
K.I.D., Inc. and Subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficit) and preferred stock, and cash flows for the year ended June 30,
2000 and, the six months ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards in the United States. 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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Multimedia K.I.D., Inc. and Subsidiaries as of June 30,
2000 and 1999, and the results of their consolidated operations and their cash
flows for the year ended June 30, 2000 and, the six months ended June 30, 1999,
in conformity with generally accepted accounting principles in the United
States.


                                              BDO International

Tel Aviv, Israel
September 22, 2000


                                      F-2
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To The Shareholders of
Multimedia Kid - Intelligence In Education Limited
Israel

     We have audited the accompanying statement of operations of Multimedia Kid
- Intelligence in Education Ltd. (the "Company"), changes in shareholders'
deficit and cash flows for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

     In our opinion, based on our audit, the financial statements present
fairly, in all material respects, the financial position of Multimedia Kid
-Intelligence in Education Ltd. as of December 31, 1998 and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles in the United States.


                                          MOSHE HARPAZ
                                          CERTIFIED PUBLIC ACCOUNTANTS (ISR.)

Tel-Aviv, Israel
March 12, 2000

                                      F-3
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


June 30,                                                              2000            1999
--------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>
ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                   $     937,184  $       220,477
     Restricted cash                                                    76,223                -
     Accounts receivable
           Trade                                                     1,485,566          918,813
           Other                                                       312,678          147,176
      Notes receivable, net of allowance of $200,000                   621,738                -
      Inventory                                                        803,000          550,000
--------------------------------------------------------------------------------------------------

Total current assets                                                 4,236,389        1,836,466

FIXED ASSETS, net                                                      229,945          209,746


LONG-TERM INVESTMENTS                                                  237,777                -

LONG-TERM RECEIVABLE                                                   925,459          183,438
--------------------------------------------------------------------------------------------------
Total assets                                                     $   5,629,570  $     2,229,650
--------------------------------------------------------------------------------------------------
</TABLE>


                                      F-4
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


June 30,                                                                               2000            1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
     Short-term credit from bank and current maturities of
           long-term liability                                                   $    1,091,361   $     798,695
     Accounts payable - trade                                                           262,532          65,969
     Other accrued liabilities                                                          292,704         309,318
     Amount due to a company under common control                                             -         677,072
-------------------------------------------------------------------------------------------------------------------

Total current liabilities                                                             1,646,597       1,851,054

LONG-TERM LIABILITIES
      Long -term liability, net of current maturities                                   965,651         424,916
      Accrued severance pay, net                                                        130,435         150,000
-------------------------------------------------------------------------------------------------------------------

Total liabilities                                                                     2,742,683       2,425,970
-------------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES                                                                 -               -


STOCKHOLDERS' EQUITY (DEFICIT)
     Common stock, par value $0.001; 50,000,000 shares authorized;
         34,363,425 and 625,116 shares issued, 34,206,971 and
         625,116 shares outstanding                                                      34,363             625
     Additional paid-in capital                                                      14,209,584       2,344,829
     Stock subscriptions receivable                                                      (8,500)              -
     Rights in products acquired from a company under
         common control                                                              (1,750,000)     (1,750,000)
     Accumulated deficit                                                             (9,258,560)       (791,774)
     Treasury stock, at cost, 156,454 shares                                           (340,000)              -
-------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit)                                                  2,886,887        (196,320)
-------------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity (deficit)                             $    5,629,570   $   2,229,650
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>

                                                                                                         For the
                                                                      For the           For the            year
                                                                    year ended         six months          ended
                                                                      June 30,         ended June         December
                                                                       2000             30, 1999          31, 1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                 <C>                <C>
NET REVENUES                                                       $ 2,322,749        $   747,743        $ 1,499,082
COST OF REVENUES                                                     1,060,667            207,363            709,794
---------------------------------------------------------------------------------------------------------------------

GROSS PROFIT                                                         1,262,082            540,380            789,288

OPERATING EXPENSES
     Product research, development and enhancements                  1,905,146            319,467            697,611
     Selling, general and administration                             1,687,427            270,487            501,310
     Acquisition expenses                                              116,563                  -                  -
     Goodwill amortization                                             112,154                  -                  -
---------------------------------------------------------------------------------------------------------------------
Total operating expenses                                             3,821,290            589,954          1,198,921
---------------------------------------------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS                                     (2,559,208)           (49,574)          (409,633)

OTHER INCOME (EXPENSE)
     Interest expense                                               (4,828,879)           (61,511)           (18,418)
     Interest income                                                     9,573                  -                  -
---------------------------------------------------------------------------------------------------------------------

LOSS BEFORE INCOME TAX AND DISCONTINUED OPERATIONS                  (7,378,514)          (111,085)          (428,051)

PROVISION FOR INCOME TAX                                                     -                  -                  -
---------------------------------------------------------------------------------------------------------------------

LOSS BEFORE DISCONTINUED OPERATIONS                                 (7,378,514)          (111,085)          (428,051)

LOSS FROM DISCONTINUED OPERATIONS                                   (1,452,764)                 -                  -
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS                            364,492                  -                  -
---------------------------------------------------------------------------------------------------------------------

NET LOSS                                                           $(8,466,786)       $  (111,085)       $  (428,051)
---------------------------------------------------------------------------------------------------------------------

BASIC AND DILUTED LOSS PER SHARE
     Loss before discontinued operations                           $     (1.32)       $     (0.20)       $     (1.58)
     Discontinued operations                                             (0.26)                 -                  -
     Gain on disposal of discontinued operations                          0.07                  -                  -
---------------------------------------------------------------------------------------------------------------------
     Net loss per share                                            $     (1.51)       $     (0.20)       $     (1.58)
---------------------------------------------------------------------------------------------------------------------

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
     Basic and diluted                                               5,598,288            552,589            270,170
---------------------------------------------------------------------------------------------------------------------

COMPREHENSIVE LOSS AND ITS COMPONENTS CONSIST OF
  THE FOLLOWING:

NET LOSS                                                           $(8,466,786)       $  (111,085)       $  (428,051)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT                                 13,001                  -                  -
---------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS                                                 $(8,453,785)       $  (111,085)       $  (428,051)
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
  PREFERRED STOCK YEAR ENDED JUNE 30, 2000, SIX MONTHS ENDED JUNE 30, 1999 AND
                          YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                                                      Foreign
                                                Common Stock          Additional      Stock          Currency
                                           ----------------------      Paid-In     Subscriptions     Translation
                                            Shares        Amount       Capital      Receivable       Adjustment        Deficit
                                            ------        ------       -------      ----------       ----------        -------
<S>                                       <C>            <C>         <C>               <C>            <C>           <C>
BALANCE, January 1, 1998                  $156,279       $   156     $       162       $     -        $      -      $  (252,638)

Sale of common stock                       156,279           156         494,980             -               -                -
Net loss                                         -             -               -             -               -         (428,051)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1998                 312,558           312         495,142             -               -         (680,689)

Sale of common stock                       312,558           313       1,849,687             -               -                -
Net loss                                         -             -               -             -               -         (111,085)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, June 30, 1999                     625,116           625       2,344,829             -               -         (791,774)

Issuance of shares to officer               46,884            47       1,748,461             -               -                -
Reverse acquisition                      4,851,142         4,851      (1,548,121)       (8,500)        (13,119)               -
Conversion of redeemable
  convertible preferred stock to
  common stock                          24,160,000        24,160       6,819,773             -               -                -
Conversion of convertible debt to
  common stock                           4,533,239         4,533       4,632,700             -               -                -
Decrease in foreign currency
  translation adjustment                         -             -               -             -         (13,001)               -
Exercise of warrants                        49,260            49           1,736             -               -                -
Exercise of stock options                   97,784            98         210,206             -               -                -
Sale of subsidiary                               -             -               -             -          26,120                -
Net loss                                         -             -               -             -               -       (8,466,786)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, June 30, 2000                 $34,363,425       $34,363     $14,209,584       $(8,500)       $      -      $(9,258,560)
-----------------------------------------------------------------------------------------------------------------------------------


<CAPTION>

                                           Rights in
                                           Products
                                           Acquired
                                            From
                                          a Company
                                            Under                                               Treasury Stock
                                           Common          Preferred       Preferred        --------------------
                                           Control         Series B        Series C         Shares        Amount           Total
                                           -------         --------        --------         ------        ------           -----

<S>                                    <C>               <C>               <C>                         <C>            <C>
BALANCE, January 1, 1998                $(1,750,000)      $        -        $        -            -     $       -      $(2,002,320)

Sale of common stock                              -                -                 -            -             -          495,136
Net loss                                          -                -                 -            -             -         (428,051)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1998               (1,750,000)               -                 -            -             -       (1,935,235)

Sale of common stock                              -                -                 -            -             -        1,850,000
Net loss                                          -                -                 -            -             -         (111,085)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, June 30, 1999                   (1,750,000)               -                 -            -             -         (196,320)

Issuance of shares to officer                     -                -                 -            -             -        1,748,508
Reverse acquisition                               -        3,421,966         3,421,967      156,454      (340,000)       4,939,044
Conversion of redeemable
  convertible preferred stock to
  common stock                                    -       (3,421,966)       (3,421,967)           -             -                -
Conversion of convertible debt to
  common stock                                    -                -                 -            -             -        4,637,233
Decrease in foreign currency
  translation adjustment                          -                -                 -            -             -          (13,001)
Exercise of warrants                              -                -                 -            -             -            1,785
Exercise of stock options                         -                -                 -            -             -          210,304
Sale of subsidiary                                -                -                 -            -             -           26,120
Net loss                                          -                -                 -            -             -       (8,466,786)
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, June 30, 2000                  $(1,750,000)      $        -        $        -     $156,454     $(340,000)      $2,886,887
-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>
                    See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>

                                                                        For the              For the               For the
                                                                       year ended           six months            year ended
                                                                        June 30,            ended June             December
                                                                         2000                30, 1999              31, 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                          $(8,466,786)          $  (111,085)          $  (428,051)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
     Depreciation                                                         83,976                32,152                38,243
     Amortization of original issue discount                           4,449,080                     -                     -
     Amortization of goodwill                                            112,154                     -                     -
     Stock compensation                                                1,748,508                     -                     -
     Change in net assets of discontinued operations                    (477,201)                    -                     -
     Gain on sale of subsidiary                                         (364,492)                    -                     -
     Loss from discontinued operations                                 1,452,764                     -                     -
     Other                                                                39,450                 1,574                (2,124)
     Increase (decrease) from changes in operating
       assets and liabilities, net of business
       acquisition:
       Trade receivables                                              (1,308,773)             (575,378)             (490,012)
       Prepaid and other assets                                         (165,502)              (78,451)              (21,459)
       Inventory                                                        (253,000)              (15,061)             (224,486)
       Accounts payable                                                  333,786              (184,723)               85,310
       Accrued severance                                                 (19,565)                7,212                86,186
       Other accrued liabilities                                         (16,314)              128,446              (193,579)
-----------------------------------------------------------------------------------------------------------------------------------

Net cash used in operating activities                                 (2,851,915)             (795,314)           (1,149,972)
-----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of fixed assets                                             (104,175)              (32,930)             (166,968)
   Cash acquired in purchase                                             129,154                     -                     -
   Proceeds from sale of subsidiary                                      353,262                     -                     -
   Short-term investments                                               (237,776)               (4,763)                    -
-----------------------------------------------------------------------------------------------------------------------------------

Net cash provided by (used in) investing activities                      140,465               (37,693)             (166,968)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-8
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                          For the
                                                                       For the           For the            year
                                                                     year ended        six months           ended
                                                                      June 30,         ended June          December
                                                                        2000            30, 1999           31, 1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                 <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Restricted cash                                                    (76,223)               --                  --
   Short-term credits received, net                                    92,250             213,602             142,689
   Loan payments                                                     (259,060)             (3,677)             (5,293)
   Loan proceeds                                                    1,000,000             548,704              19,470
   Proceeds from sale of common stock                                 208,028             850,000           1,495,136
   Decrease in amount due to a Company under common
     control                                                         (677,072)           (560,137)           (330,488)
   Proceeds from sale of convertible debt, net of costs             3,140,234                --                  --
-----------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                           3,428,157           1,048,492           1,321,514
-----------------------------------------------------------------------------------------------------------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                             716,707             215,485               4,574

CASH AND CASH EQUIVALENTS, beginning of period                        220,477               4,992                 418
-----------------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of period                          $   937,184         $   220,477         $     4,992


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid:
     Cash paid during the year for interest                       $   272,707         $    68,864         $    33,257
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


NON-CASH TRANSACTIONS
   During the six months ended June 30, 1999, the Company had a receipt on
     account of shares for $1,000,000, which was converted into common stock.

   During the year ended June 30, 2000, the Company converted their convertible
     promissory notes of $4,500,000 and accrued interest of $137,224 into
     4,533,239 shares of common stock.

   During the year ended June 30, 2000, the company also converted its
     redeemable convertible preferred stock into 24,160,000 shares of common
     stock.

   As part of the proceeds from the sale of their software solutions for network
     marketing companies division the Company obtained a notes receivable of
     $1,001,738.


                    See accompanying notes to consolidated financial statements.


                                      F-9
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. COMPANY                   (A) COMPANY ORGANIZATION AND NATURE OF BUSINESS
   ORGANIZATION,
   SIGNIFICANT               Multimedia K.I.D., Inc. (a Delaware corporation)
   AND ACCOUNTING            (Parent and the Company), formerly known as Jenkon
   POLICIES MANAGEMENT'S     International, Inc., through its wholly-owned
   PLANS                     subsidiaries, Jenkon International, Inc. (a
                             Washington Corporation), and Multimedia K.I.D. -
                             Intelligence in Education Ltd. ("MKid - Israel),
                             (the Israeli operating entity), currently develops
                             educational systems for kindergartens, schools,
                             special education, and enrichment centers. The
                             Company's systems combine interactive software,
                             playful instructive aides and electronic interfaces
                             The Company's products have been marketed and
                             installed in many countries around the world. The
                             products provide educational, three-dimensional
                             computerized environments that combine physical
                             components such as wooden blocks, task cards,
                             worksheets and books with the latest computer based
                             technologies.

                             The Company changed its fiscal year-end from
                             December 31 to June 30 during 1999. As a result,
                             the financial results presented are for the year
                             ended June 30, 2000, the six months ended June 30,
                             1999 and the year ended December 31, 1998. During
                             the six month period ended June 30, 1998, the
                             Company reported revenues of approximately $758,000
                             and a net loss of approximately $243,000
                             (unaudited).

                             (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.

                             FUNCTIONAL CURRENCY

                             The currency of the primary economic environment in
                             which the operations of the Company are conducted
                             is the U.S. dollar ("dollar" or "$"). Most of the
                             Company's revenues are derived in Israeli currency
                             linked to the dollar or dollars. Most of the
                             components of the products that the Company
                             develops and markets are purchased in Israeli
                             currency linked to the dollar or in dollars. To the
                             extent that the Company's revenues are derived, and
                             expenses are incurred, in Israeli currency linked
                             to the dollar, contract amounts are stated in
                             dollars and settled in Israeli currency linked to
                             the changes in the exchange rate between the dollar
                             and Israeli currency. Thus the functional currency
                             of the Company is the dollar.

                                      F-10
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  COMPANY                  Transactions and balances originally denominated in
    ORGANIZATION,            dollars or linked thereto are presented at their
    SIGNIFICANT              original amounts. Balances in non-dollar currencies
    ACCOUNTING POLICIES      are translated into dollars using historical and
    AND MANAGEMENT'S         current exchange rates for non-monetary and
    PLANS (CONTINUED)        monetary balances, respectively. For non-dollar
                             transactions and other items (stated below)
                             reflected in the statements of operations, the
                             following exchange rates are used:

                             (1) For transactions - exchange rates at
                                 transaction dates or average rates and;

                             (2) For other items (derived from non-monetary
                                 balance sheet items such as depreciation and
                                 changes in inventories) - historical exchange
                                 rates. The resulting currency transaction gains
                                 or losses are carried to financial income or
                                 expenses, as appropriate.

                             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.

                             CONCENTRATION OF CREDIT RISK

                             The Company places its cash and temporary cash
                             investments with high credit worthy institutions.
                             Management believes that the financial institutions
                             that maintain the Company's investments are
                             financially sound, and accordingly, minimal credit
                             risk exists with respect to these investments.

                             The Company sells its products and services
                             primarily to customers in the Educational 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, 2000 and 1999, the Company had four and
                             three customers, respectively, which represented
                             approximately 66% and 36% of accounts and long-term
                             receivables.

                             INVENTORY

                             Inventory is valued at the lower of cost or market
                             on a FIFO (first-in, first-out) basis.

                             FIXED ASSETS

                             Fixed assets 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 17
                             years.

                             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 fixed
                             assets 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.


                                      F-11
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. COMPANY                   RESEARCH AND DEVELOPMENT COSTS
   ORGANIZATION,
   SIGNIFICANT               Costs incurred in the research and development of
   ACCOUNTING POLICIES       new software products and enhancements to existing
   AND MANAGEMENT'S          software products are expensed as incurred (and
   PLANS (CONTINUED)         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.

                             As of June 30, 2000, no software costs have been
                             capitalized.

                             REVENUE RECOGNITION

                             The Company generates revenue from the sale of
                             software and products containing software that is
                             not considered incidental to the product as a
                             whole. As such, the Company recognizes revenue in
                             accordance with Statement of Position 97-2,
                             "Software Revenue Recognition", ("SOP 97-2").
                             Certain terms of SOP 97-2, have been subsequently
                             amended by Statement of Position 98-4 and 98-9. In
                             accordance with SOP 97-2, the Company recognizes
                             revenue on sales of internally-developed software
                             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
                             defers all revenue from an arrangement 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.

                             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.

                             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
                             expected to be 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 realized.


                                      F-12
<PAGE>
                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. COMPANY                   EARNINGS (LOSS) PER SHARE
   ORGANIZATION,
   SIGNIFICANT               The Company computes loss per common share under
   ACCOUNTING POLICIES       SFAS No. 128, "Earnings Per Share", which requires
   AND MANAGEMENT'S          presentation of basic and diluted earnings (loss)
   PLANS (CONTINUED)         per share. Basic earnings (loss) per common share
                             is computed by dividing income or loss available to
                             common shareholders by the weighted average number
                             of common shares outstanding for the reporting
                             period. Diluted earnings (loss) per common share
                             reflects the potential dilution that could occur if
                             securities or other contracts, such as stock
                             options, to issue Common Stock were exercised or
                             converted into Common Stock, unless antidulitive.

                             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 pro-forma 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.


                                      F-13
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. COMPANY                   FAIR VALUE OF FINANCIAL INSTRUMENTS
   ORGANIZATION,
   SIGNIFICANT               Quoted market prices generally are not available
   ACCOUNTING POLICIES       for all of the Company's financial instruments.
   AND MANAGEMENT'S          Accordingly, fair values are based on judgments
   PLANS (CONTINUED)         regarding current economic conditions, risk
                             characteristics of various financial instruments
                             and other factors. These estimates involve
                             uncertainties and matters of judgment, and
                             therefore, cannot be determined with precision.
                             Changes in assumptions could significantly affect
                             the estimates.

                             A description of the methods and assumptions used
                             to estimate the fair value of each class of the
                             Company's financial instruments is as follows:

                             Cash and cash equivalents, restricted cash,
                             receivables, inventory, accounts payable,
                             short-term credit from bank and other accrued
                             expenses are recorded at carrying amounts which
                             approximate fair value due to the short maturity of
                             these instruments.

                             The fair value of the Company's long-term
                             investments and long-term receivable are recorded
                             at carrying amounts which approximate fair value.

                             The fair value of the Company's long-term liability
                             are based on quoted market prices for similar
                             issues of debt with similar remaining maturities
                             and terms, and therefore the carrying amounts
                             approximate fair value.

                             NEW ACCOUNTING PRONOUNCEMENTS

                             The Financial Accounting Standards Board issued
                             Interpretation ("FIN") No. 44, "Accounting for
                             Certain Transactions involving Stock Compensation",
                             an Interpretation of APB Opinion No. 25, FIN 44
                             clarifies the application of Opinion No. 25 for (a)
                             the definition of an employee for purposes of
                             applying Opinion No. 25, (b) the criteria for
                             determining whether a plan qualifies as a
                             non-compensatory plan, (c) the accounting
                             consequences of various modifications to the terms
                             of a previously fixed stock option award, and (d)
                             the accounting for an exchange of stock
                             compensation awards in a business combination. FIN
                             44 is effective July 2, 2000, but certain
                             conclusions cover specific events that occur after
                             either December 15, 1998, or January 12, 2000. The
                             adoption of this standard had no material effect,
                             if any, on the Company's financial position or
                             results of operations.

                             The Securities and Exchange Commission issued Staff
                             Accounting Bulletin No. 101, Revenue Recognition
                             ("SAB 101") which broadly addresses how companies
                             report revenues in their financial statements
                             effective the fourth fiscal quarter of years
                             beginning statements effective the fourth fiscal
                             quarter of years beginning after December 31, 1999.
                             The Company is currently evaluating the effect, if
                             any, of the adoption of this policy on its
                             financial position or results of operations.


                                      F-14
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. ACQUISITION AND           On December 16, 1999, the Company entered into a
   DISCONTINUED              Stock Exchange Agreement and Plan of Reorganization
   OPERATIONS                (the "Agreement") with MKid -Israel and the holders
                             of all MKid - Israel's capital stock, to purchase
                             all the outstanding capital stock of MKid - Israel
                             in exchange for 840,000 shares of Common Stock,
                             1,208,000 shares of Series B Preferred Stock, and
                             1,208,000 shares of Series C Preferred Stock. The
                             acquisition has been accounted for as a reverse
                             acquisition and accordingly the outstanding stock
                             of the Company at December 16, 1999 was valued at
                             approximately $7,806,000. The Series B and Series C
                             Preferred Stock was converted into an aggregate of
                             24,160,000 shares of Company Common Stock upon
                             shareholder approval on May 31, 2000. As a result
                             of this conversion, the former stockholders of MKid
                             - Israel owned approximately 73% of the Company's
                             fully-diluted Common Stock after taking into
                             consideration the conversion of Convertible
                             Promissory Notes described in Note 3.

                             For accounting purposes, the acquisition has been
                             treated as a reverse acquisition whereby MKid -
                             Israel acquired Jenkon. The assets and liabilities
                             of Jenkon have been recorded at estimated fair
                             market value on the date of acquisition using the
                             purchase method of accounting. The combined
                             consolidated financial statements represent MKid -
                             Israel on a historical basis with the results of
                             operations of Jenkon for the period from December
                             16, 1999 through June 30, 2000. At December 16,
                             1999, the purchase price exceeded the estimated net
                             assets by approximately $13,725,300, which has been
                             recorded as goodwill.

                             Subsequent to the acquisition, on April 6, 2000,
                             the Company's then existing Board of Directors
                             entered into a Stock Purchase Agreement for the
                             sale of all its operating assets and liabilities
                             associated with the software solutions for network
                             marketing companies involved in the direct sales
                             industry. The combined entity did not recognize a
                             deferred tax benefit on the loss from discontinued
                             operations due to a 100% valuation allowance
                             provided on the deferred tax assets. The combined
                             entity disposed of these assets on June 2, 2000 and
                             recorded a gain on disposal of $364,492. The
                             original expected loss on disposal was estimated to
                             be $12,501,000, representing net assets of
                             $500,800, goodwill of $13,725,000, reduced by
                             estimated operating losses subsequent to the
                             discontinued operation measurement date of
                             approximately $475,000 and accrued estimated
                             run-off and other disposal costs of $75,000 less
                             the purchase price of $1,175,000. In accordance
                             with EITF 87-11, "Allocation of Purchase Price to
                             Assets to Be Sold", the loss on disposal of
                             $11,907,000 was accounted for as a result of the
                             reverse merger. The remaining goodwill of
                             $1,223,500, after the purchase price adjustment,
                             was being amortized based on a straight-line basis
                             until it was written-off with the disposal. Gross
                             revenues for the discontinued operations for the
                             period were $1,678,500, all of which is included in
                             the loss for discontinued operations.


                                      F-15
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. ACQUISITION AND           The purchase price of $1,175,000 was to be payable
   DISCONTINUED              as follows: (i) $500,000 in cash upon the closing
   OPERATIONS                of the sale of Summit V stock, and (ii) $675,000 by
   (CONTINUED)               delivery of a Promissory Note bearing interest at
                             the rate of 10% per annum payable quarterly in
                             arrears, with all principal and interest due and
                             payable one year from the date of Closing, to be
                             secured by a pledge of 75,000 shares of Company
                             Common Stock. In order to facilitate the Closing,
                             the Company agreed to accept a short-term
                             promissory note from JIA in lieu of a portion of
                             the cash due at Closing. The Shortfall Note is in
                             the original principal amount of $326,738, bears
                             interest at the rate of 10% per annum, subject to
                             increase upon default, and was due and payable in
                             full two weeks from the Closing Date (June 16,
                             2000). The Shortfall Note is secured by a pledge of
                             300,000 shares of Company Common Stock. As of
                             September 18, 2000, the principal balance of the
                             shortfall note was approximately $75,000. Due to
                             various issues surrounding the collectibility of
                             the $675,000 promissory note, the Company has
                             recorded an allowance of $200,000 which reduced the
                             gain on sale.

                             As a result of the presentation of the Jenkon
                             operations as being discontinued, pro forma
                             disclosures assuming the acquisition had occurred
                             as of an earlier date are not presented, as the pro
                             forma amounts would not be significantly different
                             than the historical amounts reported.

3. PRIVATE PLACEMENT         On December 16, 1999, the Company completed a
                             private placement of an aggregate of $4,500,000 of
                             Convertible Promissory Notes, of which $3,735,000
                             was collected on that day. The balance of the notes
                             had been received prior to December 16, 1999. Such
                             notes bore interest at an annual rate of 12% from
                             and after January 1, 2000 through maturity. Accrued
                             interest was paid on February 1, 2000 and March 1,
                             2000. Accrued interest from March 1, 2000 through
                             conversion was paid in stock at maturity.

                             The principal balance of the Notes and outstanding
                             interest were automatically converted into Common
                             Stock of the Company at a conversion rate of $1.00
                             per share upon stockholder approval on May 31,
                             2000.

                             Original issue discount of $4,500,000, net of
                             $59,020 which was amortized prior to the
                             acquisition date, was recorded for the difference
                             between the reported market price of the Company's
                             Common Stock when the Convertible Promissory Notes
                             were issued and the Convertible Promissory Notes
                             conversion price of $1.00 per share. The original
                             issue discount was amortized on a straight-line
                             basis from the issue date to the date the Notes
                             were converted and reported as interest expense in
                             the statement of operations.


                                      F-16
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4. FINANCIAL VIABILITY       The Company's consolidated financial statements
                             have been prepared on a going concern basis, which
                             contemplates continuity of operations, realization
                             of assets and the liquidation of liabilities in the
                             normal course of business. The appropriateness of
                             using the going concern basis is dependent upon,
                             among other things, the adequate resolution of the
                             Company's near and long term liquidity needs.
                             Although the Company raised capital through the
                             private placement described above, it has and
                             continues to experience negative cash flow. The
                             consolidated financial statements do not include
                             any adjustments relating to the Company's ability
                             to continue as a going concern.

                             The Company believes that its current operating
                             capital is sufficient to maintain current operating
                             levels through June 30, 2001. The Company intends
                             to raise additional capital in order to execute its
                             business plan, however, no assurances can be given
                             that the Company will be successful in its efforts.

5. INVENTORY                 The components of inventory are summarized as
                             follows:

                             June 30,                         2000       1999
                             ---------------------------------------------------

                             Raw materials and supplies    $ 250,627  $ 180,000
                             Work in process                 136,154    240,000
                             Finished product                416,219    130,000
                             ---------------------------------------------------
                             Total inventory               $ 803,000  $ 550,000
                             ---------------------------------------------------

                             Raw materials and supplies include electronic
                             components in the amount of $119,900 and $60,000 as
                             of June 30, 2000 and 1999, respectively.

6. LONG-TERM RECEIVABLE      The long-term receivable including annual
                             maturities are summarized as follows:

                             June 30,                         2000       1999
                             ---------------------------------------------------

                             First year                    $ 452,000  $  60,000
                             Second year                     576,928    100,000
                             Third year                      263,072    160,000
                             Fourth year                     174,000          -
                             Fifth year                       43,500          -
                             ---------------------------------------------------
                                                           1,509,500    320,000
                             Less imputed interest
                               at 8.75%                     (155,710)   (83,670)
                             ---------------------------------------------------
                                                           1,353,790    236,330
                             Less current portion           (428,331)   (52,892)
                             ---------------------------------------------------
                             Total long-term receivable    $ 925,459  $ 183,438
                             ---------------------------------------------------

                             The current portion of the long-term receivable is
                             included in trade receivables on the balance sheet.


                                      F-17
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7. RESTRICTED CASH AND       The amount of approximately $314,000 of cash is
   LONG-TERM                 pledged in order to secure lease guarantees for a
   INVESTMENTS               period of 5 years. Of the cash pledged, $76,223 is
                             classified as restricted cash because the Company
                             can access within twelve months and the remaining
                             balance of $237,777 is classified as long-term
                             investments because its restricted for a period
                             over twelve months.

8. FIXED ASSETS              Fixed assets are summarized as follows:

                             June 30,                           2000     1999
                             ---------------------------------------------------

                             Computer equipment              $252,381  $173,118
                             Office furniture and equipment    77,269    55,567
                             Machinery                         19,808    16,917
                             Vehicles                          51,340    51,021
                             ---------------------------------------------------
                                                              400,798   296,623
                             Accumulated depreciation        (170,853)  (86,877)
                             ---------------------------------------------------

                             Fixed assets, net               $229,945  $209,746
                             ---------------------------------------------------

                             Depreciation expense for the year ended June 30,
                             2000 was $83,976, for the six months ended June 30,
                             1999 was $32,152 and the year ended December 1998
                             was $38,243.

9. SHORT-TERM BANK CREDIT    Short-term bank credit and current maturities of
                             long-term liabilities are summarized as follows:

                             June 30,                      2000         1999
                             ---------------------------------------------------

                             Bank line of credit        $  722,331    $530,912
                             Bank overdraft                 59,530     158,699
                             Current maturities of
                               long-term debt              309,500     109,084
                             ---------------------------------------------------

                                                        $1,091,361    $798,695
                             ---------------------------------------------------

                             The bank line of credit bears interest at 11% and
                             bank overdraft bears interest at 22%.

                             The short-term bank credit is due upon demand. The
                             short-term bank credit is collateralized by a full
                             guarantee and limited guarantee by the Vice
                             Chairman and Chairman, respectively.


                                      F-18
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10. LONG-TERM LIABILITIES    Long-term liabilities consist of the following:

<TABLE>
<CAPTION>

                             June 30,                                               2000           1999
                             -------------------------------------------------------------------------------
                             <S>                                               <C>            <C>
                             Amounts payable to a credit institution for a
                               loan, payable in minimum monthly
                               installments of approximately $25,000, due
                               in November 2004, including interest at
                               5-9.6%, collateralized by the personal
                               assets of an officer of the Company.  The
                               loan is linked to the dollar.                     $1,250,009     $  516,874

                             Note payable to a company for purchase of fixed
                               assets, payable in monthly installments of
                               approximately $795, due at various dates
                               through September 2003, including interest
                               at 6.35%, collateralized by the fixed
                               assets.                                               25,142         17,126
                             -------------------------------------------------------------------------------

                             Total                                                1,275,151        534,000
                             Less current portion                                   309,500        109,084
                             -------------------------------------------------------------------------------

                                                                                 $  965,651     $  424,916
                             -------------------------------------------------------------------------------
</TABLE>

                             Aggregate maturities of long-term debt for the next
                             four years ending June 30, 2000 are as follows:

                                Year                                Amount
                             ---------------------------------------------------

                               2001                             $  309,500
                               2002                                304,817
                               2003                                301,284
                               2004                                 50,050
                             ---------------------------------------------------
                                                                $  965,651
                             ---------------------------------------------------

11.  INCOME TAXES            The provision for income taxes differs from the
                             expected statutory federal income taxes as follows:

<TABLE>
<CAPTION>

                                                                                                Twelve Months
                                                                           Six Months               Ended
                                                      Year Ended             Ended               December 31,
                                                     June 30, 2000        June 30, 1999              1998
                                                    ------------------  ------------------   ----------------------
                                                     Amount       %       Amount      %       Amount         %
                             --------------------------------------------------------------------------------------
                             <S>                   <C>          <C>      <C>        <C>       <C>          <C>
                             Net loss before
                                income tax and
                                discontinued
                                operations        $(7,378,514)    -     $(111,085)    -     $(428,051)      -
                             Provision
                                (benefit) at
                                the federal
                                statutory rate     (2,576,695)  (34)%     (37,769)  (34)%    (145,537)    (34)%
                             Difference between
                                US and Israeli
                                tax rates            (140,280)   (2)%      (2,222)   (2)%      (8,561)     (2) %
                             Non-deductible
                                expenses              636,515     9%        4,416     4%        6,297       1 %
                             Change in
                                valuation
                                allowance on
                                net deferred
                                tax assets          2,080,460    25%       35,575    32%      147,801      35 %
                             --------------------------------------------------------------------------------------

                             Provision for
                                income tax        $         -     -%    $       -     -%     $      -       -%
                             --------------------------------------------------------------------------------------
</TABLE>

                                      F-19
<PAGE>
                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Our subsidiary, MKID-Israel, is subject to the Income Tax Law (Inflationary
Adjustments), 1985, in Israel, which instituted the measurement of the results
for tax purposes on real (inflation-adjusted) basis. The various adjustments
required under this law are intended to adjust the nominal results for tax
purposes to NIS of the end of the year (according to the changes in the index).
The tax rate used for computing the provision for current taxes in Israel is
30%.



11. INCOME TAXES             Temporary differences which give rise to deferred
    (CONTINUED)              tax assets were as follows:


                             June 30,                     2000         1999
                             ---------------------------------------------------

                             Deferred tax assets:
                               Loss carryforwards      $5,983,013   $   261,405
                               Allowances and
                                 reserves                 278,515        68,400
                             ---------------------------------------------------

                                                        6,261,528       329,805
                             Less valuation allowance  (6,261,528)     (329,805)
                             ---------------------------------------------------

                             Net deferred tax          $        -   $         -
                             ---------------------------------------------------

                             The Company has recorded a 100% valuation allowance
                             on the net deferred tax asset since management
                             cannot 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. There was such a change in
                             ownership on December 16, 1999, due to the reverse
                             acquisition.

                             At June 30, 2000, the Company has an U.S. net loss
                             operating carryforward of approximately $11,547,000
                             which will expire at various dates through 2020.
                             The Company also has an Israeli net operating loss
                             of approximately $938,000, which may be carried
                             forward and offset against future taxable income
                             for an indefinite period.

12. SHAREHOLDERS'            STOCK SPLIT
    EQUITY
                             As a result of the December 16, 1999 reverse
                             acquisition, the Company issued 840,000 shares of
                             Common Stock in exchange for 5,375 shares of MKid -
                             Israel Common Stock. This has been treated as a
                             stock split of 156.28 for 1 and is retroactively
                             reflected for all periods presented.

                             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. The aggregate number of
                             shares which may be issued pursuant to exercise of
                             Options granted under the Plan, as amended, shall
                             not exceed 1,000,000 shares of Common Stock.


                                      F-20
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. SHAREHOLDERS'            WARRANTS
    EQUITY
    (CONTINUED)              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.
                             Warrants to purchase 96,988 shares of common stock
                             were outstanding at June 30, 2000.

                             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. Warrants to purchase
                             72,740 shares of common stock were outstanding at
                             June 30, 2000.

                             In connection with the Company's 1998 Initial
                             Public Offering, the Company issued warrants to
                             purchase 150,000 shares of common stock at an
                             exercise price of $8.25. None of these warrants
                             have been exercised as of June 30, 2000.

                             The following summarizes stock option and warrant
                             activity during the six month ended June 30, 1998
                             and years ended June 30, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                                                 Weighted
                                                                                  Options        Average
                                                                                    and          Exercise
                                                                                 Warrants         Price
                             ---------------------------------------------------------------------------------
                             <S>                                                 <C>                   <C>
                             Outstanding at January 1, 1998                         678,495          $  1.82

                             Granted                                                186,524             1.82
                             ---------------------------------------------------------------------------------

                             Outstanding at June 30, 1998                           865,019             1.82

                             Granted                                                294,613             5.02

                             Expired/canceled                                       (96,628)            2.17
                             ---------------------------------------------------------------------------------
                             Outstanding at June 30, 1999                         1,063,004             2.67

                             Granted                                                203,500             0.92

                             Exercised before reverse acquisition                  (160,093)            1.27

                             Exercised after reverse acquisition                   (147,044)            1.44

                             Expired/canceled                                      (246,256)            0.92
                             ---------------------------------------------------------------------------------

                             Outstanding at June 30, 2000                           713,111          $  3.35
                             ---------------------------------------------------------------------------------
</TABLE>

                                      F-21
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. SHAREHOLDERS'            Information  relating to stock options and warrants
    EQUITY                   at June 30, 2000 summarized  by exercise price are
    (CONTINUED)              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>
                                $0.6392        72,740          36.0       $0.6392        72,740     $0.6392
                                $1.1250        39,113           2.0       $1.1250        39,113     $1.1250
                                $1.1880        20,000           2.0       $1.1880        20,000     $1.1880
                                $1.3750           500           2.0       $1.3750           500     $1.3750
                                $1.5000        25,000           2.0       $1.5000        25,000     $1.5000
                                $1.7500         8,000           2.0       $1.7500         8,000     $1.7500
                                $2.0000        20,000           2.0       $2.0000        20,000     $2.0000
                                $2.1732       156,454           2.0       $2.1732       156,454     $2.1732
                                $2.2190        50,000           2.0       $2.2190        50,000     $2.2190
                                $2.5567        39,113           2.0       $2.5567        39,113     $2.5567
                                $2.6845        96,988          21.5       $2.6845        96,988     $2.6845
                                $3.8350        35,203           2.0       $3.8350        35,203     $3.8350
                                $8.2500       150,000          26.0       $8.2500       150,000     $8.2500
                             ----------------------------------------------------------------------------------

                                $0.6392 -
                                $8.2500       713,111          13.7       $3.3500       713,111     $3.3500
                             ----------------------------------------------------------------------------------
</TABLE>

                             All stock options granted to employees of the
                             discontinued operations vested immediately upon the
                             reverse acquisition in accordance with the
                             provisions of the employee stock option plan.
                             Employees with these options were given 90 days
                             from the sale date in order to exercise their
                             options.

                             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 year ended June 30, 2000, six months
                             ended June 30, 1999 and year ended December 31,
                             1998 would have been the pro forma amounts
                             indicated in the table below:

<TABLE>
<CAPTION>

                                                                             Six months         Year ended
                                                         Year ended         ended June            December
                                                        June 30, 2000        30, 1999             31, 1998
                             ----------------------------------------------------------------------------------
                             <S>                      <C>                 <C>                 <C>
                             Net loss
                                 As reported           $ (8,466,786)       $   (111,085)       $   (428,051)
                                 Pro forma               (8,466,786)           (111,085)           (428,051)
                             Basic and diluted loss
                              per share:
                                 As reported           $      (1.51)       $      (0.20)       $      (1.58)
                                 Pro forma                    (1.51)              (0.20)              (1.58)
                             ----------------------------------------------------------------------------------

</TABLE>


                                      F-22
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13. RELATED PARTY            TRANSACTION WITH P.M.D. TECHNOLOGY AND EDUCATIONAL
    TRANSACTIONS             SYSTEMS LTD. ("PMD")

                             Pursuant to an agreement dated January 21, 1996,
                             the Company was granted a right of first refusal to
                             buy all the rights ("Rights") to an interactive
                             learning system named "Multimedia K.I.D." and of
                             the cognitive application named "Action K.I.D."
                             from PMD., a company under a common control at that
                             time, for $1,750,000 (the "purchase price"). In
                             accordance with applicable accounting standards,
                             this amount was carried to shareholders' equity, as
                             a separate item.

                             On April 2, 1998, the Company and PMD agreed to
                             transfer ownership in the rights to the Company.
                             The remaining balance of the purchase price at
                             April 2, 1998 and at December 31, 1997, of
                             $1,433,000, was fully paid in January 2000.

                             In 1998, the majority of PMD's employees were
                             transferred to the Company. Upon transfer, the
                             Company received approximately $47,000 from PMD to
                             cover severance pay liability which had accrued in
                             respect of those employees through the date of the
                             transfer.

                             In March 1998, the Company acquired tangible assets
                             and inventory for $100,000 from PMD. Moreover, PMD
                             undertook to transfer all orders and payments it
                             receives to the Company.

                             OTHER

                             In December 1999, the Company agreed to forgive a
                             receivable due from an officer of $116,563. This
                             amount is recorded as acquisition expense on the
                             consolidated statement of operations.

                             During December 1999, MKid - Israel issued 300
                             pre-split shares of its stock, convertible into
                             both common and preferred stock of the Company, to
                             an officer of the subsidiary. The shares converted
                             into the Company's Common and Preferred upon the
                             date of acquisition as further described in Notes 2
                             and 3. As a result, MKid - Israel recorded a
                             non-cash compensation expense of $1,748,508. This
                             compensation expense was allocated in accordance
                             with the general allocation of the officer's
                             salary.


                                      F-23
<PAGE>


                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13. RELATED PARTY            Also, prior to the acquisition, MKid - Israel
    TRANSACTIONS             issued 1,075 shares of its stock as a finder's fee
    (CONTINUED)              to certain outside advisors. These shares converted
                             into 500,000 shares of the Company's Preferred
                             Series B and C Stock and resulted in non-cash
                             acquisition costs of approximately $5,539,000. This
                             amount was capitalized as part of the overall
                             purchase price and resulted in additional goodwill
                             (See Note 3).

                             During the year, the Company's Summit V
                             discontinued operation paid to Jenetek, LLC, a
                             Company owned and operated by a previous Director,
                             consulting fees above and beyond the monthly amount
                             set forth in his consulting agreement.

14. COMMITMENTS              The Company leases its facilities under
    AND                      noncancellable operating leases which expire at
    CONTINGENCIES            various dates through March 2010.

                             The Company leases certain equipment under
                             agreements which are classified as capital leases
                             and included in the long-term liabilities footnote.
                             Equipment leases have purchase options at the end
                             of the original lease term.

                             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, 2000:

                                                                     Operating
                                Year                                  Leases
                             ---------------------------------------------------

                                2001                                  $ 76,800
                                2002                                    72,900
                                2003                                    61,200
                                2004                                    61,200
                                2005                                    61,200
                                Thereafter                             228,300
                             ---------------------------------------------------

                             Total minimum lease payments             $561,600
                             ---------------------------------------------------

                             The Company's rental expense for operating leases
                             was approximately $63,000, $24,000 and $48,000 for
                             the year ended June 30, 2000, the six months ended
                             June 30, 1999 and the year ended December 31, 1998,
                             respectively.


                                      F-24
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14. COMMITMENTS              In the ordinary course of business, the Company is
    AND                      subject to various legal proceedings and claims. In
    CONTINGENCIES            the opinion of management, the amount of ultimate
    (CONTINUED)              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 employment agreements with eight of
                             its employees including three executive officers.
                             The terms of the agreements with one executive
                             officer provides for a monthly salary of 45,000 NIS
                             (approximately US $11,500) indexed to the Israeli
                             Consumer Price Index and a contribution equal to
                             7.5% of gross salary to an advanced study fund
                             under the officer's name. The agreement with the
                             officer has an indefinite time period, but can be
                             terminated by written notice at least 180 days
                             prior to termination. The terms of the agreement
                             with the second executive officer provides for a
                             monthly salary of 56,000 NIS (approximately US
                             $14,300) indexed to the Israeli Consumer Price
                             Index and a contribution equal to 7.5% of gross
                             salary to an advanced study fund under the
                             officer's name. The agreement with the officer has
                             an indefinite time period, but can be terminated by
                             written notice at least 90 days prior to
                             termination. The agreement with the third officer
                             provides for a monthly salary of $10,416 with a
                             term of one year. The agreement contains a
                             severance package if terminated within the first
                             year.

                             The agreements with the remaining five employees
                             provide for a total of 48,674 NIS (approximately US
                             $12,400) for four Israeli employees and $12,500 for
                             one US employee. The agreements with the four
                             Israeli employees have an indefinite time period,
                             but can be terminated by written notice at least 90
                             days prior to termination. The agreement with the
                             US employee also has an indefinite time period, but
                             can be terminated by written notice at least 60
                             days prior to termination.

                             PRODUCT RELATED AGREEMENTS

                             The Company utilizes third-party partners and
                             independent distributors in the distribution and
                             marketing of its products. Such third parties
                             receive a commission of 4-10% of the sale.

                             The Company receives grants from the Office of the
                             Chief Scientist in the Israeli Ministry of Commerce
                             and Industry. These grants commit the Company to
                             pay royalties to the Ministry in an amount of 3-5%
                             of proceeds from the sale of products developed
                             with the grant funds received. The amount of the
                             grant received is linked to the dollar and bears
                             interest at LIBOR. Royalties paid are limited to
                             the grant received. No royalties have been paid
                             through June 30, 2000.


                                      F-25
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15. MAJOR CUSTOMERS          Revenues from sales of products, services and
                             marketing rights from principal distributors and
                             customers exceeding 10% of revenues for the
                             relevant period are as follows:

                                                          Six
                                                         months       Year
                                          Year ended     ended       ended
                                           June 30,     June 30,  December 31,
                                            2000          1999        1998
                             ---------------------------------------------------

                             Company A    $ 545,439  $  148,000  $  746,936
                             Company B      802,668           -           -
                             Company C      458,714     251,286           -
                             Company D            -           -     260,000
                             Company E            -           -     315,722
                             Company F            -     331,240           -
                             Company G      252,163           -           -
                             ---------------------------------------------------

                                         $2,058,984  $  730,526  $1,322,658
                             ---------------------------------------------------

16. CONCENTRATION OF         The Company is dependent on third-party equipment
    SUPPLIERS                manufacturers and distributors for all its supply
                             of computer equipment and some of its accessories.
                             Purchases from individual suppliers that exceed 10%
                             of cost of revenues in each period were as follows:
                             for the year ended June 30, 2000 and the six months
                             ended June 30, 1999: two suppliers comprising of
                             approximately 47% and 26% of cost of revenues,
                             respectively, and for the year ended December 31,
                             1998: three suppliers comprising of approximately
                             78% of cost of revenues.


17. EARNINGS (LOSS)          The weighted average number of shares used to
    PER SHARE                compute basic and diluted loss per share are
                             5,598,288, 552,589 and 270,170 for the year ended
                             June 30, 2000, six months ended June 30, 1999 and
                             the year ended December 31, 1998, respectively.

                             Common Stock equivalents from options and warrants
                             to purchase 713,111, 1,063,004 and 865,019 shares
                             were outstanding for the year ended June 30, 2000,
                             six months ended June 30, 1999 and year ended
                             December 31, 1998, respectively, but have not been
                             included in the computation of diluted loss per
                             share as the effect would be antidilutive.


                                      F-26
<PAGE>

                    MULTIMEDIA K.I.D., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



18. GEOGRAPHICAL             The following table sets forth information
    INFORMATION              regarding net sales of the Company by geographic
                             region:

<TABLE>
<CAPTION>
                                                                                   Year
                                                Year ended     Six months          ended
                                                 June 30,      ended June         December
                                                   2000         30, 1999          31, 1998
                             ----------------------------------------------------------------
                             <S>               <C>             <C>            <C>
                             Israel             $ 1,841,035     $  148,000     $ 1,062,658
                             Brazil                       -              -         260,000
                             United States          458,714        251,286               -
                             Romania                      -        331,240               -
                             Other                   23,000         17,217         176,424
                             ----------------------------------------------------------------

                             Total net sales    $ 2,322,749     $  747,743     $ 1,499,082
                             ----------------------------------------------------------------
</TABLE>


                             Substantially all identifiable assets of the
                             Company are located in Israel.



                                      F-27




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