UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-KSB

          ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001


                        Commission File Number 000-26598

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

                                    Delaware
              (State or other jurisdiction of incorporation or organization)

                                   22-3137907
                      (I.R.S. Employer Identification No.)

                                611 Route 46 West
                       Hasbrouck Heights, New Jersey        07604
               (Address of principal executive offices)   (Zip Code)

                              (201) 329-6300
                      (Issuer's  telephone number)

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

Title of each class: None               Name of exchange on which registered

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

                  Common Stock, Par Value $.01
                     (Title of each Class)


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

<PAGE>

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any  amendment to this Form 10-KSB.  [ ]

     The  issuer's  revenue  for the fiscal  year ended  December  31,  2001 was
$1,249,285. As of March 18, 2002, the aggregate market value of the voting stock
held by  non-affiliates  of the registrant was $236,900 (based on the average of
the OTC Bulletin  Board bid and asked price on March 18, 2002).  As of March 18,
2002, there were 8,196,521 shares of the registrant's common stock outstanding.

Documents Incorporated by Reference: None. Transitional Small
Business  Disclosure  Format  (check  one):  Yes  ___ No X


     Certain information included in this Annual Report may be deemed to include
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended,  that involve risk and uncertainty,  such as information relating to
the  acceptance  and sale of the Company's  products,  the Company's  ability to
successfully  market  and  distribute  its  products,   product  development  or
enhancements,  the Company's ability to raise capital and to pay its liabilities
when due and negotiate arrangements with its creditors, the Company's ability to
generate  revenue and sell tax credits and the Company's  ability to protect its
proprietary  property  and to attract  and retain key  employees.  In  addition,
certain  statements  may involve risk and  uncertainty  if they are preceded by,
followed  by, or that  include  the words  "intends,"  "estimates,"  "believes,"
"expects,"  "anticipates," "should," "could," or similar expressions,  and other
statements  contained  herein regarding  matters that are not historical  facts.
Although we believe that our expectations  are based on reasonable  assumptions,
we can give no  assurance  that our  expectations  will be  achieved.  We do not
undertake   any   obligation   to  release   publicly  any   revisions  to  such
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.





































<PAGE>

                                     PART I

Item 1.  Description of Business.

INTRODUCTION

     PaperClip Software, Inc. formerly known as PaperClip Imaging Software, Inc.
(the "Company" or "PaperClip"),  a Delaware  corporation (which is the successor
by merger, in March 1992, to the original company which had been incorporated in
New Jersey in October 1991), is engaged in the  development and  distribution of
computer software for document  management and transport of electronic  document
packages across the public Internet or a private intranet with interoperability,
security and tracking capabilities.

RECENT DEVELOPMENTS

     On November 12, 1997, the Company and Access Solutions International,  Inc.
("Access")  entered into a definitive Merger Agreement (the "Merger  Agreement")
which  provided that the Company would merge with and into a newly formed wholly
owed subsidiary of Access.  The merger  consideration  to be paid to the Company
was 1,544,438 shares of the common stock of Access plus an equivalent  number of
Class B Warrants.  Concurrent  with the execution of the Merger  Agreement,  the
Company and Access also entered into a  Management  Agreement  pursuant to which
Access assumed  control of the day to day operations of the Company and advanced
funds to the Company pending the closing of the transactions contemplated by the
Merger Agreement (the "Management Agreement").

                                             1































<PAGE>

     In August 1998,  Access  terminated the Merger Agreement in accordance with
its  terms due to the  failure  by Access to  satisfy  the  financing  condition
contained in the Merger  Agreement.  The Management  Agreement was terminated in
October 1998. In November  2000,  the Company and Access entered into a Series A
Preferred Stock Purchase Agreement (the "Purchase  Agreement") pursuant to which
the  Company  issued  3,649,543  shares of the  Company's  Series A  Convertible
Preferred Stock, $.01 par value per share (the "Series A Preferred  Stock"),  to
Access as payment in full of an amount  equal to  $2,305,506  which  represented
advances made to the Company by Access pursuant to the Management Agreement plus
accrued interest of $384,786 on such advances.  The shares of Series A Preferred
Stock were issued at the  equivalent  price of $0.71 per share.  Pursuant to the
Purchase  Agreement,  Access also agreed to waive unpaid  management fees in the
amount  of  $300,000  owed to  Access  by the  Company.  Each  share of Series A
Preferred  Stock is  convertible  for 1 share  of the  Company's  common  stock,
subject to adjustment  and  anti-dilution  protection  upon certain  events.  In
addition,  in  connection  with the Purchase  Agreement,  the Company and Access
entered  into an  Agreement  (the  "Agreement"),  dated as of  November 1, 2000,
pursuant  to  which,  among  other  things,  the  Company  agreed to issue a new
Promissory  Note (the "New Note") in the amount of $405,530 in exchange  for the
cancellation of the promissory  note in the principal  amount of $300,000 issued
to Access by the Company on January 29, 1997 (the "Old Note") and Access and the
Company  agreed to release each other from certain  claims,  including,  but not
limited to,  claims under the Merger  Agreement,  Management  Agreement  and Old
Note.  Pursuant to the New Note issued to Access in November  2000,  the Company
must repay the $405,530  principal  amount over a 36-month  period.  There is no
interest on the New Note unless the Company does not pay principal when due. The
completion of these  agreements  reduced the Company's  outstanding debt by more
than 85% and resulted in the reduction of the Company's annual interest payments
by approximately $220,000.

     Since the termination of the Merger Agreement and the Management Agreement,
the Company has had no sources of capital  other than revenues from sales of its
products  and the sale of New Jersey tax  credits.  From  January  1998 to March
2000, the Company did not have the funds  necessary to pay for the audits of its
statements or file reports  required under the Securities  Exchange Act of 1934,
as amended (the "Exchange Act"), and operated on a subsistence basis. The number
of employees  of the Company  decreased  from 31 in 1997 to 13 in 2001,  and had
dropped to a low of 11 in 1998.  The  Company  continues  to explore  options to
obtain sources of funding.

     On December 31, 2001,  the Company issued 75,000 shares of its common stock
to a former  consultant  of the  Company,  as  compensation  for  services.  The
issuance  of the stock  caused an  inadvertent  default of a covenant of the New
Note with Access.  The Company will seek a waiver of such default although there
can be no assurance  that a waiver can be agreed  upon.  If the Company does not
receive  a  waiver  of  such  default  or is not  able to cure  such  defect  in
accordance  with the  terms  of the New  Note,  Access  will  have the  right to
accelerate  the  payment  of the New Note in  full,  or  Access  may  apply  the
collateral  described in the Security Agreement to the payment of the amount due
to it by  Paperclip.  The Company does not have the funds  available to pay such
amount.  If  Access  were to  exercise  its  rights  under  the New Note and the
Security  Agreement,  it would have a material adverse effect on the Company.




                                                -2-



<PAGE>


     In October 1998, BISYS Insurance Services  ("BISYS"),  the nation's largest
independent  distributor of life insurance,  selected the Company's  Systems (as
defined herein) as its enterprise document  management and imaging solution.  In
July 1999, BISYS began transmitting documents to Midland Insurance utilizing the
Company's Internet Express product.  In January 2000, First Colony Insurance,  a
division of General  Electric  Company,  CNA  Insurance,  American  General Life
Insurance,  and Legal & General Life Insurance  began  receiving  documents from
BISYS.  In  addition,  since  July 2000,  Sovereign  Bank  began  utilizing  the
Company's   hosting   services  for  the   processing   of  secondary   mortgage
transactions. In June of 2001, BISYS increased their total number of licenses to
825 and continue to expand their use of Internet Express. In March of 2001, EMSI
contracted with PaperClip to install PaperClip32 in their 250 branch offices for
the  collection  and  management of life  insurance  exams and attend  physician
statement (APS). EMSI will then leverage the Internet Express service to deliver
their results to  PaperClip's  subscriber  base. In August of 2001,  PaperClip's
only  Internet  Express   competitor  became  a  subscriber   allowing  the  two
organizations  exchange networks to pass documents to their respective customers
further expanding the use of the Internet Express network.
     In April 2000, the Company  employed D. Michael Bridges as President of the
Company to continue development of the Company's business plan. From August 1998
through March 2000,  Mr.  Bridges acted as a consultant to the Company.

     In 2000 and 2001, the Company applied for a Technology Tax Certificate with
State of New Jersey  Economic  Development  Authority.  The program  allowed the
Company to sell its New Jersey  tax  losses to a New Jersey  company  that could
utilize the  losses.  The Company  received  approximately  $351,000 in 2000 and
$223,000 in 2001,  from selling a portion of its losses.  The Company intends to
file in 2002 to sell additional tax losses of up to  approximately  $3.3 million
and research and development credits aggregating  approximately $130,000,  which
could result in net proceeds to the Company of  approximately $ 352,000.  Due to
the budget deficit for the State of New Jersey this program may be cancelled and
there can be no assurance  if or when the Company  will receive such amount.  In
addition,  there can be no assurance  that the Company  will receive  sufficient
funds to pay its creditors, file required documents with the Securities Exchange
Commission and maintain its existence.

ABOUT THE COMPANY

     The  Company's  systems  allow users of  personal  computers  and  personal
computer networks to scan, file,  retrieve,  display,  print and route documents
and other software  objects (such as word  processing  files,  spreadsheets  and
electronic mail), while continuing to use their existing  application  software.
The Company's systems can be integrated with many personal computer applications
with little or no programming  and can file and retrieve  documents  without the
time consuming step of manually labeling or indexing each document,  or manually
searching for documents.
                                                -3-



<PAGE>

     The Company developed  and  markets a line of software  consisting  of
Professional,  Workgroup and Enterprise Editions (the "Systems").  The Company
also markets  PaperClip COLD,  which captures batch file  information  before it
goes to paper and allows expeditious access,  retrieval, full text searching and
printing of COLD documents. "COLD" refers to Computer Output to Laser Disk which
are  documents  that are  archived in large  volumes of  formatted  data streams
directly to optical media.  Instead of printing large paper reports or producing
microfilm or microfiche, data is stored on optical disks.

     The Company developed its WebServer(TM)  Product, which is an add-on to the
Systems. This product provides full security for documents stored on a PaperClip
System,  enables  users to make the  documents  available  to anyone  with a Web
Browser and makes a user's document repository  accessible via the Internet or a
private intranet. In November 1995, PaperClip acquired,  from Cheyenne Software,
Inc.  ("Cheyenne"),  the NOSS (Network Optical Storage System) product line. The
Company offers NOSS as part of its systems as well as a stand-alone product. The
Company is developing the next generation of the NOSS product. In 2000, NOSS for
NT was deployed on the Microsoft Windows NT server platform and provides several
new  enhancements.  The Company  markets the  Systems  and  associated  products
domestically (i) through a mass distributor, Z Source who sells to a value added
reseller  ("VAR") channel that currently  consists of approximately 25 resellers
and  (ii)  directly   through  such  VARs.  The  Company  markets  its  products
internationally through approximately 5 VARs.

INDUSTRY BACKGROUND

     Many  businesses  must  manage,  exchange  and  process  large  amounts  of
information in their day to day activities.  Traditional data processing systems
have  automated the creation and  processing  of data and text,  but they do not
provide a means for storing and  retrieving  documents  that must be retained in
their original form and used in conjunction with the data.

                                 -4-



<PAGE>

     The greatest difficulty in dealing with paper documents is filing,  storing
and  retrieving  them  conveniently  and  cost-effectively.  In  the  course  of
performing  these  tasks  manually,  critical  documents  can  be  inadvertently
misfiled,  physically  damaged,  or lost. Manual handling is inefficient because
documents  can only be used by one  person  at a time and are also  inaccessible
during the time required to transport  them within the  organization.  Moreover,
significant time and resources are often spent storing and locating documents in
large filing  systems.  With the public  acceptance of document  management and,
more  importantly,  the imaged  document  as an  original  document,  exchanging
electronic documents is a market opportunity.

     The procedural steps involved in processing  incoming documents may include
sorting  documents as they are  received,  indexing  them for future  reference,
routing  them from one  employee to the next,  entering  information  from these
documents into computer systems,  collecting different documents for appropriate
action,  creating  letters  and forms of  response  and  queuing  documents  for
subsequent  filing. In order to improve the efficiency of the flow of documents,
manage  information,  and improve office  productivity and response times,  many
companies may seek to automate  their paper and electronic  document  management
procedures.

     Technological  developments in recent years have made possible the low cost
capture,  storage,  retrieval  and  processing  of paper  documents as digitized
images. In particular, the application of optical disk technology, which permits
digitized  document  images to be stored with  densities many times greater than
magnetic storage media,  has enabled the development of cost effective  computer
systems for document management.

     The Systems have been designed to provide  users of personal  computers and
computer  networks the ability to  exchange,  file,  retrieve and process  large
volumes of documents  quickly,  efficiently and at a low cost. The  enhancements
developed for the Systems have been designed to allow users to quickly implement
workflow technology in their existing  environments  without the need for costly
programming. The Company's Internet products give users the added flexibility of
exchanging, accessing and managing stored documents via the Internet.
                                                -5-



<PAGE>

THE PRODUCTS

     The Company  derives all of its revenues  from the licensing or sale of the
Systems and associated  products and services.  In 2000, the Company developed 4
new products, Internet Express, Intranet Express, WebServer and DECS (Document /
EDI Capture  Suite),  and  continued to further  enhance its existing  products.
InternetExpress  ("IE") is an extranet designed to exchange  electronic document
as an  Application  Service  Provider  ("ASP").  The Company will derive revenue
based on the movement of Electronic  Document  Exchange  ("EDX") packages across
the  Internet.  Intranet  Express  ("IA") is  designed  to  exchange  electronic
documents among organizations that are members of the same private intranet. The
Company provides IA as a product, not a service. In 2001 the Company developed a
third  communications  product called eXpressLink,  ("XL"). This product expands
the user's communications  options while maintaining a consistent interface to a
user's document  management  solution.  WebServer  allows users across the World
Wide Web to retrieve documents and conduct simple workflow tasks from their thin
client browser.  DECS is a remote electronic  document EDX packaging system that
provides  scanning,  printing,  filing and  Electronic  Data  Interchange("EDI")
capture producing capabilities, and creates EDX Packages for IE, IA, the Systems
and / or any  EDX  compliant  solution.  There  can  be no  assurance  that  the
Company's  products will achieve  market  acceptance or result in revenue to the
Company.  In 2001 the Company  released a new product called Clip-It,  a toolkit
leveraging   the  Company's   award  winning   technology   for  no  programming
integration.

THE SYSTEMS

     The  Systems  allow  users of  personal  computers  and  personal  computer
networks to scan, file, retrieve,  display,  print and route documents and other
software  objects  (collectively  "Documents"),  such as word processing  files,
spreadsheets  and  electronic  mail.  The  Systems can be  integrated  with many
personal  computer  applications  with little or no programming and can file and
retrieve  Documents  without the time  consuming  step of  manually  labeling or
indexing each Document. The Systems range from single user, stand-alone products
to enterprise-wide document management solutions.

     Electronic  "file  folders" of Documents can be accessed at any time by the
user  with  only one key  stroke  combination.  Minimal  training  is  required.
Moreover,  all Documents  previously  attached to an electronic  file folder are
accessible as soon as each of the Systems is activated.  If a Document is not so
attached, it can be located by searching a Document list or by entering exact or
partial  identifying  information  into  the  folder's  index  fields.  Multiple
Documents can be viewed simultaneously in any of the Systems.

     Images displayed through any of the Systems are facsimiles of the Documents
that have been scanned,  and the Systems allow Documents to be scrolled  through
(i.e.,  moved on a display  screen to search for a particular  line or section),
enlarged,  reduced,  and rotated.  The Systems also allow stored Documents to be
reproduced  through a locally  connected laser printer,  or through shared laser
print servers on a network.
                                         -6-




<PAGE>

PROFESSIONAL EDITION

     The Professional  Edition allows users to create "folders" of Documents and
attach or "clip" them to their  existing  application  software.  The additional
features available include the ability to scan, index, retrieve, display, print,
fax, import and export  Documents.  Storage of Documents is on multiple forms of
media, and, in addition,  enables the user to store Documents on a large variety
of optical  disk and  "jukebox"  storage  devices.  A "jukebox"  is a mechanical
device which allows for  multiple  optical disk  platters or tapes to be managed
and accessed by software. This allows the storage of millions of Documents while
maintaining  a high level of  performance.  The  Professional  Edition  works in
conjunction with SQL database products from Microsoft and Sybase.

WORKGROUP EDITION

     Workgroup  Edition  provides users with all of the features of Professional
Edition,  and allows users to perform all of the  functions at the same time, as
well as to route Documents and folders to other users on a network.

ENTERPRISE EDITION

     Enterprise  Edition provides all the features of the Workgroup  Edition and
provides for Wide Area Network operation using a client/server architecture. The
significant  difference  provided to users by the Enterprise Edition are the the
improved  performance  in  networks  with more than 20 users and the  ability to
manage a greater number of folders and documents. To operate Enterprise Edition,
the user is  required  to obtain a  license,  which is  readily  available  from
various third parties,  for the desired SQL server.  The  Enterprise  Edition is
suited to large departmental and enterprise installations. The Company presently
offers its  Enterprise  Edition to work in  conjunction  with SQL  Servers  from
Microsoft and Oracle.

CAPTURE PRODUCT LINE - DECS


     DECS (Document EDI Capture Suite) is a set of  applications  with which end
users and business  applications  will  collect  electronic  documents  and / or
Electronic Data  Interchange  (EDI) into an EDX V2.0 Package for transmission to
an IDM  solution  or EDI  application  or both.  DECS  provides  the  tools  for
collecting  scanned  images,  documents  printed to the DECS Print Driver,  file
import, keyed and file captured EDI. This data can be transformed,  packaged and
transported to the recipient for further processing as an EDX V2.0 Package.

                                                -7-



<page>
THE COLD PRODUCT

     PaperClip  COLD captures  formatted  print data  streams.  Once the data is
captured by the PaperClip COLD Extract Engine, it is automatically imported into
the user's  PaperClip  System and made available to the users by viewing through
the PaperClip  system.  Users can access folders  containing COLD data by simply
pressing a designated key from the applications that they choose.  They can also
access  folders  of  diverse  information  through  PaperClip's  intuitive  file
cabinet/folder  interface.  PaperClip  COLD can  print to any  standard  Windows
printers or fax and can display documents on conventional  80-column monitors in
132  column  format.  To further  facilitate  the  retrieval  and review of COLD
documents,  PaperClip  COLD supports full text  searching of COLD  documents and
forms  overlay,  and can add colored lines to the display to simulate  green bar
paper viewing.

THE NOSS PRODUCT LINE

     NOSS is the  subsystem  for optical  storage and jukebox  management.  When
combined  with the  Workgroup and  Enterprise  Editions,  it provides a powerful
system that manages a range of mass storage devices. The acquisition of the NOSS
product  line (a  portion of which is subject  to an  exclusive,  royalty  free,
perpetual  license from  Cheyenne)  allows  PaperClip to fully take advantage of
NOSS's high-end  functionality  to further  develop  powerful  document  imaging
solutions for client/server network environments.  PaperClip is also making NOSS
available  as a separate  product for VARs,  integrators,  and  distributors  to
develop applications based on network optical storage.

INTERNET PRODUCT LINE - WEBSERVER

     WebServer(TM)  is an add-on  to the  Systems.  The  product  provides  full
security for  documents  stored on a PaperClip  System and enables users to make
documents  available  to anyone  with a Web Browser  and to make  available  the
user's document repository to both Internet and private intranet users.

CLIPIT TOOLKIT

     ClipIt is a new approach for legacy application  integration with any other
application(s).  ClipIt's  greatest  demand  is  found  in the new  thin  client
services.  By integrating ClipIt within thin client  applications,  users simply
hit a "Hot Key" to quickly view important  records and documents across the Web.
ClipIt is a Tool-kit  designed  to leverage  PaperClip's  award  winning  Visual
Context Processor (Clipping)  technology allowing developers and integrators the
ability to program ClipIt within their application or script within browsers.

EXPRESSLINK COMMUNICATIONS

     PaperClip's  eXpressLink  (XL) is an electronic  document  package exchange
solution  designed to interconnect  dissimilar  Electronic  Document  Management
solutions  whereby  they can  exchange  documents  similar  to  electronic  data
interchange (EDI). Designed to transport electronic document packages across the
corporate  Intranet  or  Internet  providing   interoperability,   security  and
tracking. Utilizing the public standard Electronic Document eXchange version 2.0
for packaging electronic documents, any EDX V2.0 compliant system can connect to
the XL Server seamlessly with no programming.  A Company can now connect company
workflow and  integrate  dissimilar  document  management  solutions to business
partners and branch offices attached to the corporate  Intranet or Internet.  XL
significantly reduces document processing costs . Standards driven, XL cuts cost
and reduces time to process.
                                         -8-

<PAGE>




OBJECTIVES, INTERNAL SALES FORCE AND RISKS

     Management's  marketing  objectives for the Systems and the Company's other
products are as follows:  (i) develop  strategic  relationships  with  prominent
software  organizations;  (ii)  introduce  the Systems and the  Company's  other
products to customers through VARs, original equipment  manufacturers  ("OEMs"),
distributors  and  other   distribution   networks;   (iii)  create  brand  name
recognition of its products by advertising  in appropriate  trade  magazines and
publications,  and by attending  and  participating  in  exhibitions,  shows and
seminars,  engaging  in  public  relations  campaigns,  and  conducting  its own
seminars and direct mail  campaigns;  and (iv) support the sales  efforts of its
resellers through sales tools and training.

     Marketing assistance,  training and technical support of VARs is a critical
component of the Company's  efforts with respect to its Workgroup and Enterprise
Editions.  Consequently,  the  Company  provides  technical  support  along with
on-going  communication  to its VARs.  Marketing  assistance  includes  hot line
access,  mailings of product and technical updates, joint cooperative marketing,
site visits and seminars.

   The Company has a field sales force of  three persons.  While management will
attempt to  encourage  VARs,  distributors  and other  resellers to focus on the
Company's  products,  management  is aware  that  VARs,  distributors  and other
resellers also represent other lines of products,  some of which may be, or are,
competitive with those of the Company. Accordingly, the VARs, OEMs, distributors
and other  resellers  may choose to give  higher  priority  to products of other
publishers, which would decrease potential sales by the Company.

VALUE ADDED RESELLER NETWORK

     To date, the most significant portion of the Company's sales have been made
through  VARs.  The  Company  currently  has  approximately  30  VARs,  of which
approximately 25 VARs are in the United States and approximately 5 are abroad.


                                           -9-




<PAGE>
BUSINESS SERVICES

     The Company's Business Services Department sells directly to major accounts
that want to work on a direct  basis with the  Company.  It also offers users of
its products and VARs, post-contract support, consulting services and assistance
in  the  form  of  training,  product  education  and  technical  support,  when
requested. The Business Services Department currently consists of 1 employee.

CUSTOMERS AND SALES

     The Company had net sales of  $1,249,285 in 2001,  and  $1,267,007 in 2000.
Image Tek accounted for 19% of the  Company's  sales in 2001.  Image Tek and Law
Cypress accounted for 17% and 14%, respectively of the Company's sales in 2000.

CUSTOMER SUPPORT AND SERVICE

     The Company presently  provides telephone support to its VARs. The majority
of the Company's  service and support  activities  involve responses to customer
inquiries regarding use of the Workgroup,  Enterprise and Professional Editions,
which are provided by telephone  support  directly from the Company's  technical
support center.

PRODUCT DEVELOPMENT

     At present the Company's systems are being developed by a combination of in
house  staff  and  when  necessary  outside   consultants.   PaperClip  expended
approximately  $270,300  and $374,600 on research  and  development  in 2001 and
2000, respectively.

     Existing and future competing products that may be offered at lower prices,
or that may have superior technological and performance  characteristics,  could
adversely  affect  sales of the Systems  and/or  other  products  offered by the
Company. Management expects that growing demand for efficient and cost-effective
solutions  for  document  management  and  imaging  will  continue  to drive the
developments  of new  technologies  that  may be  more  sophisticated  than  the
Company's products and that the Company's ability to continue to compete depends
upon its ability to continue to enhance  successfully its existing  products and
to develop  new  products  that meet the  changing  needs of  end-users.  If the
Company is unable to  successfully  enhance its existing  products or to develop
new products,  it may have a material adverse effect on the Company's operations
and profitability.

PRODUCTION

     The Company has produced a set of master CD'S and  documentation for all of
its  products.  The  Company  duplicates  the CD'S and  assembles  and ships the
Systems at and from its  headquarters.  The  Company  has also  engaged  various
sources to  produce  and  assemble  the  product  and  documentation  (including
packaging  for  the  Systems  on  terms  management  believes  are  commercially
reasonable).
                                         -10-



<PAGE>

PRODUCT PROTECTION

     The  Company  relies  on a  combination  of  copyright,  trade  secret  and
trademark laws and license  agreements to protect its proprietary  rights in its
technology.  The Company previously  obtained from the U.S. Patent and Trademark
Office a registered  trademark for PAPERCLIP  SOFTWARE AND DESIGN in August 1993
and obtained a registered trademark for PAPERCLIP IMAGING SOFTWARE AND DESIGN in
February 1993. Both of those  registrations  were allowed to expire because they
were  for  forms  of the  mark no  longer  in use.  The  Company  was  issued  a
Certificate of  Registration  for the Trademark  Paperclip on November 20, 2001.
Although to the best of  Company's  knowledge no other person or entity owns any
U.S.  registered  trademark for the mark "PaperClip" in connection with software
or  imaging  products,  there  is a  registration  filed  by a third  party  for
"Technology  As Easy  To Use As A  PaperClip"(tm)  for  consulting  on  computer
hardware,  software  and  systems  in the  fields  of  sales  automation,  order
processing,  voicemail, paging, dictation,  transcription and telecommunications
and  off-site  employee  programs  and  businesses.  While the Company  does not
believe there is any likelihood of confusion  raised by the use of such mark, if
such  confusion  were  alleged,  the Company  would rely on its prior common law
rights. There also was a prior U.S. registration for use of the "PaperClip" mark
in  connection  with   pre-recorded   word  processor   programs.   This  latter
registration was automatically  canceled on April 2, 1992 by the U.S. Patent and
Trademark  Office  because of the  registrant's  failure to file (as required by
statute) an affidavit,  during the year commencing with the fifth anniversary of
the registration,  stating that the mark was still in use. However,  the user of
the canceled  registration  might,  at some future time,  assert an infringement
claim in the  U.S.  based  on  alleged  common  law  rights.  If such a claim is
asserted, the Company may be forced to expend significant effort, time and funds
to defend against it. If the Company is not successful in defending against such
a claim, the Company would be required to adopt a different name and would incur
costs as a result thereof.

     The Company owns registrations for the trademark PAPERCLIP IMAGING SOFTWARE
& DESIGN in Germany and Canada,  but does not now own  registrations  or pending
applications for trademark  registration in other countries in which the Systems
and the Company's other products are sold.

     The  Company   distributes  its  products  under  signed  software  license
agreements,  which  grant  customers  perpetual  licenses  to use,  rather  than
ownership of, the Company's products and which contain  restrictions on copying,
disclosure, reverse engineering and transferability.  The source code for all of
the  Company's  products is protected  as a trade  secret and as an  unpublished
copyrighted  work.  In  addition,  the Company has  entered  into  nondisclosure
agreements with its employees. There can be no assurance that the steps taken by
the  Company in this  regard  will be  adequate  to deter  misappropriations  or
independent third-party development of its technology.

     The  Company  has no patents on its  proprietary  software  technology  and
existing copyright laws afford only limited practical  protection.  In addition,
the laws of some  foreign  countries  do not protect the  Company's  proprietary
rights in its products and technology to the same extent as U.S. laws.
                                      -11-



<PAGE>
     Although management  believes that the Company's  products,  trademarks and
other  proprietary  rights do not infringe on any existing  proprietary right of
others,   there  can  be  no  assurance  that  third  parties  will  not  assert
infringement claims in the future.

COMPONENTS PROVIDED BY OTHERS

     The Systems require licenses,  which the Company has obtained, from, Merant
AccuSoft Corporation, Sybase Inc., and Snowbound Software.

COMPETITION

     The document  management  software market is intensely  competitive.  Buyer
preferences  can  shift  quickly,   and  rapid  changes  in  technology  provide
opportunities  for new entrants into the market.  Management is not aware of any
product  line which  offers all of the  features  and  functions of the Systems.
However, a number of software companies offer products which compete with one or
more of the functions of the Systems.

     There are numerous companies that sell either stand-alone,  network and Web
based  systems with which the Company  competes.  Competition  for the Company's
products  include,  among others,  Hyland  Software and Optika  Imaging  Systems
Incorporated.  The Company also competes with more expensive  turnkey  solutions
such as those produced by FileNet Corp. ("FileNet") and IBM Corporation ("IBM").
Many of these companies have greater  financial  strength and resources than the
Company,  and there can be no assurance that these  competitors  will not modify
their  existing  systems,  develop  new  products  or systems  or acquire  other
competitors of the Company to better compete with the Systems.  Nor can there by
any  assurance  that new  companies  will not  introduce new systems with better
features and functions than the Systems.

     There are a few  competitors in the electronic  document  exchange  market.
This is a new  extension  of the  Internet  services  collectively  known as the
Business  to Business  Electronic  Commerce  (B2B/ec).  Current  competition  is
focused on electronic mail (Email) based exchange solutions,  which is different
from the methodology the Company has adopted.  Email based  competitors  include
United Parcel  Service and Pitney Bowes.  In the life  insurance  industry,  one
competitor has emerged utilizing a central repository for document exchange.

     In addition to computer software for document management and imaging, there
is also a diverse  range of  alternative  types of tools and methods for storing
and retrieving  documents,  including microfilm,  microfiche and computer output
microfilm and microfiche machines. Moreover, management expects that the growing
demand for efficient and  cost-effective  solutions for document  management and
computer imaging will continue to drive the development of new technologies that
may be more sophisticated and cost-effective than the Systems. Many existing and
potential  competitors  have  considerably  greater  financial,   technological,
marketing and personnel resources than the Company.

     Management  believes that the principal  competitive  factors in the market
for the Company's products include product performance,  technology,  quality of
customer support, availability of training and consulting services, price, sales
and marketing strength,  corporate reputation and ongoing responsiveness to user
needs.
                                       -12-




<PAGE>
EMPLOYEES

     As a result of limited resources, the Company decreased its full time staff
from 31 in 1997 to 11 in 2001.  As of March 18, 2002,  the  Company's  full-time
staff of 11 includes 4 engaged in development and systems testing,  5 engaged in
sales,  marketing and technical support, 1 in Business Services and 1 engaged in
administration.  The Company has no  collective  bargaining  agreements,  and no
employee  is  represented  by a labor  union.  The  Company has never had a work
stoppage and considers its relationship with its employees to be satisfactory.
The  Company  utilizes  a  number  of  consultants  to  supplement  its  systems
development, sales and marketing.

     The Company's success depends to a significant  extent upon a number of key
management  and technical  employees.  The loss of services of one or several of
these key  employees  could  have a  material  adverse  effect  on the  Company.
Management  believes that the future  success of the Company will also depend in
large  part upon the  Company's  ability to attract  and retain  highly  skilled
technical, managerial and marketing personnel. Competition for such personnel in
the software industry is intense.




                                          -13-




































<PAGE>
ITEM 2.  Description of Property.

     The  Company's  principal  administrative,  sales  and  marketing,  product
development and support facilities are located in Hasbrouck Heights, New Jersey,
and  comprise  approximately  2,700  square  feet.  The Company  occupies  these
premises  pursuant to a lease,  the term of which  expires on November 30, 2005.
The fixed  rent is  approximately  $4,500  per month  plus  utilities,  plus its
proportionate share of any increase in operating costs.

ITEM 3.  Legal Proceedings.

     The  Company  has  recently  filed a Copyright  Infringement  suit  against
Tokairo, LTD a UK Company.

     The Company is not a party to any pending legal proceedings,  except as set
forth  above,  other than  routine  litigation  matters in the normal  course of
business.

ITEM 4.  Submission Of Matters To A Vote Of Security Holders.

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2001.
                                     PART II

ITEM 5.  Market For Common Equity And Related Stockholder Matters.

                    Common                              Class A
                     Stock                              Warrants
2001              High      Low                      High      Low
First             0.25     0.06                      0.00     0.001
Second            0.12     0.02                      0.01     0.005
Third             0.12     0.07                      0.00     0.005
Fourth            0.08     0.05                      (Warrants Expired 8/9/01)

2000              High     Low                       High     Low
First             1.00     0.09                      0.09     0.01
Second            0.69     0.40                      0.015    0.015
Third             0.53     0.25                      0.015    0.002
Fourth            0.53     0.16                      0.02     0.005

     The above  prices  per share  were the bid prices  during  such  periods as
reported by Bloomberg News Service for OTC market  quotations.  Such  quotations
reflect  interdealer prices without retail mark-up,  mark-down or commission and
may not necessarily represent actual transactions.

     On December 31, 2001,  the Company issued 75,000 shares of its common stock
to a former  consultant  of the  Company,  as  compensation  for  services.  The
issuance  of the stock  caused an  inadvertent  default of a covenant of the New
Note with Access.  The Company will seek a waiver of such default although there
can be no assurance  that a waiver can be agreed  upon.  If the Company does not
receive  a  waiver  of  such  default  or is not  able to cure  such  defect  in
accordance  with the  terms  of the New  Note,  Access  will  have the  right to
accelerate  the  payment  of the New Note in  full,  or  Access  may  apply  the
collateral  described in the Security Agreement to the payment of the amount due
to it by  Paperclip.  The Company does not have the funds  available to pay such
amount.  If  Access  were to  exercise  its  rights  under  the New Note and the
Security  Agreement,  it would have a material adverse effect on the Company.

                                          -14-









<PAGE>

     On March 11, 1997,  the Company was informed by Nasdaq that its  securities
were deleted from the Nasdaq  SmallCap  Market due to the  Company's  failure to
comply  with  minimum  asset and capital  surplus  requirements  established  by
Nasdaq. The Company's securities are presently traded on the OTC Bulletin Board.
As of December 31, 2001, there were  approximately  743 holders of record of the
Company's  shares of Common Stock. The Company has not paid cash dividends since
its  organization and does not anticipate the declaration or the payment of cash
dividends  in the  foreseeable  future.  In  addition,  the  Company's  Series A
Preferred Stock  Certificate of Designation  restricts the declaration,  payment
and  setting  aside of any  dividends  without the consent of the holders of the
Requisite  Percentage  (as  defined in such  Certificate)  of Series A Preferred
Stock.







                                           -15-




<PAGE>
ITEM 6.  Management's Discussion and Analysis or Plan of Operation

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Basis of  Accounting:  The  Company's  policy is to prepare  its  financial
statements on the accrual basis of accounting.

Revenue Recognition:
     The  Company  generates  revenues  from  licensing  the  rights  to use its
software  products  directly  to  distributors,  resellers,  original  equipment
manufacturers, and end users.

Revenues from licenses are recognized upon shipment of the software if
there are no significant post delivery obligations, if collection is
probable and if payment is due within one year.  The Company provides
telephone support at no additional charge for periods not exceeding one
year.  The estimated cost of providing such support is not significant.
Revenues from consulting services are recognized as services are performed.

     The Company also offers post contract  services,  which  includes  software
version  upgrades and consulting and training  services  related to installation
and implementation of the Company's product. Revenues paid by the customer prior
to  performance of post contract  services are deferred and recognized  over the
term of the post contract service agreement, usually one year.

Use of Estimates:
     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally  accepted  in  the  United  States  of  America,  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.
                                   -16-

<page>
Advertising:
Advertising costs are expensed as incurred.

Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash at banks and highly
liquid investments with maturities of three months or less.

Equipment, Furniture and Fixtures:
     Equipment,  furniture  and  fixtures are stated at cost,  less  accumulated
depreciation.  Depreciation  expense is computed using the straight-line  method
over the  estimated  useful  lives of the assets  which range from five to seven
years.

Accounting for Stock-Based Compensation:
     The Company adopted  Statement of Financial  Accounting  Standards No. 123,
"Accounting  for  Stock-Based  Compensation"  (SFAS 123).  As  permitted by this
statement,  the Company has chosen to account for stock based compensation using
the intrinsic value method.  The adoption of this pronouncement had no impact on
the Company's financial condition or results of operations,  however, additional
disclosures have been included in the financial statements.

Federal Income Taxes:
     The Company has adopted Statement of Financial  Accounting  Standards Board
No. 109,  "Accounting  for Income  Taxes"  (SFAS 109),  which  provides  for the
recognition of deferred tax assets,  net of an applicable  valuation  allowance,
related to net operating loss carryforwards and certain temporary differences.

(Loss) Per Common Share:
     (Loss) per common share is computed based upon the weighted  average number
of common shares and common share  equivalents  outstanding  if dilutive  during
each year.

Research and Development Costs:
     The costs  incurred in  establishing  the  technological  feasibility  of a
computer  software product that is to be sold,  leased or otherwise  marketed by
the Company is accounted for as Research & Development costs and expensed in the
period incurred. The amount charged against income was $270,309 and $374,556 for
the years ended December 31, 2001 and 2000, respectively.

Deferred Revenue:
     The Company  offers annual  support  contracts to its  customers  including
technical phone support,  which is recorded as deferred  revenue and pro-ratably
reclassified to sales as the contract expires and it is earned.

RESULTS OF OPERATIONS

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     Net sales of  Paperclip  decreased by $17,722 or 1% to  $1,249,285  for the
year ended  December 31, 2001 from  $1,267,007  for the year ended  December 31,
2000. The decrease was due to lower revenues received from the sale of Paperclip
products  and a decrease  due to revenues  received in 2000 in  connection  with
special one-time development services performed by the Company for a customer in
2000.


                                     -17-


<page>
     Salaries  and related  benefits  decreased by $73,721 or 8% to $862,021 for
the year ended  December 31, 2001 from $935,742 for the year ended  December 31,
2000. The decrease was due to a  restructuring  of the commission  rates paid to
sales personnel.

     Research and development  expenses decreased by $104,247 or 28% to $270,309
for the year ended  December 31, 2001 from $374,556 for the year ended  December
31, 2000. The decrease was due to a decrease in the use of outside consultants.

     Selling expenses increased by $22,870 or 14% to $192,260 for the year ended
December  31, 2001 from  $169,390  for the year ended  December  31,  2000.  The
increase  in 2001 as  compared  to 2000,  was due to a  reversal  of  accrual of
royalty  expense  for the year ended  December  31,  2000,  that  resulted  from
renegotiation  in amounts  payable for  royalties.  Such  increase  for 2001 was
offset by a decrease in advertising and
promotion expenses.


     General  and  administrative  expenses  decreased  by  $205,551  or  53% to
$181,524 for the year ended  December 31, 2001 from  $387,075 for the year ended
December 31, 2000.  The decrease was due to  professional  fees incurred in 2000
related to the audit of the Company's  financial  statements for the three years
ended  December  31, 1999,  and lower rent due to  relocation  of the  Company's
offices in December, 2000.


     Other income  increased by $248,260 to $211,617 for the year ended December
31, 2001 from  $(36,643) for the year ended  December 31, 2000.  The increase in
other  income was due to a decrease in interest  expense  relating to loans from
Access Solutions International,  Inc. ("Access"),  offset by a decrease realized
from the sale tax credits. In November 2000, the Company and Access entered into
a Series  A  Preferred  Stock  Purchase  Agreement  (the  "Purchase  Agreement")
pursuant to which the Company issued  3,649,543 shares of the Company's Series A
Convertible  Preferred Stock,  $.01 par value per share (the "Series A Preferred
Stock"),  to Access as payment in full of an amount  equal to  $2,305,506  which
represented  advances made to the Company by Access  pursuant to the  Management
Agreement  plus  accrued  interest of $384,786 on such  advances.  The shares of
Series A Preferred Stock were issued at the equivalent price of $0.71 per share.
Pursuant  to  the  Purchase  Agreement,  Access  also  agreed  to  waive  unpaid
management  fees in the amount of $300,000  owed to Access by the Company.  Each
share of Series A Preferred  Stock is  convertible  for 1 share of the Company's
common stock,  subject to adjustment and  anti-dilution  protection upon certain
events. In addition, in connection with the Purchase Agreement,  the Company and
Access  entered into an  Agreement  (the  "Agreement"),  dated as of November 1,
2000,  pursuant to which,  among other things, the Company agreed to issue a new
Promissory  Note (the "New Note") in the amount of $405,530 in exchange  for the
cancellation of the promissory  note in the principal  amount of $300,000 issued
to Access by the Company on January 29, 1997 (the "Old Note") and Access and the
Company  agreed to release each other from certain  claims,  including,  but not
limited to,  claims under the Merger  Agreement,  Management  Agreement  and Old
Note.  Pursuant to the New Note issued to Access in November  2000,  the Company
must repay the $405,530  principal  amount over a 36-month  period.  There is no
interest on the New Note unless the Company does not pay principal when due. The
completion of these  agreements  reduced the Company's  outstanding debt by more
than 85%.

                                       -18-


<page>
LIQUIDITY AND CAPITAL RESOURCES
     Net (loss) from  operations  decreased by $591,187 or 93% to ($45,212)  for
the year ended December 31, 2001 from $(636,399) for the year ended December 31,
2000. The decrease was due to a decrease in personnel, professional fees related
to the audit in 2000 of the Company's  financial  statements for the three years
ended  December  31,  1999,  a  decrease  in rent due to the  relocation  of the
Company's  offices,  and a  decrease  in  interest  expense  resulting  from the
conversion of the Access loan into preferred shares.

     For the year ended  December 31, 2001,  the Company  incurred a net loss of
$45,212. For the year ended December 31, 2000, the Company's operations resulted
in net loss of $636,399. As of December 31, 2001, the Company had an accumulated
deficit of $21,150,794.  The Company  continues to incur operating  losses.  The
Company had negative working capital of $1,649,209 and $1,634,348 as of December
31, 2001 and December 31, 2000,  respectively.  The decrease in negative working
capital of $120,315  was due to a reduction  in  expenses.  As a result of these
factors,  as well as the uncertain  conditions  the Company faces  regarding the
delinquency of accounts payable and loans payable, the report of the independent
public accountants  contains explanatory language as to the Company's ability to
continue as a going concern.


     Presently, the Company funds working capital from revenues it receives from
the sale of its  products  and the sale of its tax losses.  As of  December  31,
2001,  the Company had  aggregate  liabilities  in excess of $2.0  million.  The
Company  does not have  sufficient  working  capital  to satisfy  its  remainder
liabilities.  While  the  Company  has been  successful  to date in  negotiating
arrangements  with its creditors for the long-term  payment of its  liabilities,
and was able to negotiate a settlement  agreement  with Access,  there can be no
assurance that such  arrangements  will continue.  In addition,  there can be no
assurance  that the  Company's  creditors  will not  institute an action for the
repayment of such amounts and if such action is taken against the Company,  that
the Company would be able to satisfy such  amounts.  In the event such action is
brought  against the  Company,  it would have a material  adverse  effect on the
Company.

     At December  31,  2001,  the Company had net Federal  operating  loss carry
forwards ("NOL") of approximately  $20,400,000 for financial reporting purposes.
Due to losses  sustained  by the Company for both  financial  and tax  reporting
through 2001,  management  was unable to determine  that  realization of the tax
asset related to the NOL was more likely than not and, thus, has provided a full
valuation allowance.  The Company's NOL that would be available to offset future
income may be subject to annual limitations.  However,  due to a provision under
the laws of the State of New Jersey,  the Company realized  $623,135,  $ 351,335
and $223,000 in 1999, 2000 and 2001  respectively,  from the sale of some of its
New Jersey net operating  losses and research tax credits..  The Company intends
to file  in 2002 to sell  additional  tax  losses  of up to  approximately  $3.3
million and Research and  Development  Credits of $130,000 which could result in
net proceeds to the Company of approximately $352,000. There can be no assurance
if or when the Company will  receive  such  amount.  If the Company is unable to
realize such tax credits, it will have a material adverse effect on the Company.


                                     -19-




<page>
     For  2002,  the  Company   anticipates  that  it  will  need  approximately
$1,600,000  in order to fund its  operations in 2002.  The Company's  management
believes  that cash from the sale of its products and sale of its tax losses and
research  credits will enable it to meet its anticipated  cash  requirements for
the next 12 months.  There can be no assurance  that the Company  will  generate
enough  cash from the sale of its  products or any cash from the sale of its tax
losses to meet its anticipated cash  requirements for the next 12 months. If the
Company does not generate enough cash to meet its  requirements  for the next 12
months,  the Company  will not have  sufficient  working  capital to satisfy its
liabilities,   develop  new  products  or  implement  its  marketing  and  sales
initiatives, which may result in a loss of sales.

     In November,  2000 the Company  entered  into an  agreement  with Access to
convert $2,305,506 of amounts due to Access by the Company into 3,649,543 shares
of Series A Preferred  Stock.  The  agreement  also includes  Access'  waiver of
$300,000  of  management  fees  owed to ASI by the  Company.  Additionally,  the
Company and Access  entered into the  Agreement  pursuant to which,  among other
things,  the  Company  agreed to issue a New Note in the amount of  $405,530  in
exchange for the  cancellation of the promissory note in the principal amount of
$300,000  issued to Access by the Company on January 29, 1997 and Access and the
Company  agreed to release each other from certain  claims,  including,  but not
limited to,  claims under the Merger  Agreement,  Management  Agreement  and Old
Note.  Pursuant to the New Note issued to Access in November,  2000, the Company
must repay the $405,530  principal  amount over a 36-month  period.  There is no
interest on the New Note unless the Company does not pay principal when due. The
completion of this agreement  reduced the Company  outstanding debt by more than
85% and resulted in the reduction of the Company's  annual interest  payments by
approximately $220,000.

     The  Company  has been  exploring  options to obtain  sources  of  funding.


ITEM 7.  Financial Statements.

         The Financial Statements can be found following Part IV of this Report.


ITEM 8.  Changes In And Disagreements With Accountants On Accounting And
         Financial Disclosure.

           None

                                          -20-





<PAGE>


PART III

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

Executive Officers and Directors

     The directors and executive officers of the Company as of March 1, 2002 are
as follows:
Name                       Age          Position

William Weiss              58           Chief Executive Officer; Treasurer;
                                        Director

D. Michael Bridges         47           President, Director

Michael Suleski            41           Vice President, Engineering; Secretary;
                                        Director


     WILLIAM WEISS, a founder of the Company,  has been Chief Executive  Officer
and a director of the Company since its formation in October 1991. Since January
1980, Mr. Weiss has also been an executive officer (and President since November
1988) and a director of Medical  Registry  Services,  Inc., a computer  software
company which sells and services a computerized system for cancer record keeping
in  hospitals.  Mr.  Weiss  devotes  approximately  10-15  hours per week to the
Company and  approximately  40-50 hours per week to Medical  Registry  Services,
Inc. From April 1974 to December 1979, Mr. Weiss was Executive Vice President of
Numerax, Inc., a public company specializing on computerized freight billing and
payment. From December 1969 to March 1974, Mr. Weiss served as an Executive Vice
President of a division of Automatic  Data  Processing,  Inc.,  the purchaser of
MSM,  Inc.,  a company he founded  which  provided  a computer  service  for the
investment advisory industry.  Mr. Weiss received a B.S. from the Wharton School
of the University of Pennsylvania and a J.D. from New York Law School.

     D. MICHAEL BRIDGES,  President,  rejoined PaperClip in January,  2000 after
providing consulting services to the Company from August 1998 to March 2000. Mr.
Bridges served as the Company's Vice President of Marketing & Sales and Director
of  Corporate  Services  from  February  1995 to August  1998.  Mr.  Bridges was
Executive Vice President and co founder of CMF Design System,  a custom software
and systems  integration  firm from May 1988 to February 1995. From July 1983 to
May 1988, Mr. Bridges was an integration consultant to Mr. Summers,  Director of
Dynamic and Systems,  EBASCO to deal with  migration  of real time  computing to
distributed  infrastructures.  Mr. Bridges received a B.S. from Rowan University
and served as a Captain in the United States Marine Corps.

                                -21-




<PAGE>


     MICHAEL  SULESKI,  a  founder  of the  Company,  has been  Vice  President,
Engineering  of the Company since August 1992,  and its Director of Research and
Development  from its  inception in October  1991 to August 1992.  He has been a
director of the Company since May 1995,  and Secretary of the Company since July
1995.  From July 1991 through October 1991, Mr. Suleski worked with a founder to
develop the DOS Network  Edition and helped found the  Company.  From April 1989
through  July  1991,  he was a  Senior  Engineer  with  Synercon  Corp.,  a firm
specializing in computer based solutions for the medical profession.  From April
1988  to  March  1989,  Mr.  Suleski  was a  software  engineer  with  Henderson
Industries,  a developer  and  manufacturer  of  commercial  industrial  control
systems and military electronics.  From July 1986 to March 1988, Mr. Suleski was
employed as software  engineer with  Singer/Kerfott,  a defense  contractor  for
guidance  and  navigation  systems.  He received a B.S.  and a M.S.  degree from
Fairleigh Dickenson University College of Science and Engineering.

     The Company's  directors are elected at the annual meeting of  stockholders
and hold office until the next annual meeting of the stockholders or until their
successors are elected and qualified. Directors are not currently compensated or
reimbursed  for expenses  incurred by them in connection  with their services as
directors, except for travel to Board of Directors meetings.

     There are no family relationships among any of the directors or officers.

     The  Company's  officers are chosen by the Board of Directors  and serve at
the pleasure of the Board. The loss of the services of any one of William Weiss,
D. Michael  Bridges or Michael  Suleski could have a material  adverse effect on
the Company.

Limitation of Liability and Indemnification Matters

     The Company's Certificate of Incorporation: (i) eliminates the liability of
the  directors  of the  Company  for  monetary  damages  to the  fullest  extent
permitted by Delaware  law:  and (ii)  authorizes  the Company to indemnify  its
officers and  directors  to the fullest  extent  permitted by Delaware  Law. The
By-Laws of the Company provide broad  indemnification for officers and directors
against  expenses  (including  legal  fees,  judgements,   and  Company-approved
settlements)  incurred in  connection  with any civil or  criminal  act in which
arises  from the  performance  of duties  for the  Company.  The  By-Laws of the
Company also provide that the Company will indemnify such persons to the fullest
extent permitted by law. The indemnification  provided by the By-Laws applies to
any action taken by the  indemnitee  while  serving as an officer or director of
the Company,  any of its subsidiaries,  if any, or at the Company's request as a
director,  officer,  employee  or agent of any of the above,  whether  occurring
before or after the date of employment. The By-Laws of the Company do not permit
indemnification  for any acts or  omissions  from  which a  director  may not be
relieved of liability under the Delaware General Corporation Law.
                                        -22-




<PAGE>
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933,  as  amended,  may be  permitted  to  directors,  officers,  or persons
controlling the Company  pursuant to the foregoing  provisions,  the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification  is  against  public  policy  as  expressed  in the  Act  and is
therefore unenforceable.


Compliance with SEC Audit Committee Disclosure

Due to financial constraints, our independent accountants were not engaged to
review the quarterly financial statements for the year ended December 31, 2000
as required by the Securities and Exchange Commission's "Audit Committee
Disclosure" ruling effective January 31, 2000.  This ruling requires the
interim financial information filed with Forms 10-Q or 10-QSB be reviewed by
an independent accountant under SAS 71 beginning with fiscal quarters ending
on or after March 15, 2000.  This results in a material compliance deficiency
with the Securities and Exchange Commission.

     For 2001, our independent  accountants were engaged to review the quarterly
financial  statements  for the year ended  December  31, 2001 as required by the
Securities  and  Exchange   Commission's  "Audit  Committee  Disclosure"  ruling
effective January 31, 2000.


Compliance with Section 16

     Section 16(a) of the Exchange Act requires certain  persons,  including the
Company's directors and executive officers,  to file reports with the Securities
and Exchange Commission  regarding  beneficial ownership of equity securities of
the Company.  Mr. Bridges failed to file a Form 3 in 2000 and a Form 5 to report
issuances  of stock  options in 2000.  In addition,  Mr.  Weiss and Mr.  Suleski
failed to file a Form 5 for the year 2000 to report  issuances of stock  options
in 2000.

                                       -23-



<PAGE>
ITEM 10.  Executive Compensation.

     The Summary  Compensation  Table below sets forth  compensation paid by the
Company for the last three fiscal years ended December 31, 2001 for all services
in all  capacities  for its Chief  Executive  Officer and each of its  principal
executive  officers  whose  total  annual  salary and bonus  exceeded  $100,000:
<TABLE>
<CAPTION>

                           Summary Compensation Table
--------------------------------------------------------------------------------------------------------------------------
                             Annual Compensation                                Long Term Compensation
--------------------------------------------------------------------------------------------------------------------------
                                                                                    Securities
                                                  Other           Restricted       Underlying    LTIP
    Name and                          Bonus       Annual       Underlying Stock  Options/SARs (#)Payouts    All Other
    Position      Year    Salary ($)    ($)    Compensation       Awards ($)                        ($)
Compensation
--------------------------------------------------------------------------------------------------------------------------
<S>               <C>       <C>          <C>         <C>               <C>          <C>             <C>        <C>
William Weiss     2001      120,000   0           0                 0                0               N/A         N/A
CEO (1)(3)        2000      120,000   0           0                 0           481,000(2)(4)        N/A         N/A
                  1999      120,000   0           0                 0            81,000(2)           N/A         N/A
--------------------------------------------------------------------------------------------------------------------------
Michael Suleski   2001      100,000   0           0                 0                0  (2)          N/A         N/A
Vice President    2000      100,000   0           0                 0            481,000(2)(4)       N/A         N/A
Engineering (1)   1999      100,000   0           0                 0             81,000(2)          N/A         N/A
--------------------------------------------------------------------------------------------------------------------------

D Michael Bridges 2001      107,800   0           0                 0                0           N/A       N/A
President         2000      103,000   0           0                 0           400,000(6)       N/A       N/A
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
     (1) The Company presently has no employment  contract with William Weiss or
Michael  Suleski.
     (2) Granted  pursuant to an automatic  grant provision in the
1995 Stock Plan (as  defined  herein) for  services  rendered as a member of the
Board in the prior year.
     (3)As of February  29,  2002,  $560,000  is owed to William  Weiss for past
salaries accrued but not paid.
     (4)Options  to  purchase  400,000  shares of  common  stock  were  granted,
pursuant  to the 1995  Stock  Option  Plan on July 27,  2000.
     (6)The  Company issued Mr.  Bridges  options to purchase  400,000 shares of
common stock pursuant to Mr. Bridges employment agreement, and has an employment
contract with Mr. Bridges calling for an annual salary of $107,800.
                                  -24-


<PAGE>

Option/SAR Grants

     During  the fiscal  year ended  December  31,  2001,  there were no options
granted to either the Company's Chief Executive  Officer or any of its principal
officers.

                                           25




<PAGE>

     Aggregated  Option/SAR  Exercises  in fiscal  year 2001
Option/ SAR Values.

     The table below indicates that no  options/SARs  were  exercised
during fiscal year 2001 by the Company's Chief Executive Officer and each of its
principal executive officers and shows the value of their
unexercised options/SARs.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                                   Value of
                                                                                                 Unexercised
                                                                  Unexercised Options at        In-the-Money
                                                                      fiscal year end        Options Exercisable/
                         Shares Acquired On         Value               Exercisable/          Unexercisable ($)
                         -------------------        -----               ------------          -----------------
         Name               Exercise (#)         Realized ($)      Unexercisable (#) (1)
         ----               ------------         ------------      ---------------------
----------------------- ---------------------- ----------------- --------------------------- ---------------------
<S>                               <C>                 <C>                <C>                        <C>

William Weiss                     0                   0                  637,587/133,333             0/0
D. Michael Bridges (2)            0                   0                  409,000/0                   0/0
Michael Suleski                   0                   0                  611,587/133,333             0/0

</TABLE>


     (1) The Company does not have a stock appreciation  rights ("SAR") plan and
does not have any SARs outstanding.

     The Company  presently  has no employment  contracts  with William Weiss or
Michael Suleski. The Company does not have any pension, profit sharing, or bonus
plan except that it has  established  a 1993 Option  Stock Plan and a 1995 Stock
Option Plan, each of which is described below.

                                     -26-




<PAGE>

     The Company entered into an Employment Agreement with David Michael Bridges
effective as of January 1, 2000 (the  "Employment  Agreement").  The  Employment
Agreement provides that Mr. Bridges will serve as the Company's President and as
a member of the Company's Board of Directors, subject to stockholder vote, for a
term of three  years,  subject  to  automatic  one  year  extensions  and  early
termination,  at an initial base salary of $107,800.  The  Employment  Agreement
provides  that Mr.  Bridges  shall not  compete  with the Company in the product
lines under  development  by the Company or use or disclose any trade secrets of
the  Company  during the term of the  Employment  Agreement.  In  addition,  the
Employment  Agreement  provides that Mr. Bridges shall not solicit  employees of
the Company or induce any employee to terminate his or her relationship with the
Company  during the term and for a period of 24 months after  termination of the
Employment Agreement unless the Company terminates Mr. Bridges without cause (as
defined in the  Employment  Agreement),  the  Company  fails to satisfy  certain
conditions or if William Weiss or Michael  Suleski shall leave the employment of
the Company other than by reason of death or disability.  Mr. Bridges may not be
terminated  prior to the end of the term  except  with cause (as  defined in the
Employment  Agreement) and Mr.  Bridges may terminate the  Employment  Agreement
prior to the end of the term by  giving  the  Company  at least 90 days  written
notice. In the event that there is a transfer of control, defined as 50%, of the
Company within 6 months of the termination of Mr. Bridges,  Mr. Bridges shall be
entitled to his base salary,  vacation and other  benefits for the  remainder of
the  term  of the  Employment  Agreement  and any  difference  in  value  of the
Company's  capital stock owned by Mr. Bridges at the time of his termination and
the value of such stock after  transfer of control as valued in accordance  with
the terms of the Employment  Agreement.  The Employment  Agreement also provides
for the grant of options to  purchase  400,000  shares of the  Company's  common
stock.  Mr.  Bridges is also entitled to  indemnification  to the fullest extent
permitted  under New Jersey law. In the event that Mr.  Bridges'  employment  is
terminated  without  cause prior to the end of the term or any  extension of the
term or because of a disability (as defined in the Employment Agreement),  he is
entitled  to receive his base salary for 6 months,  at his then  current  annual
rate paid in a lump sum within 10 days of termination, plus a payment for unused
vacation.   The  Employment   Agreement  also  provides  that  Mr.  Bridges  may
independently  develop  intellectual  property  outside of his regular  hours of
employment  with the Company and maintain  full  ownership of such  intellectual
property but provides for the  Company's  use of certain  intellectual  property
owned by Mr. Bridges.  The Employment Agreement restricts Mr. Bridges from using
certain  intellectual  property  owned by him to compete with the Company during
the term of the Employment Agreement.

                                       -27-





<PAGE>

1993 Stock Option Plan

     In March 1993,  the Company  adopted its 1993 Stock  Option Plan (the "1993
Stock Plan") covering 68,912 shares of Common Stock, pursuant to which employees
(other than  directors) of the Company were  eligible to receive stock  options.
The 1993 Stock Plan,  which expires on February 1, 2003, is  administered by the
Board  of  Directors.  The  selection  of  participants,  allotment  of  shares,
determination  of price and other conditions of the purchase of the options were
determined by the Board of Directors. Stock options granted under the 1993 Stock
Plan are exercisable for a period of up to ten years from the date of the grant.
As of December 31, 2001,  all of the options  under the 1993 Stock Plan had been
granted.  At  such  date,  48,729  options  had  expired,  20,183  options  were
outstanding and none had been exercised.

1995 Stock Option Plan

     The 1995 Stock Plan,  approved by  shareholders  of the Company in May 1995
and amended in 1996 and 2000,  provides for  incentive and  non-qualified  stock
options to purchase the  Company's  common stock to be issued to key  employees,
directors,  former  directors,  consultants and other persons who have conferred
substantial  benefit upon the  Company,  in order to attract and retain such key
personnel and  executives  with the ability to achieve the corporate  objectives
necessary to increase shareholder value. Such incentives encourage the holder of
stock  options  to  manage  the  Company's  business  in the best  interests  of
shareholders by creating an identity of interest with the shareholders.
     The 1995 Stock Plan provides that the aggregate  number of shares of common
stock for which options may be granted  thereunder  is 4,000,000  shares and the
maximum  number of shares  underlying  stock options which may be granted to any
person under the 1995 Stock Plan is 500,000 shares per year. The 1995 Stock Plan
provides  that  it  shall  be  administered  by a  committee  (the  "Committee")
consisting of either the full Board of Directors or at least two directors, each
of whom is an "outside director" as that term is defined for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended. Until there are members
of the Board of Directors who qualify as "outside  directors," the full Board of
Directors will administer the 1995 Stock Plan.

                                        -28-



<PAGE>
     The Committee has the full power and  authority,  subject to the provisions
of the 1995 Stock Plan, to designate  participants,  grant options and determine
the terms of all options.  The terms of specific  options granted under the 1995
Stock Plan are determined by the Committee.  The per share exercise price of the
common  stock  subject to an option may not be less than 100% of the fair market
value of the  common  stock on the date of grant,  unless,  with  respect  to an
option that is not an incentive stock option,  the Board of Directors approves a
lower  percentage  with  respect  to such  option.  However,  in the  case of an
incentive  stock option granted to a holder of shares  representing at least 10%
of the total combined voting power of all classes of stock of the Company or the
parent or a  subsidiary  thereof (a  "Substantial  Shareholder"),  the per share
exercise  price may not be less than 110% of the fair market value of the common
stock on the  date of  grant.  The  term of each  option  is  determined  by the
Committee,  but no option may be  exercisable  after ten years have elapsed from
the date upon which the option is granted. However, if an incentive stock option
is granted to a Substantial Shareholder,  the term of such option may not exceed
five years.

     Upon the exercise of an option,  the option holder must pay the Company the
exercise  price plus the amount of the  required  federal and state  withholding
taxes,  if any. The 1995 Stock Plan allows an  optionee,  subject to approval of
the Committee, to pay the exercise price in shares of common stock, only if such
shares of common stock have been held by the optionee for the  requisite  period
necessary to avoid a charge to the Company's  earnings for  financial  reporting
purposes (and otherwise  meeting any other  requirements  to avoid such charge).
The 1995  Stock  Plan also  allows  an  Optionee,  subject  to  approval  of the
Committee,   to  pay  the   exercise   price   pursuant  to  a   broker-assisted
cashless-exercise  program  established by the Committee;  provided in each case
that such methods  avoid  "short-swing"  profits to the optionee  under  Section
16(b) of the Exchange Act.  Withholding taxes due upon such exercise may also be
satisfied pursuant to such broker-assisted  cashless-exercise  program. The 1995
Stock Plan limits the  availability of the alternative to pay the exercise price
pursuant to a broker-assisted cashless-exercise program so that such alternative
is not  available  with respect to incentive  stock  options  outstanding  as of
October 29, 1996. The 1995 Stock Plan permits limited  transferability  of stock
options primarily for estate planning purposes. As of December 31, 2001, options
to acquire  3,669,222  shares of Common  Stock had been  granted  under the 1995
Stock Plan. At such date,  353,872 options had expired,  95,508 options had been
exercised and 3,219,842 options were outstanding.

Executive Compensation

     The Board determines the compensation of the Company's  executive officers,
each of whom did not receive increases in their salaries, nor a bonus, in 2001.


                                           -29-




<PAGE>

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management.

     The following  table sets forth,  as of March 30,2001  (except as otherwise
set forth in the footnotes),  the number of shares of Common Stock  beneficially
owned by each director,  by the directors and executive  officers of the Company
as a group and by each holder of at least five  percent of Common Stock known to
the Company and the respective  percentage  ownership of the outstanding  Common
Stock held by each such holder and group:
Name and Address                            Number         Percentage
of Beneficial Owner                       of Shares (1)     of Class
----------------------------------      ----------------  ------------

Access Solutions International, Inc.      3,649,543(2)         31.00%
650 Ten Rod Road
North Kingston, RI 02852

William Weiss   (3)                       1,035,304(4)         11.54%
PaperClip Software, Inc.
611 Route 46 West
Hasbrouck Heights, NJ 07604

Michael Suleski (3)                         796,344(5)          8.89%
PaperClip Software, Inc.
611 Route 46 West
Hasbrouck Heights, NJ 07604


D. Michael Bridges                           410,500(6)          4.77%
PaperClip Software, Inc.
611 Route 46 West
Hasbrouck Heights, NJ 07604


A11 Officers and Directors
as a group (3 persons)                        2,242,148           22.12%


(1) Unless otherwise  indicated below, all shares are owned
   beneficially  and of record.
(2) Includes 3,649,543 shares of common stock to be received upon the
   conversion of 3,649,543 shares of Series A Convertible stock.
(3)   William Weiss and Michael Suleski are founders of the Company.
(4)   Includes (a) 924 shares of Common Stock  issuable  upon the exercise
      of 924  warrants  obtained  in a private  placement,  (b)  637,587
      shares currently  exercisable and 133,333 that are unexercisable as
      of December 31, 2001 under the 1995 Stock Option Plan.
(5)   Includes  15,408  shares of Common Stock issuable upon
      the exercise  of options  currently  exercisable  under the 1993
      Stock Plan and  611,587 shares currently exercisable and 133,333 that
      are unexercisable as of December 31, 2001 under the 1995 Stock
      Option Plan.
(6)   Includes 409,000 shares of Common Stock issuable upon
      the exercise of     options  currently  exercisable under the 1995
      Stock Option Plan.

                                            30


<PAGE>



Item. 12. Certain Relationships and Related Transactions.

         Not Applicable

                                     PART IV

Item 13.  Exhibits, and Report on Form 8-K.


                                          31













































<PAGE>
(a)       Exhibits:

3.1      Certificate of Incorporation of Registrant, as amended.(1)
3.1(a)   Certificate of Amendment to Certificate of Incorporation.(3)
3.1(b)   Series A Preferred Stock Certificate of Designations.(3)
3.2      By-Laws of Registrant, as amended. (1)
3.3      Registrant's Authorization to do Business in New Jersey. (1)
3.5      Form of Common Stock Certificate. (1)
4.2      Class A Warrant Agreement (including form of Class A Warrant) among the
         Registrant, A.R. Baron & Co.,
         Inc.  ("Baron") and American  Stock  Transfer & Trust  Company.(1)  4.3
         Stock  Purchase  Option,  dated  September  27, 1995,  granted to
         Baron.(1)  4.4 Warrant Purchase Option, dated September 27, 1995,
         granted to Baron.(1)4.5 Form of Investor Purchaser Agreement, dated as
         of April 5, 1995, by and between the Registrant and the Investors
         identified in the Schedule of Investors  attached  thereto,  and
         amendment  thereto,  dated March 29, 1995. (1)
4.6      Form of  Bridge  Note  issued  on  April  5,  1995,  to  each  Investor
         identified on the Schedule of Investors ncluded with Exhibit 4.5. (1)
4.7      Form of Bridge Warrant dated April 5, 1995, given to each Investor
         identified on the Schedule of Investors included with Exhibit 4.5. (1)
4.8      Promissory Note issued on November 1, 2000 to Access Solutions
                  International, Inc.
10.1     1993 Stock Option Plan. (1)
10.2     1995 Stock Option Plan, as amended (2)
10.3     License Agreement with Pixel Translations, Inc., dated May 16, 1995.(1)
10.4     Distributor Agreement with Law Cypress Distributing  Company,  dated as
         of March 18,1993  (incorporated  by reference from Exhibit 10.16 of the
         Registrant's Form 10-KSB for the fiscal year ended December 31, 1995).
         (2)
10.5     Form of End User License. (1)
10.6     Merger and Acquisition Agreement between the Registrant and Baron,
         dated September 27, 1995. (1)
10.7     Consulting Agreement with Stephen Kornfeld, dated as of January 1, 1996
         (incorporated by reference from Exhibit 10.27 of the Registrant's  Form
         10-KSB for the fiscal year ended December 31, 1995).
10.8     (a) Reschedule Agreement with NCC Export Systems 1995 LTD ("NCC"),
         dated as of October 21, 1996 (incorporated by reference from Exhibit 10
         of the Registrant's Form 10-QSB for the quarter ended September 30,
         1996). (b) Receipt of full payment and termination of the Reschedule
         Agreement from NCC, dated January 29 , 1997. (2)
10.9     License Agreement with Cheyenne Software, Inc., dated November 10, 1995
         (incorporated  by reference from Exhibit  10.12(c) of the  Registrant's
         Form 10-KSB for the fiscal year ended December 31, 1995).
10.10    (a) Letter of Intent with Access Solutions International, Inc. ("Access
         Solutions"),  dated January 2, 1997,  (b) Letter  Agreement with Access
         Solutions,  amending the Letter of Intent,  dated January 31, 1997, (c)
         Letter Agreement with Access Solutions,  amending the Letter of Intent,
         dated  February 28, 1997, (d) Letter  Agreement with Access  Solutions,
         amending the Letter of Intent,  dated March 31, 1997,  (e)  Convertible
         Promissory  note issued by the  Registrant to Access  Solutions,  dated
         January 29, 1997, (f) Security  Agreement with Access Solutions,  dated
         January  29, 1997 and (g)  Registration  Rights  Agreement  with Access
         Solutions, dated January 29, 1997. (2)
10.11    Employment  Termination  Agreement and release  between the Company and
         Sol  Rosenberg,  dated as of June 18, 1997  (incorporated  by reference
         from Exhibit  99.1 of the  Registrant's  Form 10-QSB for the  quarterly
         period ended June 30, 1997).

                                           32


<PAGE>
10.12    Agreement  and Plan of Merger among the Company,  Access  Solutions and
         PaperClip Acquisitions,  dated as of November 12, 1997 (incorporated by
         reference  from  Exhibit  2 of the  Registrant's  Form  10-QSB  for the
         quarterly period ended September 30, 1997).
10.13    Tenth  Amendment  to  Agreement  and Plan of Merger  among the Company,
         Access Solutions and PaperClip Acquisitions, dated as of April 22, 1998
         (incorporated by reference from Exhibit 10.28 of the Registrant's  Form
         8-K filed with the Securities and Commission on June 5, 1998).
10.14    Second  Amendment to the Management  Agreement  between the Company and
         Access Solutions dated as of April 22, 1998  (incorporated by reference
         from  Exhibit  10.29  of the  Registrant's  Form  8-K  filed  with  the
         Securities and Commission on June 5, 1998).
10.15    Tenth Amendment to Convertible  Promissory Note between the Company and
         Access Solutions dated as of April 22, 1998  (incorporated by reference
         from  Exhibit  10.30  of the  Registrant's  Form  8-K  filed  with  the
         Securities and Commission on June 5, 1998).
10.16    Agreement dated as of November 1, 2000 between Access Solutions
         International, Inc. and PaperClip Software, Inc.(3)
10.17    Series A Preferred Stock Purchase Agreement dated as of November 1,
         2000 between Access Solutions International, Inc. and PaperClip
         Sotware, Inc.(3)
10.18    Registration Rights Agreement dated as of November 1, 2000 between
         Access Solutions International, Inc. and PaperClip Software, Inc. (3)
10.19 Employment Agreement dated as of January 1, 2000 between Paperclip
         Software, Inc. and D. Michael Bridges. (3)

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





(1)      Incorporated by reference from the Registrant's  Registration Statement
         on Form SB-2 (File No. 33-92768NY).
(2)      Incorporated  by reference  from the  Registrant's  Form 10-KSB for the
         fiscal year ended December 31, 1997 (File No. 000-26598).
(3)      Incorporated by reference from the Registrant's Form 10-KSB for the
           Fiscal year December 31, 2000 (File No. 000-26598)

                                          33







<PAGE>
(a)       Reports on Form 8-K.

     The Company did not file any reports on Form 8-K during the period  covered
by this report.





                                     -34-







<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934,  the Registrant has caused this Report to be signed on its
behalf by the undersigned, hereunto duly authorized.
                                  PAPERCLIP SOFTWARE, INC.


                                  By: /s/ William Weiss
                                  William Weiss, Chief Executive Officer


                                  Date: March 26,2002


     Pursuant to the  requirements  of the  Exchange  Act,  this Report has been
signed below by the  following  persons on behalf of the  Registrant  and in the
capacities and on the date indicated.
Signature                 Title                           Date

/s/ William Weiss
William Weiss             Director and Chief Executive    March 26, 2002
                          Officer (Principal Executive,
                          Financial and Accounting Officer)

/s/ D Michael Bridges     Director, President             March 26, 2002
D Michael Bridges

/s/ Michael Suleski
Michael Suleski           Director, Vice President,       March 26, 2002
                          Engineering and Secretary
















                                        -35-














                             PAPERCLIP SOFTWARE, INC.

                             FINANCIAL STATEMENTS

                            DECEMBER 31, 2001 AND 2000











PAPERCLIP SOFTWARE, INC.

DECEMBER 31, 2001 AND 2000



CONTENTS


                                                             Page

Independent Auditors' Report                                    1


Financial Statements:

    Balance Sheet                                               2


    Statements of Operations                                    3


    Statements of Changes in Stockholders' Deficiency           4

    Statements of Cash Flows                                    5


Notes to Financial Statements                                6-14







<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
PaperClip Software, Inc.

     We have audited the accompanying balance sheet of PaperClip Software,  Inc.
(a Delaware corporation) as of December 31, 2001 , and the related statements of
operations,  changes in stockholders' deficiency, and cash flows for each of the
years ended  December  31, 2001 and 2000.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of PaperClip Software,  Inc. as
of December 31, 2001 and 2000,  and the results of its  operations  and its cash
flows for each of the years then ended, in conformity with accounting principles
generally accepted in the United States of America.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in Note 11 to the
financial statements,  the Company has suffered significant negative cash flows,
has  incurred  significant  losses  from  operations  since  inception  and  has
substantial  negative  working  capital  and  net  worth.  These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans regarding those matters are also described in Note 11. These
financial  statements do not include any  adjustment  that might result from the
outcome of this uncertainty.

     We were not engaged to review the quarterly  financial  statements  for the
year  ended  December  31,  2000 as  required  by the  Securities  and  Exchange
Commission's  "Audit Committee  Disclosure"  ruling effective  January 31, 2000.
This ruling requires the interim financial  information filed with Forms 10-Q or
10-QSB be reviewed by an  independent  accountant  under SAS 71  beginning  with
fiscal quarters ending on or after March 15, 2000. In addition,  the Company has
informed us that no independent accountant review was performed on the quarterly
registrations  filed  during the year ending  2000.  This  results in a material
compliance deficiency with the Securities and Exchange Commission.
                                                   /s/ Sobel & Co., LLC
                                                   Certified Public Accountants
March 10, 2002
Livingston, New Jersey


<PAGE>
PAPERCLIP SOFTWARE, INC.
BALANCE SHEET
DECEMBER 31, 2001

ASSETS
  CURRENT ASSETS:
     Cash and cash equivalents                                       $265,837
     Accounts receivable, net of allowance for
       doubtful  accounts of $30,000                                  173,463
                                                                  ------------
         Total Current Assets                                         439,300
                                                                  ------------
  EQUIPMENT, FURNITURE AND FIXTURES:
     Computer and office equipment                                     51,910
     Furniture and fixtures                                           204,858
     Leasehold improvements                                            12,000
                                                                  ------------
                                                                      268,768
     Less: accumulated depreciation                                  (239,075)
                                                                  ------------
         Equipment, Furniture and Fixtures, Net                        29,693
                                                                  ------------

  OTHER ASSETS                                                         13,500
                                                                  ------------

                                                                     $482,493
                                                                  ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  CURRENT LIABILITIES:
     Accounts payable and accrued expenses                           $892,466
     Accounts payable - related party                                 560,000
     Deferred revenue                                                 236,000
     Notes payable - current                                          129,691
     Notes payable - ASI, current                                     270,352
                                                                  ------------
         Total Current Liabilities                                  2,088,509


  COMMITMENTS AND CONTINGENCIES

  STOCKHOLDERS' DEFICIENCY:
     Convertible Series A, preferred stock, authorized  10,000,000
       $.01 par value; 3,649,543 shares,  issued and outstanding       36,495
     Common stock-authorized 30,000,000 shares;
       $.01 par value; 8,196,521 shares, issued and outstanding        81,965
     Additional paid-in capital                                    19,426,318
     Accumulated deficit                                          (21,150,794)
                                                                  ------------
Total Stockholders' Deficiency                                     (1,606,016)
                                                                  ------------

                                                                     $482,493
                                                                  ============
See independent auditors' report and notes to financial statements.
                                                           2


<PAGE>
PAPERCLIP SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                                                      2001        2000
                                                                  ------------------------
<S>                                                                <C>         <C>

     NET SALES                                                     $1,249,285  $1,267,007
                                                                  ------------------------
     OPERATING EXPENSES:
         Salaries and related benefits                                862,021     935,742
         Research and development expenses                            270,309     374,556
         Selling expenses                                             192,260     169,390
         General and administrative expenses                          181,524     387,075
                                                                  ------------------------
              Total Operating Expenses                              1,506,114   1,866,763
                                                                  ------------------------

     LOSS FROM OPERATIONS                                            (256,829)   (599,756)
                                                                  ------------------------
     OTHER INCOME (EXPENSE):
         Interest income                                                3,279       7,616
         Interest expense and financing costs                         (15,600)   (395,594)
         Income from sale of tax credits                              223,938     351,335
                                                                  ------------------------
                      Total Other Income (Expense), Net               211,617     (36,643)
                                                                   ------------------------

     NET LOSS BEFORE PROVISION  FOR INCOME TAXES                      (45,212)   (636,399)
     PROVISION FOR INCOME TAXES                                          -           -
                                                                  ------------------------

     NET LOSS                                                        ($45,212)  ($636,399)
                                                                  ========================


 BASIC LOSS PER COMMON SHARE                                           ($0.01)     ($0.08)
                                                                  ========================


     WEIGHTED AVERAGE NUMBER
          COMMON  SHARES OUTSTANDING                                 8,121,726   8,121,521
                                                                   ========================
</TABLE>








See independent auditors' report and notes to financial statements.
                                      3







<PAGE>

PAPERCLIP SOFTWARE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                   Preferred Stock    Common Stock
                                                                              Additional
                                   Number of          Number of               Paid-in     Accumulated  Stockholders'
                                    Shares   Par Value Shares     Par Value   Capital     Deficit      Deficiency
                                   ---------------------------------------------------------------------------------

<S>                                <C>       <C>      <C>         <C>         <C>         <C>          <C>
BALANCE, December 31, 1999           -      $   -       8,121,521     $81,215 $16,469,521 ($20,469,183) ($3,918,447)
Issuance of preferred stock in
      exchange for debt retirement 3,649,543   36,495    -           -          2,953,797     -           2,990,292


NET LOSS, 2000                       -         -         -           -           -            (636,399)    (636,399)

                                   ---------------------------------------------------------------------------------
BALANCE, December 31, 2000         3,649,543  $36,495   8,121,521     $81,215 $19,423,318 ($21,105,582) ($1,564,554)


Issuance of common stock
      for compensation                 -          -        75,000         750       3,000     -               3,750


NET LOSS, 2001                         -          -           -            -           -       (45,212)     (45,212)
                                   ---------------------------------------------------------------------------------

BALANCE, December 31, 2001         3,649,543  $36,495   8,196,521     $81,965 $19,426,318 ($21,150,794) ($1,606,016)
                                   =================================================================================

</TABLE>



See independent auditors' report and notes to financial statements.
                                  4











<page>

PAPERCLIP SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>                                                                     Year Ended December 31,
                                                                                  2001        2000
                                                                              -------------------------


<S>                                                                           <C>         <C>
CASH FLOWS USED FOR:
  OPERATING ACTIVITIES:
     Net loss                                                                    ($45,212)   ($636,399)
     Adjustments to reconcile net loss  to net
         cash provided by (used for) operating activities:
             Depreciation                                                          35,252       38,843
             Accrued interest on debt as part of restructuring                       -         373,739
             Issuance of stock as compensation                                      3,750
         (Increase) decrease in:
             Accounts receivable, net                                               4,527      (41,332)
             Other assets                                                           5,742          758
Increase (decrease) in:
             Accounts payable and accrued expenses                               (103,758)    (134,974)
             Accrued interest on convertible debt                                  15,563       15,563
             Accounts payable- related party                                      105,000       60,000
             Deferred revenue                                                      86,000       49,000
                                                                              -------------------------
              Net Cash provided by (used for)  Operating Activities               106,864     (274,802)
                                                                              -------------------------
  INVESTING ACTIVITIES:
     Purchases of equipment, furniture and  fixtures                              (14,393)      (8,532)
                                                                              -------------------------

  FINANCING ACTIVITIES:
      Principal payments on note payable - ASI                                   (123,923)        -
                                                                               -----------------------

(DECREASE) INCREASE IN CASH                                                       (31,452)    (283,334)

CASH AND CASH EQUIVALENTS:

Beginning of year                                                                 297,289      580,623
                                                                              -------------------------

End of year                                                                      $265,837     $297,289
                                                                              =========================
</TABLE>





See independent auditors' report and notes to financial statements.

                                   5



<page>
PAPERCLIP SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999

NOTE 1  -  ORGANIZATION:

     PaperClip  Software,  Inc.  (formerly known as PaperClip  Imaging Software,
Inc.),located in Hasbrouck Heights, NJ, (the "Company"), a Delaware corporation,
incorporated in October,  1991,is engaged in the development and distribution of
computer software for document  management and transport of electronic  document
packages across the public Internet or a private Intranet with interoperability,
security  and  tracking  capabilities.  The  Company's  systems  allow  users of
personal computer  networks to scan, file,  retrieve,  display,  print and route
documents  and  other  software   objects  (such  as  word   processing   files,
spreadsheets  and  electronic  mail),  while  continuing  to use their  existing
application software.  The systems can be integrated with many personal computer
applications  with little or no programming and can file and retrieve  documents
without the time consuming step of manually labeling or indexing each document.

     The Company  sells its products  worldwide to thirty Value Added  Resellers
("VAR's") and original equipment  manufacturers  ("OEM's") of personal computers
and personal computer networks utilized on a corporate level.

NOTE 2  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Accounting:
     The Company's policy is to prepare its financial  statements on the accrual
basis of accounting.

Revenue Recognition:
     The  Company  generates  revenues  from  licensing  the  rights  to use its
software  products  directly  to  distributors,  resellers,  original  equipment
manufacturers, and end users.

     Revenues  from  licenses are  recognized  upon  shipment of the software if
there are no significant  post delivery  obligations,  if collection is probable
and if payment is due within one year. The Company provides telephone support at
no additional  charge for periods not exceeding one year.  The estimated cost of
providing such support is not significant. Revenues from consulting services are
recognized as services are performed.

     The Company also offers post contract  services,  which  includes  software
version  upgrades and consulting and training  services  related to installation
and implementation of the Company's product. Revenues paid by the customer prior
to  performance of post contract  services are deferred and recognized  over the
term of the post contract service agreement, usually one year.

Use of Estimates:
     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally  accepted  in  the  United  States  of  America,  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.
                                          6


<page>
NOTE 2  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

Advertising:
Advertising costs are expensed as incurred.

Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash at banks and highly
liquid investments with maturities of three months or less.

Equipment, Furniture and Fixtures:
     Equipment,  furniture  and  fixtures are stated at cost,  less  accumulated
depreciation.  Depreciation  expense is computed using the straight-line  method
over the  estimated  useful  lives of the assets  which range from five to seven
years.

Accounting for Stock-Based Compensation:
     The Company adopted  Statement of Financial  Accounting  Standards No. 123,
"Accounting  for  Stock-Based  Compensation"  (SFAS 123).  As  permitted by this
statement,  the Company has chosen to account for stock based compensation using
the intrinsic value method.  The adoption of this pronouncement had no impact on
the Company's financial condition or results of operations,  however, additional
disclosures have been included in the financial statements.

Federal Income Taxes:
     The Company has adopted Statement of Financial  Accounting  Standards Board
No. 109,  "Accounting  for Income  Taxes"  (SFAS 109),  which  provides  for the
recognition of deferred tax assets,  net of an applicable  valuation  allowance,
related to net operating loss carryforwards and certain temporary differences.

(Loss) Per Common Share:
     (Loss) per common share is computed based upon the weighted  average number
of common shares and common share  equivalents  outstanding  if dilutive  during
each year.

Research and Development Costs:
     The costs  incurred in  establishing  the  technological  feasibility  of a
computer  software product that is to be sold,  leased or otherwise  marketed by
the Company is accounted for as Research & Development costs and expensed in the
period incurred. The amount charged against income was $270,309 and $374,556 for
the years ended December 31, 2001 and 2000, respectively.

Deferred Revenue:
     The Company  offers annual  support  contracts to its  customers  including
technical phone support,  which is recorded as deferred  revenue and pro-ratably
reclassified to sales as the contract expires and it is earned.

                       7





<page>
NOTE 3  -  INCOME TAXES:

     For tax return  purposes,  the Company has the following net operating loss
carry forwards as of December 31, 2001 and 2000 for Federal and State purposes:

             Federal
     Net Operating Loss    Year Incurred      Expiration Date

        $2,110,824       December 31, 1992      December 31, 2007
        $2,790,034       December 31, 1993      December 31, 2008
        $2,880,756       December 31, 1994      December 31, 2009
        $3,648,749       December 31, 1995      December 31, 2010
        $4,660,613       December 31, 1996      December 31, 2011
        $2,707,112       December 31, 1997      December 31, 2017
        $  880,373       December 31, 1998      December 31, 2018
        $   33,735       December 31, 1999      December 31, 2019
        $  635,000       December 31, 2000      December 31, 2020
        $   45,000       December 31, 2001      December 31, 2021
          State
   Net Operating Loss     Year Incurred          Expiration Date

       $2,704,336      December 31, 1997              December 31, 2004
       $  879,754      December 31, 1998              December 31, 2005
       $   33,735      December 31, 1999              December 31, 2006
       $  635,000      December 31, 2000              December 31, 2007
       $   45,000      December 31, 2001              December 31, 2008


     As stated in Note 15, the State of New  Jersey is  currently  allowing  the
sale of state net operating losses and research tax credits. At this time, it is
undeterminable the duration of the program or the amounts that will be sold.

The Company also has tax credits related to research activities of
approximately $318,000 for Federal and $130,000 for State purposes at
December 31, 2001.

The Company's total deferred tax liabilities, deferred tax assets and
valuation allowance consists of the following at December 31:

                                         2001                 2000
                                   --------------------------------------
Total deferred tax liabilities     $      -                  $     -
Total deferred tax assets             6,118,000             6,090,500
Total valuation allowance             6,118,000             6,090,500
                                   -------------------------------------
                                   $     -                 $     -
                                  ======================================


                                                                       8





<page>
NOTE 4  -  DEBT:
Note payable, convertible into common stock at .30
per share, 12% interest, matured December 31, 1999,
and as of January 1, 2000, the note is in default.           $129,691
                                                           ============

Note payable - related party, issued in exchange for the cancellation
of the existing $300,000 note plus accrued interest, payable in 36
monthly payments, no stated interest unless payment terms are not
being met.  Interest will be computed at 15% per annum from the
date the principal  payments become late.
Current maturities                                           $270,352
                                                           ============

     The note payable,  ASI, contains restrictive  covenants,  which among other
things,  restrict all liens or mortgages on current and future assets,  prohibit
additional  financing,  prohibit all loans or advances to all persons or company
and  restrict  the sale or  issuance of  additional  capital  stock,  options or
warrants.  At December 31, 2001,with the exception of the issuance of stock, see
Note 6, management believes the covenants have been met.


NOTE 5  -  PREFERRED STOCK:

     The Company  authorized  ten  million  shares of  preferred  stock $.01 par
value.  The stock issued to ASI(as defined herein) is convertible into one share
of common stock subject to adjustment and anti-dilution  protection upon certain
events.  On November 2, 2000, the Company issued  3,649,543  shares of preferred
stock  in  exchange  for the  extinguishment  of debt to  ASI.  The  total  debt
extinguished   amounted  to  $2,990,292  which  included   operating   advances,
management fees, notes payable and accrued interest.


NOTE 6  -  COMMITMENTS AND CONTINGENCIES:

     During 2000,  the Company was  involved  with  various  lawsuits  regarding
outstanding  delinquent liabilities incurred in the ordinary course of business.
As of the date of the financial statements, these lawsuits have been settled for
the amount of the  obligation  recorded  with various  terms.  These amounts are
recorded on the accompanying December 31, 2001 balance sheet.

    On December 31, 2001,  the Company issued 75,000 shares of its common stock
to a former consultant of the Company, as compensation for services.  The shares
were valued  based on fair market  value on that date,  and are included in this
financial  statement at $3,750.  The issuance of the stock caused an inadvertent
default of a covenant of its agreements with ASI. The Company will seek a waiver
of such default  although  there can be no assurance that a waiver can be agreed
upon. If the Company does not receive a waiver of such default or is not able to
cure such defect in accordance  with the term of its  agreements,  ASI will have
the right to  accelerate  the payment of its note in full, or ASI may apply the
collateral  described in the Security Agreement to the payment of the amount due
to it by  Paperclip.  The Company does not have the funds  available to pay such
amount. If ASI were to exercise its rights under its agreements, it would have a
material adverse effect on the Company.


                                                              9

<page>
NOTE 7  -  LEASES:

     The Company leases its office space under a non-cancelable operating lease.
Rent expense was approximately  $51,600 and $99,800 for the years ended December
31, 2001 and 2000, respectively.  On November 15, 2000, the Company negotiated a
new five-year lease for smaller office space.

Future minimum rental payment required under these leases are as follows:
   Year Ended December 31,
--------------------------
    2002                     $ 54,000
    2003                       54,000
    2004                       54,000
    2005                       47,250
                             ---------
                             $209,250
                             =========

     The Company has two operating  leases for office  equipment.  Lease expense
amounts to approximately $4,000 and $1,130 for the years ended December 31, 2001
and 2000, respectively. Future minimum lease payments under these agreements are
as follows:

   Year ended December 31,
   -----------------------
               2002                                       $3,996
               2003                                        3,996
               2004                                        3,400
               2005                                          637
                                                        ---------
                                                         $12,037
                                                        =========
NOTE 8  -  TROUBLED DEBT RESTRUCTURING:

     In  January,  1997,  the  Company  signed a letter  of intent  with  Access
Solutions  International,  Inc.  (ASI) for the sale of the Company's  assets and
assumption of certain liabilities in exchange for ASI stock. The negotiations of
the sale  continued  through  August 24, 1998 at which time ASI  terminated  all
negotiations  of a merger.  During  these  negotiations,  ASI loaned the Company
$300,000 at 12%  interest  which is  convertible  into common  stock at $.25 per
share at the option of ASI. The Company also entered into a management agreement
with ASI for a fee of  $50,000  per month up to  $300,000  and then $1 per month
thereafter.  This  agreement was  terminated  in October 1998. In addition,  ASI
billed the Company  for  various  ordinary  business  expenses  that the Company
     incurred  and ASI paid on the  Company's  behalf.On  November 2, 2000,  the
Company negotiated with ASI to convert  $2,990,292 in advances,  management fees
and accrued interest collectively, into 3,649,543 shares of preferred stock (see
Note 5). In addition,  the Company negotiated with ASI to substitute an existing
promissory note dated January 29, 1997 for $300,000 plus accrued interest with a
new note for $405,530, (see Note 4).

     SFAS 15 states that an  extraordinary  gain needs to be  recognized  to the
extent the carrying  value of the debt settled  exceeds the fair market value of
the equity  transferred.  Since the preferred stock had no readily  determinable
fair market value and the carrying  value of the debt was more clearly  evident,
the  carrying  value of the debt was  considered  to be equal to the fair market
value of the preferred stock issue, thus no extraordinary gain was recognized.
                                         10

<page>
NOTE 9  -  EMPLOYMENT AGREEMENT:

     Effective  January 2000, the Company  entered into an employment  agreement
with Michael Bridges,  the Company's President who is also a member of the Board
of  Directors.  The term is for  three  years,  subject  to  automatic  one-year
extensions  and early  terminations  at an initial base salary of $107,800.  The
agreement  also provides for options to purchase  400,000 shares of common stock
at $0.25 per share with immediate vesting, which was subsequently granted at the
fair market value of the Company's  stock at the time of issuance which was $.25
per share.  In  addition,  the  agreement  has  specific  clauses not limited to
covenants not to compete with company's product line,  solicitation of employees
of the Company upon termination and a severance  package for six months if there
is a transfer of control of 50% or more.

NOTE 10  -  CONCENTRATION OF RISK:

     The Company  maintains its cash balances and certificates of deposit at two
financial institutions.  These accounts are insured by the FDIC (Federal Deposit
Insurance  Corporation) up to $100,000. The Company routinely maintains balances
in excess of $100,000 in the ordinary course of business.

     Sales to one major  customer  for the year  ended  December  31,  2001 were
approximately  19%. Sales to two major customers for the year ended December 31,
2000 were approximately 17%, and 14%.

     Three customers make up 72% and 45% of accounts  receivable at December 31,
2001 and 2000, respectively.

NOTE 11  -  GOING CONCERN:

     As  shown in the  accompanying  financial  statements,  the  Company  has a
history of  significant  operating  losses and as of December 31, 2001,  current
liabilities  exceed current assets by $1,649,209  and total  liabilities  exceed
total assets by $1,606,016.  These factors, as well as the uncertain  conditions
the Company  faces  regarding  the  delinquency  of  accounts  payable and loans
payable,  raise  substantial  doubt about the Company's ability to continue as a
going concern.

     The Company is continuing to develop and market its products.  In addition,
management has taken steps to aggressively  cut costs.  During 2000, the Company
signed a new five-year  lease which reduced rent expense by $48,200 per year. As
discussed  in Notes 5 and 8, the Company has  reduced its  existing  liabilities
through the issuance of  preferred  stock.  As discussed in Note 15,  management
will  continue to sell State net  operating  losses and  research tax credits in
order to provide cash flow if the State of New Jersey  continues  this  program.
The financial  statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.

NOTE 12  -  MAJOR CUSTOMERS:

     The Company  sells its products  primarily  through mass  distributors  and
approximately  30 independent  VARS. The VARS sell and install these products at
end user sites. Sales to one major customer for the year ended December 31, 2001
were approximately 19%. Sales to two major customers for the year ended December
31, 2000 were approximately 17% and 14%.
                            11



<page>
NOTE 13  -  STOCK OPTIONS:

     The Company  adopted a stock  option plan (the "1993 Stock  Option  Plan"),
effective March 8, 1993, pursuant to which employees of the Company are eligible
to receive incentive stock options. The 1993 Stock Option Plan, which expires in
2003, is administered by the Board of Directors.  The selection of participants,
allotment of shares,  determination of price and other conditions of purchase of
options is determined by the Board of Directors.

     Stock option  transactions for the 1993 Stock Option Plan are summarized as
follows:

                                         Year Ended December 31,
                                            Exercise             Exercise
                                    2001     Price      2000     Price
                                 ---------------------------------------
Outstanding, beginning of year      20,183   $2.60      20,183    $2.60
Granted                               -        -          -         -
Exercised                             -        -          -         -
Canceled or expired                   -        -          -         -
                                 ---------------------------------------
Outstanding, end of year            20,183   $2.60      20,183    $2.60
                                 =======================================

     As of December  31, 2001,  and as of December 31, 2000,  all of the options
outstanding  under the 1993  Stock  Option  Plan were  exercisable  at $2.60 per
share.

1995 Stock Option Plan -

     In May 1995,  the  Company  adopted a stock  option  plan (the "1995  Stock
Option  Plan"),  pursuant to which  officers,  directors  and  employees  of the
Company and certain  other persons  conferring  benefit upon the Company will be
eligible to receive stock options.  The 1995 Stock Option Plan, which expires on
March 1, 2005,  is  administered  by the Board of  Directors.  The  selection of
participants,  allotment of shares,  determination  of price,  vesting and other
conditions of purchase of options is determined by the Board of Directors.

Stock option transactions for the 1995 Stock Option Plan are summarized as
follows:


                                   Year Ended December 31,
                                        Exercise             Exercise
                                2001      Price        2000    Price
                           ----------------------------------------------
Outstanding, beginning of
year                         3,219,842  $.06-2.50      962,163  $.08-2.50
Granted                          -      $.12-.25     2,517,700   .12-.25
Exercised                        -          -             -         -
Canceled or expired            (81,500)  .25-2.375    (260,021)  .06-.41
                           ----------------------------------------------
Outstanding, end of year     3,138,342   $.06-2.50   3,219,842  $.06-2.50
                           ==============================================


                                                              12

<page>

NOTE 13  -  STOCK OPTIONS: (Continued)

As of December 31, 2001 and 2000, 3,219,842 options were
exercisable at prices ranging from $.06 to $2.50 per share, respectively.

     Effective  January 1, 1996, the Company adopted the provisions of SFAS 123,
"Accounting for stock-based  Compensation."  As permitted by the statement,  the
Company has chosen to continue to account for stock-based compensation using the
intrinsic  value method.  The average fair value of options  granted during 2000
was $.10.

     The fair value was estimated using the Black-Scholes  option-pricing  model
based on the  weighted  average  market  price at grant date of $.07 and $.10 in
2001 and 2000,  respectively,  and the following  weighted average  assumptions;
risk-free  interest  rate of 5.0%  in  2001,  volatility  of 75% for  2001,  and
dividend yield of 0% for 2000.


NOTE 14  -  WARRANTS:

     As  part of the  prospectus  dated  August  9,  1995,  the  Company  issued
3,599,500  shares of common  stock with a Class A warrant  attached.  The common
stock with the warrant was only sold in pairs, but were separately  transferable
immediately after the closing of the offering. Each Class A warrant entitles the
registered  holder  thereof to purchase  one share of common stock at a price of
$3.125,  subject to adjustment at any time,  until five years from the effective
date of the  prospectus.  The  warrants  were to expire on August 9,  2000,  but
through  a Board of  Directors  resolution,  the date was  extended  one year to
August 9, 2001, and they expired on that date.

NOTE 15  -  INCOME FROM SALE OF TAX CREDITS:

     In June 1999,  the State of New Jersey passed  legislation  allowing  small
businesses  to sell State of New  Jersey Net  Operating  Loss and  Research  Tax
credit carryforwards to companies that could utilize the losses. The Company was
authorized to sell $2,609,800 and $5,204,967 of State net operating  losses from
1992 to 1997 for the years ending December 31, 2001 and 2000, respectively.  The
net  proceeds  to the company  for the sale of these net  operating  losses were
$223,938  and  $351,335  for the  years  ending  December  31,  2001  and  2000,
respectively.  The Company has  approximately  $3,300,000 of State net operating
losses and  approximately  $130,000  research tax credits  available  for future
sale, if the State of New Jersey continues this program.




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NOTE 16  -  RELATED PARTY TRANSACTIONS:

     Mr. William Weiss, CEO of the Company, receives compensation of $10,000 per
month as part of an oral  employment  arrangement.  During 2001 and 2000, he has
assigned  payment of the  compensation to another company he is affiliated with.
At December  31,  2001,  the Company has accrued  $560,000  recorded as accounts
payable - related party on the balance sheet.


NOTE 17  -  ROYALTIES:

     During  2001 and 2000,  the  Company  had  licensing  agreements  with five
vendors to distribute various software products.  The agreements require royalty
payments to vendors  based on sales  volume.  At December 31, 2001,  all amounts
outstanding  in  regards  to  these   agreements   have  been  included  in  the
accompanying financial statements.


NOTE 18  -  EXPORT SALES:

     Export sales were  approximately  10% and 8% of the Company's net sales for
the years ended December 2001 and 2000, respectively. The foreign countries that
the  Company  primarily  deals with are  Indonesia,  Italy,  and  various  other
European countries.


NOTE 19  -  SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

                                             2001           2000
                                   ------------------------------------

  Cash paid for interest                 $    -           $    -
                                   ====================================

Non-Cash Investing Activities:
   Extinguishment of debt
   in exchange for preferred stock       $    -           $2,990,292
                                   ====================================
   Cancellation of note payable
   in exchange  for new note             $    -           $  405,530
                                   ====================================

    Stock issued in lieu
    of compensation                    $3,750                 $  -
                                   ====================================

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