<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(MARK ONE)

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934
         For the fiscal year ended December 31, 2001

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

                         Commission File Number 0-21713

                           PRISM SOFTWARE CORPORATION
                 (Name of small business issuer in its charter)

         Delaware                                                95-2621719
         --------                                                ----------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

          23696 Birtcher
      Lake Forest, California                                      92630
      -----------------------                                      -----
(Address of principal executive offices)                         (Zip code)

         Issuer's telephone number (including area code): (949) 855-3100

Securities registered under Section 12(b) of the Exchange Act:

                                      None

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

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

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

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]

         The registrant's revenues for the year ended December 31, 2001 were
$420,335.

         The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 2002 was approximately $658,000.

         The number of shares outstanding of the registrant's only class of
Common Stock, par value $.01 per share, was 140,091,534 on March 31, 2002.



<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

      Prism Software Corporation (the "Company") was organized under the laws of
Delaware in 1992. The Company specializes in enterprise document and content
management solutions. The Company's products and expertise lie in print stream
conversion and connectivity solutions that enable enterprise customers to manage
print stream data from anywhere on the network to a variety of output devices.
The Company's customer base includes a number of organizations that use its
solutions in managing high-volume, large scale document printing that
historically resides on mainframes or disparate systems and needs to be
intelligently redirected to appropriate output devices on the network.. These
customers are in a variety of markets, such as financial services, health care,
service bureau printing, government, education and manufacturing.

     The Company distributes its products throughout North America, South
America and Europe through direct sales, resellers, value-added resellers
("VARs") and printer manufacturers. Marketing, sales, training and technical
support are provided from its Lake Forest, California corporate headquarters.

     The Company's principal executive office is located at 23696 Birtcher, Lake
Forest, California 92630, and its telephone number is (949) 855-3100. The
Company's Website is located at "www.prism-software.com."

THE MARKET

     One of the key challenges facing enterprises today is how to manage the
large volume of electronic and paper documents. The ability to manage documents
or content successfully - to create it, to ensure its conformity and consistency
and to deliver it according to focused, personalized needs - is critical for
organizations that expect to reap the benefits of Web-enabling business
activities. Recognizing the importance of content as a driver of e-business,
organizations are looking for technology solutions and methodologies that
support and streamline content management activities.

     The users of Websites and e-commerce are demanding advanced transactional
capabilities and personalized information, hence the need for robust document
and content management systems. As Web-enabled businesses extend their
activities beyond traditional boundaries to include customers, partners and
suppliers, the need for different types of content and the ability to interact
with it is diversifying. Organizations are starting to need highly sophisticated
document and content management solutions that complement and extend the
technology infrastructure already in place. These systems, together with
components such as application servers, commerce servers and portal systems,
represent the key components of an e-business architecture.

                                                                               2


<PAGE>

CURRENT PRODUCTS

     PRINTCONSOLE

     PrintConsole is the Company's umbrella product that incorporates all of the
Company's conversion technology expertise into an easy-to-use, cost effective
software solution, enabling customers to better manage their print environments.
PrintConsole resides on a Windows XP, Windows 2000 or Windows NT Server and
offers a centralized point of control and a simple point-and-click interface to
invoke other products of the Company without exposing the user to complex
details. It provides the flexibility to install just the components that meet
the user's current requirements, and then incrementally add other modules as
needed in the future.

     The Company specializes in transforming to and from a wide variety of print
and data formats such as HP PCL, Adobe Postscript and PDF, IBM AFP/IPDS, ASCII
and EBCDIC, TIFF and Windows GDI. All of these conversion options are available
through an easy-to-use, customer-friendly Graphical User Interface (GUI) that
assists with easy setup and use of this powerful product. PrintConsole also
allows customers to view their reports on-screen before printing or converting
them and provides short-term archival of reports for reprinting purposes.

     The Company offers two versions of the product called PRINTCONSOLE PRO and
PRINTCONSOLE LE (Light Edition). The PRO version provides all of the product's
full capabilities including print stream conversion and report viewing and
archiving, while the LE version provides all of the print stream conversion
functionality but limits the number of output destinations and report
viewing/archiving so as to offer a lower entry price for customers who require
it.

     The PrintConsole conversion modules can be activated at the time of
installation, or at any subsequent time based upon customer requirements. The
product is scalable and can be reconfigured remotely to become compatible with a
changing customer environment. PrintConsole users can easily take advantage of
new or different printers and communications technology without modifying their
existing applications.

     PRINTCONSOLE CONVERSION MODULES

     The conversion modules used within PrintConsole are a combination of
internally developed applications and third party programs. The Company has
extensive expertise in current programming technology and can also design
customized applications to address specific customer requirements. The
PrintConsole core product has been designed to utilize these customized programs
with little or no additions to internal program code. This makes for a flexible,
adaptable product that can address a wide variety of customer needs.

     PRINTCONSOLE'S INTEGRATION WITH THIRD PARTY PRODUCTS

     The Company has developed a suite of solutions that allow enterprise
organizations to efficiently access their information and data. As long as data
can be sent to a spooling device, that data can be captured and converted
through the PrintConsole solution. Due to its versatility in converting data
formats, PrintConsole is one of the stronger conduits to link third party
applications to legacy data. Data that was formerly in proprietary format and
unable to be merged into applications such as ERP, CRM and content management
can now be converted and presented to these third party applications. The
solution has been developed to respond to the market's growing demand of
paperless applications including output to PDF for Web posting, and support to
e-mail and fax servers for electronic distribution.

                                                                               3


<PAGE>

     PrintConsole's ability to transform legacy/mainframe data into other usable
data and print formats has created opportunities for the Company to enter into
strategic relationships with other document management companies who can use
PrintConsole as a front-end to support their own product offerings.

     In addition, PrintConsole has allowed the Company to expand its own product
offerings by transforming legacy/mainframe data into a format for input into the
Valeo product line (described below).

     VALEO PRODUCT LINE

     These products represent the most recent addition to the Company's product
line and noticeably extend its functionality. The Valeo products provide the
ability to integrate data, dynamically design documents including adding
business logic, and intelligently deliver the documents to a variety of
destinations such as printers, faxes, folders on a network, or other software
applications. These products have been licensed for sale under
an OEM relationship with FormScape, Inc. The Valeo product family has numerous
offerings with two being the main emphasis for the Company:

     o    VALEO COMPOSER is made up of two primary components, Valeo Designer
          and Valeo Server. Valeo Designer is the user interface to map data and
          design documents. Business logic and conditional processing parameters
          are specified using this module as well. Valeo Server is the run-time
          environment for the documents created in Valeo Designer. Valeo Server
          features multi-threaded processing to maximize performance and improve
          business processes.
     o    VALEO ONLINE is the Internet-based access module to search and
          retrieve documents that have been stored in a database. Valeo Online
          is integrated with Valeo Composer such that documents created in
          Composer can be routed to Valeo Online for storage and later
          retrieval. In addition, Valeo Online can take input from non-FormScape
          generated sources.
     o    OTHER VALEO PRODUCTS. There are a series of extending technologies
          beyond the two main aforementioned offerings that the Company sells.
          These products serve more focused markets and thus, are forecasted to
          have a limited sales impact. The other main Valeo products are Valeo
          Connect, Valeo Connect for BizTalk Server, Valeo Administrator, Valeo
          Connector for JD Edwards, and Valeo Connector for SAP R3.4.x.

INTELLECTUAL PROPERTY

     The Company currently does not hold any patents and relies on a combination
of contract, copyright, trademark and trade secret laws, licenses and
confidentiality agreements and software security measures to protect its
proprietary intellectual property. Despite these precautions, the Company
believes that existing laws provide limited protection for the Company's
technologies. However, because of the rapid pace of technological change in the
protocol conversion and document output management industry, the legal
intellectual property protection for products is a less significant factor in
its success than the knowledge, abilities and experience of the Company's
employees, the frequency of its product enhancements, the effectiveness of its
marketing activities and the timeliness and quality of its support services.
There can be no assurance that the Company's means of protecting its proprietary
rights will prevent others from misappropriating or otherwise gaining access to
valuable information, such as software source codes, or that others will not
develop technologies similar or superior to the Company's technologies. In
addition, effective intellectual property protection may be unavailable or
limited in certain foreign countries.

                                                                               4


<PAGE>

     The Company generally enters into confidentiality or license agreements
with its employees, consultants, customers and vendors and generally controls
access to and distribution of its software, documentation and other proprietary
information. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology. In addition, litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others.

     The Company owns, licenses or has otherwise obtained the right to use
certain technologies incorporated in its products. While the Company believes
that its software products and proprietary rights do not infringe the rights of
others, there can be no assurance that third parties will not assert
infringement claims against the Company or that any such claims will not require
the Company to enter into royalty or license arrangements or result in costly
litigation, regardless of the merits of the claims.

EMPLOYEES

     As of March 31, 2002, the Company had 18 employees. The Company's employees
are not represented by any collective bargaining organization and the Company
has never experienced a work stoppage. The Company believes that its relations
with its employees are good.

ITEM 2. DESCRIPTION OF PROPERTY

     The Company's principal administrative, development, manufacturing and
shipping facilities are located in one 6,700 square foot leased facility in Lake
Forest, California, under a lease that expires in March 2004. The Company has
the right to terminate the lease starting in April 2001. The base rent under
such lease is approximately $7,600 per month, with the rent increasing
approximately 4% in the third year and approximately 4% in the fifth year. In
addition to base rent, the Company pays its share of utility costs on the
building. The Company believes its facilities are adequate for its current needs
and that suitable additional or substitute space will be available as and if
needed.

ITEM 3. LEGAL PROCEEDINGS

     The Company was a party to an arbitration proceeding filed by Arthur
Wilkes, a co-founder and former President and Chief Executive Officer of the
Company, before the American Arbitration Association. Mr. Wilkes contended that
the Company breached the terms of an April 1995 Settlement Agreement ("1995
Agreement") between him and the Company by (1) failing to make payments under a
Promissory Note for $64,000 and (2) interfering with his ability to sell his
shares in the Company. The liability for the $64,000 Promissory Note had been
accrued in the Company's financial statements.

     The Company responded to the arbitration demand by serving a counter-demand
based on Mr. Wilkes' failure to provide the Company with a copy of software the
Company contended Mr. Wilkes had developed and made available to his current
company, American Printware. Under the terms of the 1995 Agreement, Mr. Wilkes
was obligated to provide the Company with a non-exclusive license to software
and software derivatives based on a product Mr. Wilkes began to develop while
still employed by the Company. Mr. Wilkes denied the allegations of the
counter-demand.

                                                                               5


<PAGE>

     The arbitration hearing was conducted in May 2001 and the arbitrator issued
the award in June 2001. The arbitrator denied all of Mr. Wilkes' claims and all
of the Company's counterclaims. The period for disputing the award expired in
October 2001. Neither party filed any proceeding to dispute the award during
this time frame, so the award became final. Accordingly, the Company
derecognized the liability for the $64,000 Promissory Note and related accrued
interest on its books during the fourth quarter of 2001. The gain is included as
part of the caption "Gains from legal settlements" in the accompanying
statements of operations.

     In March 2001, the Company settled a dispute with a customer over services
the Company performed in 1999 and recognized a gain of approximately $32,000,
which is included as part of the caption "Gains from legal settlements" in the
accompanying statements of operations.

     The Company is the defendant in an action filed in October 2001 by a
customer, arising out of a warranty claim on software sold by the Company in
January 2000. The action was filed in Pierce County Superior Court in the State
of Washington (Case No. 01-2-12488-5). Under local court rules, the plaintiff
elected to arbitrate the matter, which limits potential damages (exclusive of
attorneys' fees and costs) to a maximum of $35,000. The matter is now awaiting
appointment of an arbitrator. The Company believes the case is without merit and
intends to vigorously contest the matter. The Company does not believe that the
outcome will have a material adverse effect upon its financial position or
results of operations. No liability for this matter is accrued in the
accompanying financial statements.

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

     None.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Common Stock of the Company is quoted on the National Association of
Securities Dealers, Inc. ("NASD") OTC Bulletin Board ("OTCBB") under the symbol
"PSOF." The OTCBB is a quotation service for subscribing members and is
regulated by the Securities and Exchange Commission ("SEC") and the NASD. OTCBB
securities are traded by a community of market makers that enter quotes and
trade reports through a closed computer network. Set forth below are the high
ask and low bid prices of the Company's Common Stock during each quarter of the
fiscal years ended December 31, 2000 and December 31, 2001, as reported by a
member firm of the NASD that effects transactions in stocks quoted on the OTCBB
and acts as one of the market makers for the Company's Common Stock. The
quotations listed below reflect interdealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent actual transactions.

                                                   High/Ask          Low/Bid
                                                  ------------     ------------

Quarter ended March 31, 2000                             0.42             0.10
Quarter ended June 30, 2000                              0.20             0.09
Quarter ended September 30, 2000                         0.22             0.09
Quarter ended December 31, 2000                          0.13            0.018
Quarter ended March 31, 2001                            0.045             0.03
Quarter ended June 30, 2001                             0.045            0.017
Quarter ended September 30, 2001                         0.04            0.015
Quarter ended December 31, 2001                        0.0425            0.012

                                                                               6


<PAGE>

     As of March 31, 2002, there were approximately 716 stockholders of record
of the Company's Common Stock.

     The Company has never paid cash dividends on its Common Stock and does not
intend to pay cash dividends in the foreseeable future.

     The following is a summary of transactions by the Company during the fiscal
year ended December 31, 2001 involving issuances and sales of the Company's
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act").

     ISSUANCES OF COMMON STOCK AND WARRANTS

     In February 2001, Allard Villere, a director of the Company, acquired
50,000 shares of Common Stock upon exercising outstanding stock options for
$1,500, or $0.03 per share. No commissions were paid in connection with this
transaction.

     In July and August 2001, pursuant to a private placement, the Company sold
2,500,000 shares of Common Stock for $125,000, or $0.05 per share, and issued
warrants to purchase an additional 2,500,000 shares of Common Stock at an
exercise price of $0.12 per share. The Company paid fees of $1,957 in connection
with this transaction.

     In November 2001, stockholders of the Company converted 27,777 shares of
Series B Preferred Stock into 1,820,227 shares of Common Stock. No commissions
were paid in connection with this transaction.

     In November and December 2001, stockholders of the Company converted 20,200
shares of Series A Preferred Stock into 875,064 shares of Common Stock. No
commissions were paid in connection with this transaction.

     CERTAIN NOTES AND NOTE CONVERSIONS

     From January to August 2001, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $952,000 to two investors. The notes
bear interest at the rate of 8% per annum (with payment of accrued interest due
at maturity) and mature at various dates from January to August 2002. The notes
are convertible upon default into shares of Common Stock at the rate of $0.05
per share at the option of the holder. The notes were issued to Carl von Bibra
($652,000 in the aggregate) and Conrad von Bibra ($300,000 in the aggregate).
Carl von Bibra is the son of Conrad von Bibra. The von Bibra family is not an
affiliate of the Company (other than as a principal stockholder). No commissions
were paid in connection with this transaction.

                                                                               7


<PAGE>

     From August to December 2001, the Company borrowed an aggregate of $854,000
from Carl von Bibra under an Open-Ended Convertible Promissory Note. The
borrowings bear interest at the rate of 8% per annum (with payment of accrued
interest due at maturity) and mature at various dates from August to December
2002. The borrowings are convertible upon default into shares of Common Stock at
the rate of $0.05 per share (subject to certain anti-dilution adjustments) at
the option of the holder. Upon the conversion of all or any portion of these
borrowings into Common Stock, the Company will also issue to the holder a
warrant to purchase additional shares of Common Stock (equal to the number of
shares issued upon such conversion) at an exercise price of $0.12 per share
(subject to certain anti-dilution adjustments). Mr.von Bibra is not an affiliate
of the Company (other than as a principal stockholder). No commissions were paid
in connection with this transaction.

     In February 2001, approximately $7,800 of debt was converted into 250,000
shares of Common Stock by Allard Villere, a director of the Company. No
commissions were paid in connection with this transaction.

     In August 2001, approximately $22,200 of debt was converted into 444,889
shares of Common Stock by Third Century II. Neither Third Century II, nor any of
its directors, officers or affiliates, is an affiliate of the Company (other
than as a principal stockholder). No commissions were paid in connection with
this transaction.

     The Company believes that such sales were exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof or Regulation D promulgated thereunder, as a transaction by an
issuer not involving a public offering.

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

     The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-KSB. Except for the historical
information contained herein, the following discussion contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Annual Report on Form 10-KSB should be read
as being applicable to all related forward-looking statements wherever they
appear in this Annual Report on Form 10-KSB. The Company's actual results may
differ materially from the results discussed in the forward-looking statements.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

     For the fiscal year ended December 31, 2001, the Company reported a loss of
approximately $2,346,000, or $0.02 per common share. This compares with a loss
of approximately $2,238,000, or $0.02 per share, for the fiscal year ended
December 31, 2000. The loss increased approximately $108,000 due primarily to
the following:
     o    Operating revenue decreased approximately $108,000 due primarily to a
          decrease of about $64,000 in product sales and a decrease of
          about $44,000 in service revenue.
     o    The cost of sales decreased approximately $61,000 from approximately
          $109,000, or about 21% of revenue, to approximately $48,000, or about
          11% of revenue. This was due primarily to a decrease in revenue
          related to the reselling of both hardware and a particular line of
          third-party products and services. (The cost of sales for reselling
          such items was higher than that of the Company's proprietary products
          and services.)
     o    Total operating expenses increased approximately $432,000 due
          primarily to increases in personnel costs, professional services and
          travel and trade show activities.
     o    The Company recognized gains of approximately $125,000 from legal
          settlements. (See "Legal Proceedings.")
     o    Interest expense decreased approximately $246,000 due primarily to a
          decrease of about $304,000 in the expense recognized from amortizing a
          beneficial conversion feature on certain convertible notes. (See
          "Liquidity and Capital Resources.") This was partially offset by an
          increase in aggregate face value interest due to an increase in the
          Company's indebtedness.

                                                                               8


<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     On December 31, 2001, the Company had cash and cash equivalents of
approximately $43,000. The principal source of liquidity in the fiscal year
ended December 31, 2001 was approximately $1,806,000 of additional borrowings.

     Through December 31, 2001, the Company had issued an aggregate of
approximately $1,023,000 in debt that was convertible at the lenders' option
into Common Stock at a conversion rate that was below the market price of the
Common Stock at the time the loans were made. (Approximately $1,003,000 of this
debt was outstanding as of December 31, 2001.) The value of this beneficial
conversion feature (discount) on each such loan was equal to or lesser than the
face value of the loan and was amortized from the date the lender gained the
right to convert the loan through to the loan's earliest possible conversion
date. The amortization period was one year for most of these such loans. As of
December 31, 2001, the aggregate unamortized discount on such loans was $0 and
the Company had recorded approximately $940,000 as additional paid-in capital
for the accumulated amortization of the discount. The amortization expense is
included as part of the caption "Interest expense - stockholders" in the
accompanying statements of operations. For the fiscal years ended December 31,
2001 and December 31, 2000, this amortization expense was approximately $318,000
and $622,000, respectively.

     Management anticipates that additional capital will be required to finance
the Company's operations. The Company believes that expected cash flow from
operations plus the anticipated proceeds from sales of securities will be
sufficient to finance the Company's operations at currently anticipated levels
for a period of at least twelve months. However, there can be no assurance that
the Company will not encounter unforeseen difficulties that may deplete its
capital resources more rapidly than anticipated.

EFFECT OF INFLATION

     The Company believes that inflation has not had a material effect on its
net sales or profitability in recent years.

FORWARD-LOOKING STATEMENTS; CAUTIONARY STATEMENT

     Certain of the statements contained in this report, including those under
"Description of Business" and "Management's Discussion and Analysis or Plan of
Operation," and especially those contained under "Liquidity and Capital
Resources" may be "forward-looking statements" that involve risks and
uncertainties. All forward-looking statements included in this report are based
on information available to the Company on the date hereof and the Company
assumes no obligation to update any such forward-looking statements. The actual
future results of the Company could differ materially from those statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this Annual Report on Form 10-KSB as well as
risks associated with managing the Company's growth. While the Company believes
that these statements are accurate, the Company's business is dependent upon
general economic conditions and various conditions specific to the protocol
conversion and document output management industry and future trends and results
cannot be predicted with certainty.

                                                                               9


<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

     The financial statements of the Company are submitted as a separate section
of this Annual Report on Form 10-KSB.

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

     None.

PART II

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

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

     The following table sets forth certain information with respect to each
director, officer and significant employee of the Company.
<TABLE>
<CAPTION>
         NAME                       AGE              POSITION(S)
         ----                       ---              -----------
<S>                                 <C>              <C>
         E. Ted Daniels (1)         61               Chairman of the Board, Chief Executive Officer,
                                                     President and interim Chief Financial Officer

         Allard Villere (1)         68               Secretary and a Director

     SIGNIFICANT EMPLOYEES:

         Richard Nicolai            46               Technical Support Manager

         Michael Cheever            33               Controller

         Dee Shelor                 64               Executive Administrator and Office Manager
     -------------------
      (1) Member of the Audit Committee
</TABLE>

     Mr. Daniels joined the Board of Directors of the Company in September 1994
and was appointed Chairman of the Board, President, Chief Executive Officer and
interim Chief Financial Officer at that time. He was employed by Eureka Capital
Management from 1993 to 1994 where he was the Managing Director, responsible for
defining and building the operational structure for client companies.
Previously, he was President and Chief Operating Officer for Roberts
Consolidated Industries, a provider of flooring installation products which has
operations in the United Kingdom, Holland, South Africa, Mexico, Brazil,
Australia, Japan and Canada.

     Mr. Villere has served as a Director of the Company and its predecessor
since September 1992, as Secretary of the Company since August 1994 and as
Vice-President of Production for the Company and its predecessor from September
1992 until June 1993. From December 1989 until October 1992, Mr. Villere was
self-employed. For the 14 years prior to that, Mr. Villere served as Manager of
Product Assurance for the Connective Devices Division of Hughes Aircraft Company
and Project Manager for various hardware production programs.

                                                                              10


<PAGE>

     Mr. Nicolai joined the Company in March 1999. He has over twenty years of
experience in Information Systems Management. He has directed multiple support
areas within mainframe data center environments and was the Manager of I/S
Operations for Cox Communications from 1985 to 1999 before joining Prism.

     Mr. Cheever joined the Company in October 1993. He has over ten years of
accounting experience and was formerly with the accounting firm of Deloitte &
Touche LLP.

     Ms. Shelor has been with the Company and its predecessor since 1989 and is
primarily responsible for investor and stockholder relations and communications.
Prior to joining the Company, Ms. Shelor was a branch business manager with
Future Electronics of Montreal, an electronics distribution company, from June
1984 to January 1989.

DIRECTORS' COMPENSATION

     The members of the Board of Directors do not receive any cash compensation
for their service as directors, but are eligible for reimbursement of their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy.

AUDIT COMMITTEE

     The Audit Committee of the Board of Directors consists of Messrs. Daniels
and Villere. The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent auditors
and reviews and evaluates the Company's audit and control functions.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires that directors and officers of
the Company and persons who beneficially own more than 10% of the Common Stock
file with the SEC initial reports of beneficial ownership and reports of changes
in beneficial ownership of the Common Stock of the Company. Directors, officers
and greater than 10% beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

     The Company received no copies of any Section 16(a) forms filed by
officers, directors or 10% beneficial owners, and does not monitor acquisitions
and dispositions of securities by officers, directors and 10% shareholders.
Accordingly, it is unable to determine whether the officers, directors and 10%
shareholders are in compliance with the filing requirements of Section 16(a).

                                                                              11


<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth certain compensation awarded or paid by the
Company to its executive officers during the fiscal years ended December 31,
2001 and December 31, 2000. No other executive officer's total annual salary and
bonus for services to the Company exceeded $100,000.
<TABLE>
<CAPTION>

                                                                                 Long-Term Compensation
                                                                        ----------------------------------
                                          Annual Compensation                  Awards             Payouts
                                    ---------------------------------   -----------------------   --------
                                                            Other                                   All
                                                            Annual                   Securities    Other
                                                            Compen-      Stock       Underlying    Compen-
    Name and               Fiscal   Salary (1)    Bonus    sation (2)   Awards (3)   Options (#)   sation
Principal Position          Year      ($)          ($)       ($)           ($)           (4)         ($)
-------------------------  ------   ----------   -------   ----------   ----------   -----------   -------
<S>                         <C>      <C>         <C>        <C>            <C>        <C>            <C>
E. Ted Daniels (5)          2001     $217,902         $0    $12,246        $0         1,688,456      $0
Chief Executive Officer     2000     $198,093         $0    $10,494        $0         2,318,812      $0

Barry Lathan (5)            2001     $198,737    $15,000     $4,687        $0         1,000,000      $0
President and Chief
 Operating Officer

</TABLE>

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

     (1)  The salary amounts shown for Mr. Daniels include additional amounts
          for salary accrued but not yet paid pursuant to Mr. Daniels'
          employment agreement described under "Employment Agreements" below.
     (2)  Includes auto allowances, insurance and other fringe benefits.
     (3)  Includes the value attributable to shares of Common Stock acquired
          upon the exercise of options.
     (4)  Includes shares of Common Stock issuable upon exercise of options
          granted to Mr. Daniels pursuant to his employment agreement and
          related stock issuance agreement described under "Employment
          Agreements" below. As of March 31, 2002, Mr. Daniels had been granted
          options to acquire an aggregate of approximately 16,899,554 shares
          pursuant to his employment agreement and related stock issuance
          agreement (approximately 14,769,554 of these options remained
          unexercised as of this date).
     (5)  As of the date of this filing, Mr. Lathan is no longer employed by the
          Company and Mr. Daniels has reassumed the title of President. (See
          "Directors, Officers and Significant Employees.")

                                                                              12


<PAGE>

OPTION EXERCISES AND FISCAL YEAR-END VALUES

     Show below is information with respect to the number of shares of the
Company's Common Stock acquired upon the exercise of options during the fiscal
year ended December 31, 2001, the value realized therefor, the number of
unexercised options at December 31, 2001 and the value of unexercised
in-the-money options at December 31, 2001 for the Company's executive officers
in the Summary Compensation Table above. The Company's executive officers did
not hold any stock appreciation rights ("SARs") during the fiscal year ended
December 31, 2001.

<TABLE>
<CAPTION>
                                                     NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                                    UNDERLYING UNEXERCISED            IN-THE-MONEY
                         SHARES                       OPTIONS AT FISCAL            OPTIONS AT FISCAL
                      ACQUIRED ON      VALUE             YEAR-END (#)                 YEAR-END ($)
       NAME           EXERCISE (#)    REALIZED    EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
--------------------  -------------  -----------  ---------------------------  ---------------------------
<S>                              <C>         <C>         <C>        <C>                <C>      <C>
E. Ted Daniels                   0           $0          13,859,498/0                  $291,049/$0
Barry Lathan                     0           $0           1,000,000/0                   $21,000/$0

</TABLE>

EMPLOYMENT AGREEMENTS

     The Company and Mr. Daniels have entered into an employment agreement
which, among other things, provides that during the term of the agreement, Mr.
Daniels shall be the President and Chief Executive Officer of the Company and
shall receive an annual base salary of $120,000 (subject to annual review and
increases), an annual bonus equal to 10% of the Company's consolidated operating
income before interest, taxes, bonus payments and certain other fringe benefits,
320,000 shares of Common Stock at no cost and a non-qualified stock option to
acquire a number of shares of Common Stock equal to the greater of (i) 640,000
or (ii) the difference between 8% of the diluted Common shares outstanding from
time to time and the 320,000 Common shares previously issued to Mr. Daniels
(subject to certain anti-dilution adjustments) at an exercise price of $0.25 per
share. In December 1995, the Board of Directors approved the acceleration of the
vesting of such options to become fully vested and immediately exercisable,
provided that as of such date (i) the Company has not terminated Mr. Daniels for
cause pursuant to the Employment Agreement and (ii) Mr. Daniels has not
voluntarily resigned from the Company. Also in December 1995, the Company
approved that all options granted under this Agreement are issued pursuant to
Rule 701 of the Securities Act. In May 1996, the Board of Directors waived the
payment by Mr. Daniels of the exercise price with respect to 1,150,430 shares
issuable upon exercise of such options. In May 1997, the Board of Directors
approved that the exercise price of all options granted to Mr. Daniels under
this agreement be reduced to $0.04 per share. In December 1997, the Board of
Directors amended the agreement to provide for the annual salary increase to be
set at 10% retroactive to the date of Mr. Daniels' original contract (September
1994). The Company has not paid Mr. Daniels the full amount of salary due under
this formula and has accrued the unpaid balance. Also in December 1997, the
Board approved that all options issuable to Mr. Daniels under this agreement be
exercisable at no cost and that the agreement be extended to September 30, 2000.
In October 1998, the Board extended the agreement to September 14, 2002. In
August 2000, the Board extended the agreement to September 14, 2004.

     Other than the foregoing agreement between the Company and Mr. Daniels,
there are no other employment agreements between the Company and any of its
directors, officers or significant employees.

                                                                              13


<PAGE>

STOCK OPTION PLANS

     1993 STOCK OPTION PLAN

     In February 1993, the Board of Directors adopted the Company's 1993 Stock
Option Plan. Due to subsequent changes to the Internal Revenue Code (the "Code")
and for other reasons, the Board of Directors decided to amend many provisions
of this plan. As a consequence, the Board of Directors adopted an Amended and
Restated 1993 Stock Option Plan (the "1993 Plan") in May 1996. The 1993 Plan
authorizes the granting of options to purchase up to a maximum 630,000 shares of
Common Stock to qualified officers, key employees, directors and employees of
companies that do business with the Company. As of December 31, 2001, options
for 62,500 shares of Common Stock available for grant under the 1993 Plan had
been exercised, approximately 228,600 shares of Common Stock were reserved for
issuance upon exercise of outstanding options and approximately 338,900 shares
of Common Stock remained available for grant thereunder. The 1993 Plan will
terminate at midnight on February 1, 2003 unless sooner terminated by the Board
of Directors.

     The 1993 Plan provides for the grant of both incentive stock options
("ISOs") and non-qualified stock options ("NQOs"). ISOs granted under the 1993
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code of 1986, as amended. NQOs granted under the 1993 Plan
are intended not to qualify as ISOs under the Code. Options granted under the
1993 Plan generally have a term of not more that 10 years and vest no sooner
than 6 months after the date of grant.

     No ISO may be granted under the 1993 Plan to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
affiliate of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
For incentive stock option grants, the aggregate fair market value, determined
at the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.

     The Company did not grant any options to its executive officers under the
1993 Plan during the fiscal year ended December 31, 2001 nor during the fiscal
year ended December 31, 2000.

     1996 STOCK OPTION PLAN

     In May 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
"1996 Plan"). The 1993 Plan authorizes the granting of options to purchase up to
a maximum 600,000 shares of Common Stock to qualified officers, key employees,
directors and employees of companies that do business with the Company. As of
December 31, 2001, none of the options available for grant under the 1996 Plan
had been exercised, no shares of Common Stock were reserved for issuance upon
exercise of outstanding options and 600,000 shares of Common Stock remained
available for grant thereunder. The 1996 Plan will terminate at midnight on
February 1, 2003 unless sooner terminated by the Board of Directors.

     The 1996 Plan provides for the grant of both incentive stock options
("ISOs") and non-qualified stock options ("NQOs"). ISOs granted under the 1996
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code of 1986, as amended. NQOs granted under the 1996 Plan
are intended not to qualify as ISOs under the Code. Options granted under the
1996 Plan generally have a term of not more that 10 years and vest no sooner
than 6 months after the date of grant.

                                                                              14


<PAGE>

     No ISO may be granted under the 1996 Plan to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
affiliate of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
For incentive stock option grants, the aggregate fair market value, determined
at the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.

     The Company did not grant any options to its executive officers under the
1996 Plan during the fiscal year ended December 31, 2001 nor during the fiscal
year ended December 31, 2000.

     2000 NONSTATUTORY STOCK OPTION PLAN

     In May 2000 the Board of Directors adopted the Prism Software Corporation
2000 Nonstatutory Stock Option Plan (the "2000 Plan"). The 2000 Plan authorizes
the granting of options to purchase up to a maximum of 3,000,000 shares of
Common Stock to qualified employees and directors of the Company. As of December
31, 2001, none of the options available for grant under the 2000 Plan had been
exercised, approximately 1,865,000 shares of Common Stock were reserved for
issuance upon exercise of outstanding options and approximately 1,135,000 shares
of Common Stock remained available for grant thereunder. The 2000 Plan will
terminate on May 4, 2010, unless sooner terminated by the Board of Directors.

     The 2000 Plan provides only for the grant of non-qualified stock options.
Options granted under the 2000 Plan generally have a term of not more that 10
years. Vesting periods, if any, are at the discretion of the Board of Directors
at the time of grant. The exercise price of options granted under the 2000 Plan
is to be at least 85% of the fair market value of the Company's Common Stock at
the date of grant, as determined by the Board of Directors. The 2000 Plan
provides for "cashless exercise" of the options, so the optionee has the choice
of paying cash to exercise the options, surrendering Common Stock owned by him
with a value equal to the exercise price, or issuing a promissory note for the
exercise price.

     The Company granted options to purchase 1,000,000 shares of common stock to
its executive officers under the 2000 Plan during the fiscal year ended December
31, 2001. The Company did not grant any options to its executive officers under
the 2000 Plan during the fiscal year ended December 31, 2000.

     MANAGEMENT OPTIONS

     Pursuant to his employment agreement with the Company, Mr. Daniels has been
granted options to purchase shares of Common Stock. See "Summary Compensation
Table," "Option Exercises and Fiscal Year-End Values," and "Employment
Agreements."

                                                                              15


<PAGE>

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

     The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 2002, by (i) each
person known by the Company to beneficially own 5% or more of the outstanding
Common Stock of the Company; (ii) each of the Company's directors; (iii) each of
the Company's Executive Officers; and (iv) all directors and Executive Officers
of the Company as a group.
<TABLE>
<CAPTION>

      NAME AND ADDRESS                        NUMBER OF SHARES          PERCENTAGE OF OUTSTANDING
     OF BENEFICIAL OWNER                   BENEFICIALLY OWNED (1)               SHARES (1)
--------------------------------------   ----------------------------   -------------------------
<S>                                            <C>                                <C>
E. Ted Daniels
c/o Prism Software Corporation
23696 Birtcher
Lake Forest, CA  92630                         17,231,908  (2)                    11.1%

Allard Villere
c/o Prism Software Corporation
23696 Birtcher
Lake Forest, CA  92630                            774,531  (3)                       *

James Martin
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA  30326                             28,575,695  (4)                    20.1%

Third Century II
1711 Chateau Court
Fallston, MD  21047                            19,526,854                         13.9%

Conrad and Carl von Bibra
1810 Fair Oaks
Suite 209
South Pasadena, CA  91030                      93,672,488  (5)                    50.2%

All Directors and
Executive Officers of the
Company as a Group (3 persons)                 18,006,439  (6)                    11.6%

-------------------
</TABLE>

     *    Less than 1%.

     (1)  Beneficial ownership is determined in accordance with the rules of the
          Securities and Exchange Commission and generally includes voting or
          investment power with respect to securities. Except as indicated by
          footnote, and subject to community property laws where applicable, the
          persons named in the table above have sole voting and investment power
          with respect to all shares of Common Stock shown as beneficially owned
          by them. Shares of Common Stock subject to securities currently
          convertible, or convertible within 60 days after March 31, 2002, are
          deemed to be outstanding in calculating the percentage ownership of a
          person or group but are not deemed to be outstanding as to any other
          person or group.

                                                                              16


<PAGE>

     (2)  Includes 14,791,908 shares of Common Stock issuable upon the exercise
          of options that are either vested as of March 31, 2002 or could
          potentially vest within 60 days after such date. These options entitle
          Mr. Daniels to purchase up to 8% (subject to certain anti-dilution
          adjustments) of the fully-diluted number of shares of Common Stock of
          the Company. (See "Executive Compensation-Employment Agreements.")
     (3)  Includes 65,697 shares of Common Stock issuable upon the exercise of
          options, all of which are exercisable within 60 days after March 31,
          2002.
     (4)  Includes 2,161,684 shares issuable upon the conversion of certain
          Convertible Promissory Notes that are either vested as of March 31,
          2002 or could vest within 60 days after such date which are
          beneficially owned by James Martin, Cameron Martin (his son) or
          certain entities that James Martin represents (Capital Investment
          Holdings LLC, Huntington Partners, MARCO II Partners and MV Ventures).
          James Martin beneficially owns 512,500 shares of Common Stock. Cameron
          Martin beneficially owns 62,500 shares of Common Stock. Capital
          Investment Partners Holdings LLC beneficially owns 25,226,511 shares
          of Common Stock and an additional 2,161,684 shares issuable upon the
          conversion of certain Convertible Promissory Notes that are either
          vested as of March 31, 2002 or could potentially vest within 60 days
          after such date. Huntington Partners beneficially owns 312,500 shares
          of Common Stock, MARCO II Partners beneficially owns 100,000 shares of
          Common Stock, and MV Ventures beneficially owns 200,000 shares of
          Common Stock.
     (5)  Includes 46,558,143 shares of Common Stock issuable upon the
          conversion of certain Convertible Promissory Notes that are either
          vested as of March 31, 2002 or could vest within 60 days after such
          date which are beneficially owned by Conrad von Bibra or his son, Carl
          von Bibra. Conrad von Bibra beneficially owns 31,206,845 shares of
          Common Stock and an additional 37,890,012 shares issuable upon the
          conversion of certain Convertible Promissory Notes that are either
          vested as of March 31, 2002 or could vest within 60 days after such
          date. Carl von Bibra beneficially owns 15,907,500 shares of Common
          Stock and 8,668,131 shares issuable upon the conversion of certain
          Convertible Promissory Notes that are either vested as of March 31,
          2002 or could vest within 60 days after such date.
     (6)  Includes shares of Common Stock issuable upon the exercise of options
          described in notes (2) and (3) above.

                                                                              17
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     ISSUANCE OF COMMON STOCK AND WARRANTS

     In February 2001, Allard Villere, a director of the Company, acquired
50,000 shares of Common Stock upon exercising outstanding stock options for
$1,500, or $0.03 per share. No commissions were paid in connection with this
transaction.


     CERTAIN NOTES AND NOTE CONVERSIONS

     From January to July 2000, the Company issued Convertible Promissory Notes
in the aggregate principal amount of $833,000 to three investors. The notes bear
interest at the rate of 8% per annum (with payment of accrued interest due at
maturity) and mature at various dates from January to July 2001. The notes are
convertible upon maturity into shares of Common Stock at the rate of $0.05 per
share at the option of the holders. The notes were issued to Third Century II
($20,000), Carl von Bibra ($107,000 in the aggregate) and Conrad von Bibra
($706,000 in the aggregate). Neither Third Century II, nor any of its directors,
officers or affiliates, is an affiliate of the Company (other than as a
principal stockholder). Carl von Bibra is the son of Conrad von Bibra. The von
Bibra family is not an affiliate of the Company (other than as a principal
stockholder). No commissions were paid in connection with this transaction.
$20,000 of such notes (plus unpaid accrued interest) were converted into shares
of Common Stock in May 2000.

     In May 2000, approximately $1,124,000 of debt was converted into 68,857,821
shares of Common Stock. The shares were issued to Capital Investment Partners
(approximately $109,000 converted into 10,468,075 shares, now owned by Capital
Investment Partners Holdings LLC), Northstar Capital Partners (approximately
$138,000 converted into 13,373,436 shares, now owned by Capital Investment
Partners Holdings LLC), Eric Nickerson (approximately $12,000 converted into
1,175,000 shares), Third Century II (approximately $170,000 converted into
16,091,965 shares), Carl von Bibra (approximately $115,000 converted into
6,961,500 shares) and Conrad von Bibra (approximately $580,000 converted into
20,787,845 shares). Capital Investment Partners Holdings LLC is represented by
James Martin, a beneficial owner. Eric Nickerson is the managing partner of
Third Century II, a beneficial owner. Carl von Bibra is the son of Conrad von
Bibra. Neither Third Century II, nor any of its directors, officers or
affiliates, is an affiliate of the Company (other than as a principal
stockholder). Neither James Martin nor the von Bibra family is an affiliate of
the Company (other than as a principal stockholder). No commissions were paid in
connection with this transaction.

     In September 2000, the Company issued Convertible Promissory Notes in the
aggregate principal amount of $40,206 to two investors. The notes bear interest
at the rate of 8% per annum (with payment of accrued interest due at maturity)
and mature in September 2001. The notes are convertible upon default into shares
of Common Stock at the rate of $0.05 per share at the option of the holder. The
notes were issued to Threshold Technology Partners ($5,412) and Conrad von Bibra
($34,794). Neither Threshold Technology Partners, nor any of its directors,
officers or affiliates, is an affiliate of the Company (other than as a
principal stockholder). Mr. von Bibra is not an affiliate of the Company (other
than as a principal stockholder). No commissions were paid in connection with
this transaction.

                                                                              18


<PAGE>

     In October 2000, the Company issued Convertible Promissory Notes in the
aggregate principal amount of $19,330 to two investors. The notes bear interest
at the rate of 8% per annum (with payment of accrued interest due at maturity)
and mature in October 2001. The notes are convertible at any time into shares of
Common Stock at the rate of $0.05 per share at the option of the holder. The
notes were issued to Capital Investment Partners ($8,380) and Northstar Capital
Partners ($10,950). James Martin is the owner of Martin Management, which is the
general partner of both Capital Investment Partners and Northstar Capital
Partners. Mr. Martin is not an affiliate of the Company (other than as a
principal stockholder). No commissions were paid in connection with these
transactions.

     From November 2000 to August 2001, the Company issued Convertible
Promissory Notes in the aggregate principal amount of $1,167,000 to two
investors. The notes bear interest at the rate of 8% per annum (with payment of
accrued interest due at maturity) and mature at various dates from November 2001
to August 2002. The notes are convertible upon default into shares of Common
Stock at the rate of $0.05 per share at the option of the holder. The notes were
issued to Carl von Bibra ($682,000 in the aggregate) and Conrad von Bibra
($485,000 in the aggregate). Carl von Bibra is the son of Conrad von Bibra. The
von Bibra family is not an affiliate of the Company (other than as a principal
stockholder). No commissions were paid in connection with this transaction.

     From August to December 2001, the Company borrowed an aggregate of $854,000
from Carl von Bibra under an Open-Ended Convertible Promissory Note. The
borrowings bear interest at the rate of 8% per annum (with payment of accrued
interest due at maturity) and mature at various dates from August to December
2002. The borrowings are convertible upon default into shares of Common Stock at
the rate of $0.05 per share (subject to certain anti-dilution adjustments) at
the option of the holder. Upon the conversion of all or any portion of these
borrowings into Common Stock, the Company will also issue to the holder a
warrant to purchase additional shares of Common Stock (equal to the number of
shares issued upon such conversion) at an exercise price of $0.12 per share
(subject to certain anti-dilution adjustments). Mr.von Bibra is not an affiliate
of the Company (other than as a principal stockholder). No commissions were paid
in connection with this transaction.

     In February 2001, approximately $7,800 of debt was converted into 250,000
shares of Common Stock by Allard Villere, a director of the Company. No
commissions were paid in connection with this transaction.

     In August 2001, approximately $22,200 of debt was converted into 444,889
shares of Common Stock by Third Century II. Neither Third Century II, nor any of
its directors, officers or affiliates, is an affiliate of the Company (other
than as a principal stockholder). No commissions were paid in connection with
this transaction.

                                                                              19



<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number                        Description
------                        -----------

3.1      Certificate of Incorporation of Prism Software Corporation ("the
         Company") (1) (Exhibit 3.1)

3.2      Bylaws of the Company (1) (Exhibit 3.2)

3.3      Amendments dated February 24, 1998 and May 5, 1999 to the Company's
         Certificate of Incorporation (2) (Exhibit 3.3)

3.4      Amendment dated September 18, 2000 to the Company's Certificate of
         Incorporation (4) (Exhibit 10.1)

4.1      Specimen Common Stock certificate of the Company (1) (Exhibit 4.1)

4.2      Certificate of Designation of $5.00, 10% Class A Cumulative Convertible
         Preferred Stock, as amended to date (2) (Exhibit 4.3)

4.3      Certificate of Designation of $9.00, 8% Class B Cumulative Convertible
         Preferred Stock, as amended to date (2) (Exhibit 4.4)

4.4      Form of Warrant for Common Stock, issued 2000-2001 (5) (Exhibit 4.5)

10.1     Prism Software Corporation Amended and Restated 1993 Stock Option Plan
         ("1993 Plan") (1) (Exhibit 10.1)

10.2     Form of Employee Installment Incentive Stock Option and Nonstatutory
         Stock Option Agreement pertaining to the 1993 Plan (1) (Exhibit 10.2)

10.3     Prism Software Corporation 1996 Stock Option Plan ("1996 Plan") (1)
         (Exhibit 10.3)

10.4     Form of Nonqualified Stock Option Agreement pertaining to the 1996 Plan
         (1) (Exhibit 10.4)

10.5     Form of Incentive Stock Option Agreement pertaining to the 1996 Plan
         (1) (Exhibit 10.5)

10.6     Prism Software Corporation 2000 Nonstatutory Stock Option Plan ("2000
         Plan") (3) (Exhibit 10.1)

10.7     Form of Stock Option Agreement pertaining to the 2000 Plan (3) (Exhibit
         10.2)

                                                                              20


<PAGE>

Exhibit
Number                        Description
------                        -----------

10.8     Lease dated April 21, 1994, by and between the Company and the Mort
         Herrmann Family Trust (1) (Exhibit 10.6)

10.9     Amendments dated April 15, 1999 to the April 21, 1994 lease by and
         between the Company and the Mort Herrmann Family Trust (2) (Exhibit
         10.7)

10.10    Amended and Restated Employment Agreement dated as of April 21, 1995,
         by and between the Company and E. Ted Daniels (1) (Exhibit 10.7)

10.11    Non-Qualified Stock Option Agreement dated as of April 21, 1995, by and
         between the Company and E. Ted Daniels (1) (Exhibit 10.8)

10.12    Summary of Resolutions and Amendments through October 15, 1998 to
         Employment Agreement and Non-Qualified Stock Option Agreement by and
         between the Company and E. Ted Daniels (2) (Exhibit 10.10)

10.13    Promissory Note dated August 9, 1991, made to the order of George E.
         Williams in the principal amount of $22,000 (2) (Exhibit 10.11)

10.14    Promissory Note dated December 9, 1991, made to the order of Personal
         Computer Products, Inc. in the principal amount of $40,000 (2) (Exhibit
         10.12)

10.15    Promissory Note dated April 15, 1993, made to the order of James or
         Judith Bone in the principal amount of $63,031 (2) (Exhibit 10.13)

10.16    Promissory Note dated February 17, 1994, made to the order of Shirley
         McGarvey in the principal amount of $35,000 (2) (Exhibit 10.14)

10.17    Promissory Note dated December 31, 1994, made to the order of James
         Bone in the principal amount of $70,168 (2) (Exhibit 10.15)

10.18    Promissory Note dated December 31, 1994, made to the order of Allard
         Villere in the principal amount of $15,996 (2) (Exhibit 10.16)

10.19    Convertible Promissory Note dated July 29, 1995, made to the order of
         Northstar Capital Partners, LP ( now owned by Capital Investment
         Partners Holdings LLC) in the principal amount of $40,000 (1) (Exhibit
         10.15)

10.20    Amendment dated October 20, 1997 to the July 29, 1995 Convertible
         Promissory Note made to the order of Northstar Capital Partners, LP
         (now held by Capital Investment Partners Holdings LLC) in the principal
         amount of $40,000 (2) (Exhibit 10.18)

                                                                              21


<PAGE>

Exhibit
Number                        Description
------                        -----------

10.21    Convertible Promissory Note dated July 29, 1995, made to the order of
         Peachtree Capital Partners, LP (now owned by Capital Investment
         Partners Holdings LLC) in the principal amount of $60,000 (1) (Exhibit
         10.14)

10.22    Amendment dated October 20, 1997 to the July 29, 1995 Convertible
         Promissory Note made to the order of Peachtree Capital Partners, LP
         (now held by Capital Investment Partners Holdings LLC) in the principal
         amount of $60,000 (2) (Exhibit 10.20)

10.23    Form of Convertible Promissory Notes dated March 31, 1999 to July 3,
         2000, aggregate principal amount of $1,630,000 (2) (Exhibit 10.27)

10.24    Form of Convertible Promissory Notes dated September 25, 2000 and
         September 29, 2000, aggregate principal amount of $40,206 (5) (Exhibit
         10.24)

10.25    Form of Convertible Promissory Notes dated October 4, 2000, aggregate
         principal amount of $19,330 (5) (Exhibit 10.25)

10.26    Form of Convertible Promissory Notes dated November 14, 2000 to August
         23, 2001, aggregate principal amount of $1,167,000 (6)

10.27    Open-Ended Convertible Promissory Note dated August 29, 2001, made to
         the order of Carl von Bibra, aggregate principal amount of $854,000
         through December 31, 2001 (6)

10.28    Form of Warrant for Common Stock, issuable to Carl von Bibra upon the
         conversion of any or all of the amounts borrowed under the August 29,
         2001 Open-Ended Convertible Promissory Note (6)

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

     (1)  Incorporated by reference to the Exhibit identified in parentheses,
          filed as an exhibit in the Company's Registration Statement on Form
          SB-2 (SEC File No. 333-5450-LA).
     (2)  Incorporated by reference to the Exhibit identified in parentheses,
          filed as an exhibit in the Company's Annual Report on Form 10-KSB for
          the fiscal year ended December 31, 1998.
     (3)  Incorporated by reference to the Exhibit identified in parentheses,
          filed as an exhibit in the Company's Quarterly Report on Form 10-QSB
          for the quarter ended June 30, 2000.
     (4)  Incorporated by reference to the Exhibit identified in parentheses,
          filed as an exhibit in the Company's Quarterly Report on Form 10-QSB
          for the quarter ended September 30, 2000.
     (5)  Incorporated by reference to the Exhibit identified in parentheses,
          filed as an exhibit in the Company's Annual Report on Form 10-KSB for
          the fiscal year ended December 31, 2000.
     (6)  Filed herewith.

                                                                              22


<PAGE>

                                 SIGNATURES

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

                           PRISM SOFTWARE CORPORATION

Dated: April 15, 2002              By:  /s/ E. Ted Daniels
                                   ---------------------------------------------
                                   President, Chief Executive Officer, Chief
                                   Financial Officer and Director (Principal
                                   Executive Officer and Principal Financial and
                                   Principal Accounting Officer)

     In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>

      Name                                Title                              Date
      ----                                -----                              ----
<S>                           <C>                                       <C>
/s/ E. Ted Daniels            President, Chief Executive Officer,       April 15, 2002
------------------            Chief Financial Officer and Director
E. Ted Daniels                (Principal Executive Officer and
                              Principal Financial and Principal
                              Accounting Officer)

/s/ Allard C. Villere         Director                                  April 15, 2002
---------------------
Allard C. Villere

</TABLE>

                                                                              23



<PAGE>

                           PRISM SOFTWARE CORPORATION

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2001



                           PRISM SOFTWARE CORPORATION
                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Certified Public Accountants                          F-2

Balance Sheet as of December 31, 2001                                       F-3

Statements of Operations for the Years Ended
     December 31, 2001 and 2000                                             F-4

Statements of Stockholders' Deficit for the Years Ended
     December 31, 2001 and 2000                                             F-5

Statements of Cash Flows for the Years Ended
     December 31, 2001 and 2000                                             F-6

Notes to Financial Statements                                               F-7



                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------

The Board of Directors and Stockholders
Prism Software Corporation

We have audited the accompanying balance sheet of Prism Software Corporation
(the "Company") as of December 31, 2001, and the related statements of
operations, stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prism Software Corporation as
of December 31, 2001 and the results of its operations and cash flows for each
of the years in the two year period ended December 31, 2001 in conformity with
generally accepted accounting principles 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 12 to the
financial statements, the Company's continued operating losses, limited capital
and stockholders' deficit raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to this matter are also
described in Note 12. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/S/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California
April 5, 2002

                                      F-2


<PAGE>
<TABLE>

                           PRISM SOFTWARE CORPORATION
                                 Balance Sheet
<CAPTION>

                                                                        DECEMBER 31,
                                                                            2001
                                                                       -------------

                                      ASSETS

<S>                                                                    <C>
Current assets
  Cash                                                                 $     42,513
  Accounts receivable, net of allowance
    for doubtful accounts of $4,631                                          46,643
  Inventory                                                                     924
                                                                       -------------
    Total current assets                                                     90,080

  Equipment                                                                  64,131
  Other                                                                     130,186
                                                                       -------------
                                                                       $    284,397
                                                                       =============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
  Notes payable - stockholders                                         $  3,745,430
  Accrued interest - stockholders                                           502,428
  Accrued expenses - stockholders                                            30,203
  Notes payable                                                              51,024
  Accounts payable                                                          239,826
  Accrued expenses                                                          233,223
  Deferred revenue                                                          123,145
                                                                       -------------
    Total current liabilities                                             4,925,279
                                                                       -------------

  Commitments and contingencies                                                   -

  Stockholders' deficit
    Preferred stock - 5,000,000 shares authorized, $.01 par value
      Series A - 100,000 shares issued, 78,800 shares outstanding               788
    Common stock - 300,000,000 shares authorized, $.01 par value
      140,091,534 shares issued and outstanding                           1,400,915
  Additional paid-in capital                                              8,205,130
  Accumulated deficit                                                   (14,247,715)
                                                                       -------------
    Total stockholders' deficit                                          (4,640,882)
                                                                       -------------
                                                                       $    284,397
                                                                       =============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3


<PAGE>
<TABLE>

                           PRISM SOFTWARE CORPORATION
                            Statements of Operations
<CAPTION>

                                                        YEAR ENDED DECEMBER 31,
                                                 ----------------------------------
                                                      2001                2000
                                                 --------------      --------------
<S>                                              <C>                 <C>
Net sales
  Products                                       $     171,695       $     236,085
  Services                                             248,640             292,536
                                                 --------------      --------------
                                                       420,335             528,621
                                                 --------------      --------------

Cost of sales
  Products                                              38,837              82,812
  Services                                               9,286              26,370
                                                 --------------      --------------
                                                        48,123             109,182
                                                 --------------      --------------
    Gross profit                                       372,212             419,439
                                                 --------------      --------------

Operating expenses
  Selling and administrative                         2,044,955           1,612,649
  Research and development                             240,581             240,510
                                                 --------------      --------------
                                                     2,285,536           1,853,159
                                                 --------------      --------------
    Loss from operations                            (1,913,324)         (1,433,720)

Gains from legal settlements                           125,347                   -
Interest expense - stockholders                       (550,433)           (795,525)
Interest expense                                        (7,487)             (8,616)
                                                 --------------      --------------
Net loss                                         $  (2,345,897)      $  (2,237,861)
                                                 ==============      ==============

Basic and diluted net loss per common share      $       (0.02)      $       (0.02)
                                                 ==============      ==============

Basic and diluted weighted average
  number of common shares outstanding              135,960,193         103,206,606
                                                 ==============      ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-4


<PAGE>
<TABLE>

                                          PRISM SOFTWARE CORPORATION
                                     Statements of Stockholders' Deficit
                                    Years Ended December 31, 2001 and 2000
<CAPTION>

                                            SERIES A              SERIES B
                                         PREFERRED STOCK      PREFERRED STOCK            COMMON STOCK
                                      -------------------- --------------------- -----------------------------
                                       SHARES      AMOUNT    SHARES      AMOUNT      SHARES        AMOUNT
                                      ---------- --------- ----------- ---------- -------------- -------------
<S>                                     <C>      <C>         <C>       <C>         <C>           <C>
Balance, December 31, 1999               99,000  $     990    27,777   $    278     60,123,272   $   601,233

  Issuance of common stock for cash           -          -         -          -      3,150,000        31,500

  Intrinsic value of beneficial
    conversion feature                        -          -         -          -              -             -

  Conversion of notes payable                 -          -         -          -     70,865,582       708,656

  Exercise of stock options                   -          -         -          -         12,500           125

  Issuance of stock options                   -          -         -          -              -             -

  Net loss                                    -          -         -          -              -             -

                                      ---------- ---------- ---------  ---------  ------------- -------------
Balance, December 31, 2000               99,000        990    27,777        278    134,151,354     1,341,514

  Issuance of common stock for cash           -          -         -          -      2,500,000        25,000

  Conversion of preferred stock         (20,200)      (202)  (27,777)      (278)     2,695,291        26,953

  Intrinsic value of beneficial
    conversion feature                        -          -         -          -              -             -

  Conversion of notes payable                 -          -         -          -        694,889         6,948

  Exercise of stock options                   -          -         -          -         50,000           500

  Issuance of stock options                   -          -         -          -              -             -

  Net loss                                    -          -         -          -              -             -

                                      ---------- ---------- ---------  ---------  -------------  -------------
Balance, December 31, 2001               78,800  $     788         -   $      -    140,091,534   $  1,400,915
                                      ========== ========== =========  =========  =============  =============
</TABLE>

                                                                     (continued)


<PAGE>
<TABLE>
<CAPTION>

                                                         UNAMORTIZED
                                                         DISCOUNT OF
                                          ADDITIONAL      BENEFICIAL                        TOTAL
                                           PAID-IN        CONVERSION     ACCUMULATED    STOCKHOLDERS
                                           CAPITAL         FEATURE         DEFICIT         DEFICIT
                                        -------------- -------------   -------------- ---------------

<S>                                     <C>             <C>            <C>            <C>
Balance, December 31, 1999              $   6,260,235   $         -    $  (9,663,957) $   (2,801,221)

  Issuance of common stock for cash           241,868             -                -         273,368

  Intrinsic value of beneficial
    conversion feature                        852,330      (230,333)               -         621,997

  Conversion of notes payable                 444,282             -                -       1,152,938

  Exercise of stock options                       250             -                -             375

  Issuance of stock options                   157,152             -                -         157,152

  Net loss                                          -             -       (2,237,861)     (2,237,861)

                                        -------------- -------------  --------------- ---------------
Balance, December 31, 2000                  7,956,117      (230,333)     (11,901,818)     (2,833,252)

  Issuance of common stock for cash            98,043             -                -         123,043

  Conversion of preferred stock               (26,473)            -                -               -

  Intrinsic value of beneficial
    conversion feature                         88,000       230,333                -         318,333

  Conversion of notes payable                  23,096             -                -          30,044

  Exercise of stock options                     1,000             -                -           1,500

  Issuance of stock options                    65,347             -                -          65,347

  Net loss                                          -             -       (2,345,897)     (2,345,897)

                                        -------------- -------------  --------------- ---------------
Balance, December 31, 2001              $   8,205,130  $          -   $  (14,247,715) $   (4,640,882)
                                        ============== =============  =============== ===============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-5


<PAGE>
<TABLE>

                           PRISM SOFTWARE CORPORATION
                            Statements of Cash Flows
<CAPTION>

                                                                                 YEAR ENDED DECEMBER 31,
                                                                             ------------------------------
                                                                                 2001              2000
                                                                             ------------      ------------
<S>                                                                          <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                   $(2,345,897)      $(2,237,861)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
    Depreciation                                                                  43,926            33,553
    Gains from legal settlements                                                 (92,958)                -
    Issuance of stock options                                                     65,347           157,152
    Amortization of beneficial conversion feature                                318,333           621,997
    (Increase) decrease in assets
      Accounts receivable                                                         (9,294)            8,839
      Inventory                                                                   24,683           (17,816)
      Other assets                                                              (122,448)           (2,877)
    Increase (decrease) in liabilities
      Accounts payable                                                            62,540           (28,021)
      Accrued expenses                                                           240,654           108,319
      Deferred revenue                                                           (48,485)           22,758
                                                                             ------------      ------------
        Net cash used by operating activities                                 (1,863,599)       (1,333,957)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of equipment                                                          (47,020)          (20,894)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of notes payable - stockholders                       1,806,000         1,107,536
  Payments on notes                                                              (12,835)           (9,133)
  Proceeds from issuance of common stock                                         123,043           273,368
  Exercise of stock options                                                        1,500               375
                                                                             ------------      ------------
        Net cash provided by financing activities                              1,917,708         1,372,146
                                                                             ------------      ------------
Net increase in cash                                                               7,089            17,295

Cash, beginning of period                                                         35,424            18,129
                                                                             ------------      ------------
Cash, end of period                                                          $    42,513       $    35,424
                                                                             ============      ============

Supplemental disclosure of non-cash investing and financing activities:
  Conversion of notes payable to common stock                                $    30,044       $ 1,152,938
                                                                             ============      ============

             The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                F-6


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------

      Organization
      ------------

      Prism Software Corporation (the "Company") was incorporated in Delaware in
      1992. The Company specializes in enterprise document and content
      management solutions. The Company's products and expertise lie in print
      stream conversion and connectivity solutions that enable enterprise
      customers to manage print stream data from anywhere on the network to
      various output devices. The Company's customer base includes a number of
      organizations that use its solutions in managing high-volume, large scale
      document printing that historically resides on mainframes or disparate
      systems in a variety of markets.

      Concentrations of risk
      ----------------------

      In 2001 and 2000 the three largest customers accounted for 28% and 34%,
      respectively, of sales. At December 31, 2001 and 2000, the three largest
      accounts receivable totaled 86% and 82%, respectively.

      Use of estimates
      ----------------

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

      Inventory
      ---------

      Inventory is reported at the lower of cost (determined on the
      first-in-first-out method) or market and consists principally of finished
      goods.

      Equipment
      ---------

      Equipment is recorded at cost. Depreciation is provided over the estimated
      useful lives of the related assets, generally three to five years, using
      the straight-line method.

      Software Development Costs
      --------------------------

      Development costs related to new software products and enhancements to
      existing software products are expensed as incurred until technological
      feasibility has been established. After technological feasibility is
      established, any additional costs are capitalized in accordance with
      Statement of Financial Accounting Standards No. 86, "Accounting for the
      Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
      Company believes the establishment of technological feasibility occurs
      concurrently with the completion of software development. Accordingly, no
      costs have been capitalized as of December 31, 2001.

                                      F-7


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------------

      Revenue recognition
      -------------------

      Revenues from the licensing of computer software products are recognized
      upon delivery of the products to customers, as there are no significant
      obligations remaining after the delivery date. Revenues related to service
      agreements are deferred and recognized over the terms of the related
      agreements, generally 12 months.

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

      The Company accounts for income taxes under the asset and liability
      method. Deferred income taxes are recognized for the tax consequences of
      temporary differences by applying enacted statutory rates applicable to
      future years to the difference between the financial statement carrying
      amounts and the tax basis of existing assets and liabilities.

      Stock-based compensation
      ------------------------

      The Company has adopted the disclosure provisions only of Statement of
      Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock
      Based Compensation." SFAS 123 encourages, but does not require, companies
      to adopt a fair value based method for determining expense related to
      stock based compensation. The Company continues to account for stock based
      compensation using the intrinsic value method as prescribed under
      Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
      Issued to Employees" and related Interpretations.

      Cash and cash equivalents
      -------------------------

      The Company considers all highly liquid investments with a maturity of
      three months or less to be a cash equivalent.

      Advertising costs
      -----------------

      Advertising costs are expensed as incurred. During 2001 and 2000
      advertising costs totaled $45,535 and $13,120, respectively.

      Basic and diluted net loss per share
      ------------------------------------

      Basic net loss per share is based upon the weighted average number of
      common shares outstanding. Diluted net loss per share is based on the
      assumption that all dilutive convertible shares and stock options were
      converted or exercised. Dilution is computed by applying the treasury
      stock method. Under this method, options and warrants are assumed to be
      exercised at the beginning of the period (or at the time of issuance, if
      later), and as if funds obtained thereby were used to purchase common
      stock at the average market price during the period.

                                      F-8


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------------

      Fair value of financial instruments
      -----------------------------------

      The fair value of the notes payable to stockholders cannot be determined
      due to the related party nature of the obligations. The fair value of
      notes payable are based on interest rates available to the Company at
      quoted prices.

      Research and development costs
      ------------------------------

      Research and development costs are charged to expense as incurred.

      Recent accounting pronouncements
      --------------------------------

      In September 2000, the Financial Accounting Standards Board ("FASB")
      issued Statement of Financial Accounting Standards ("SFAS") No. 140,
      "Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities, and a replacement of FASB Statement No.
      125." The impact of this statement did not have a material affect on the
      Company's financial statements.

      On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations,"
      and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements
      make significant changes to the accounting for business combinations,
      goodwill, and intangible assets. SFAS 141 establishes new standards for
      accounting and reporting requirements for business combinations and will
      require that the purchase method of accounting be used for all business
      combinations initiated after June 30, 2001. Use of the
      pooling-of-interests method will be prohibited. This statement is
      effective for business combinations completed after June 30, 2001. SFAS
      142 establishes new standards for goodwill acquired in a business
      combination and eliminates amortization of goodwill and instead sets forth
      methods to periodically evaluate goodwill for impairment. Intangible
      assets with a determinable useful life will continue to be amortized over
      that period. This statement becomes effective January 1, 2002. Management
      does not expect these pronouncements to materially impact the Company's
      financial position or results of operations.

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
      Retirement Obligations." SFAS 143 addresses financial accounting and
      reporting for obligations associated with the retirement of tangible
      long-lived assets and the associated asset retirement costs. This
      Statement is effective for financial statements issued for fiscal years
      beginning after June 15, 2002. The impact of the adoption of SFAS 143 on
      the Company's reported operating results, financial position and existing
      financial statement disclosure is not expected to be material.

                                      F-9


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

1.    ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------------

      Recent accounting pronouncements (continued)
      --------------------------------------------

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
      Impairment or Disposal of Long-Lived Assets." This statement addresses
      financial accounting and reporting for the impairment or disposal of
      long-lived assets and broadens the definition of what constitutes a
      discontinued operation and how the results of a discontinued operation are
      to be measured and presented. The provisions of SFAS 144 are effective for
      financial statements issued for fiscal years beginning after December 15,
      2001. Management is in the process of evaluating the requirements of SFAS
      144, but does not expect that this pronouncement will materially impact
      the Company's financial position or results of operations.

      In January 2001, the Financial Accounting Standards Board Emerging Issues
      Task Force issued EITF 00-27 effective for convertible debt instruments
      issued after November 16, 2000. This pronouncement requires the use of the
      intrinsic value method for recognition of the detachable and imbedded
      equity features included with indebtedness, and requires amortization of
      the amount associated with the convertibility feature over the life of the
      debt instrument rather than the period for which the instrument first
      becomes convertible. The impact of this statement did not have a material
      affect on the Company's financial statements.

2.    EQUIPMENT
---------------

          Furniture and equipment                        $  80,006
          Computer equipment and software                  166,940
                                                         ----------
                                                           246,946
          Accumulated depreciation and amortization       (182,815)
                                                         ----------
                                                         $  64,131
                                                         ==========

3.    ACCRUED EXPENSES
----------------------

          Wages and benefits                             $  79,862
          Interest other                                    33,417
          Sales commissions                                 48,676
          Other                                             71,268
                                                         ----------
                                                         $ 233,223
                                                         ==========

                                      F-10


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

4.    NOTES PAYABLE
-------------------
<TABLE>
<CAPTION>

      All notes are unsecured.

      Stockholders
      ------------

      <S>                                                                            <C>
      7% to 10%, past due August 1996                                                $    129,895

      8%, convertible into common stock at $.10 per share at holders'
      option, past due December 1999                                                      100,000

      8%, convertible into common stock at $.05 per share at holders'
      option at maturity, past due December 2000                                          622,000

      8%, convertible into common stock at $.05 per share at holders'
      option at maturity, past due on various dates between January and July 2001         813,000

      8%, convertible into common shares at $.05 per share at holders'
      option at any time, past due October 2001                                            19,330

      8%, convertible into common stock at $.05 per share at holders' option
      only upon default, past due on various dates between September
      and December 2001                                                                   255,205

      8%, convertible into common stock at $.05 per share at holders' option
      only upon default, due on various dates between January
      and August 2002; $372,000 past due at April 5, 2002                                 952,000

      8%, convertible into common stock at $.05 per share at holders' option
      only upon default, due on various dates between August
      and December 2002; upon the conversion of all or any portion,
      warrants to purchase an equal number of additional shares of
      common stock at $.12 per share will also be issued                                  854,000
                                                                                     -------------
                                                                                     $  3,745,430
                                                                                     =============

      Other                                                                          $     51,024
                                                                                     =============
</TABLE>

      The $813,000, $19,330 and certain of the $255,205 notes above contain a
      beneficial conversion feature equal to or lesser than the face value of
      each applicable note, which is reflected in additional paid-in capital in
      the accompanying financial statements. During 2001 and 2000, $318,333 and
      $621,997, respectively, of the beneficial conversion feature was amortized
      and included as part of the caption "Interest expense - stockholders" in
      the accompanying statements of operations.

                                      F-11


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

5.    PREFERRED STOCK
---------------------

      The Company has authorized 5,000,000 shares of $0.01 par value preferred
      stock, of which 100,000 shares have been designated as $5.00 Series A 10%
      cumulative convertible preferred stock (Series A).

      Series A
      --------

      The holders of Series A are entitled to receive, when and as declared by
      the Company's Board of Directors (the Board), cumulative annual dividends
      of $0.50 per share commencing upon issuance and payable semi-annually.
      Series A has a liquidation preference of $5.00 per share plus any accrued
      but unpaid dividends. Series A is redeemable at the Company's election
      upon 30 days' notice at a price per share of $5.50 plus accrued but unpaid
      dividends thereon. The 78,800 shares of Series A outstanding at December
      31, 2001 are currently convertible at the election of the holders into
      3,413,616 shares of common stock. The conversion rate is subject to the
      adjustments set forth in the certificate of designation for Series A based
      on the current market price of the Company's common stock. The holders of
      the Series A are entitled to cast one noncumulative vote per share of
      Series A in all matters presented to the shareholders, and the majority of
      holders of Series A, voting as a class, have certain protective rights
      relating to their dividends and preference rights. No amounts have been
      accreted in relation to the Series A redemption as the likelihood of the
      Company electing to repurchase is remote.

      During the fourth quarter of 2001, the Company converted 20,200 Preferred
      Series A shares into 875,064 shares of common stock at $.01 per share.

      At December 31, 2001, the amount of dividends in arrears on the remaining
      78,880 shares of Series A 10% cumulative preferred stock was $375,088
      ($4.76 per share).

      Series B
      --------

      The holders of Series B are entitled to receive, when and as declared by
      the Board, cumulative annual dividends of $0.72 per share commencing upon
      issuance and payable quarterly. Series B has a liquidation preference of
      $9.00 per share plus any accrued but unpaid dividends.

      During November 2001, the Company converted all 27,777 Preferred Series B
      shares into 1,820,227 shares of common stock at $.01 per share.

                                      F-12


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

6.    COMMON STOCK
------------------

      In February 2001, a director exercised options for 50,000 shares of common
      stock at $.03 per share. The same director converted $7,800 of debt to
      250,000 shares of common stock.

      In July and August 2001, the Company sold 2,500,000 shares of common
      stock, and issued warrants to purchase an additional 2,500,000 shares of
      common stock (exercisable at $0.12 per share), in a private placement for
      $125,000, or $0.05 per share, net of fees of $1,957.

      In August 2001, the Company converted debt totaling $22,244 into 444,889
      shares of common stock.

7.    STOCK OPTIONS
-------------------

      Financing Options
      -----------------

      In 1994, the Company issued options to certain lenders to acquire up to
      325,093 shares of the Company's common stock in connection with loans made
      to the Company. The options vested at issuance, are exercisable at $2.00
      per share and expire in January 2004.

      1993 Stock Option Plan
      ----------------------

      The Company's 1993 Stock Option Plan provides for the issuance of options
      to employees, directors, officers, and advisors of the Company to acquire
      up to 630,000 shares of the Company's common stock. Options issued under
      this plan are generally granted at estimated market value, vest at varying
      rates and expire within ten years from the date of grant or within 90 days
      after termination of employment.

      1996 Stock Option Plan
      ----------------------

      The Company's 1996 Stock Option Plan provides for the issuance of options
      to employees, directors, officers and advisors of the Company to acquire
      up to 600,000 shares of the Company's common stock. Options issued under
      this plan are generally granted at estimated market value, and expire
      within three years from the date of grant or within 90 days after
      termination of employment.

      2000 Stock Option Plan
      ----------------------

      The Company's 2000 Stock Option Plan provides for the issuance of options
      to employees, directors, officers and advisors of the Company to acquire
      up to 3,000,000 shares of common stock. Options issued under this plan are
      generally exercisable at 85% of the market value on the date of grant,
      vest over three years and expire within ten years from the date of grant
      or within 90 days after termination of employment.

                                      F-13


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

7.    STOCK OPTIONS (CONTINUED)
-------------------------------

      Other Management Options
      ------------------------

      In connection with the employment terms of the Company's Chief Executive
      Officer, options are awarded to maintain an 8% interest in the Company's
      fully-diluted common stock (subject to certain anti-dilution adjustments).
      These options are exercisable at no cost, vest on the date of grant and
      expire within ten years.

      The Company has elected to continue to account for stock based
      compensation using the intrinsic value method. Accordingly, compensation
      is measured as the excess, if any, of the quoted market price of the
      Company's common stock at the date of grant over the amount an employee is
      required to pay to acquire the stock. Compensation costs incurred in 2001
      and 2000 were $65,347 and $157,152, respectively. Had compensation cost
      been determined as prescribed under SFAS 123, the Company's net losses and
      loss per share would have been increased to the pro forma amounts
      indicated below which were estimated using the Black-Scholes option
      pricing model with the following assumptions.

                                              2001           2000
                                              ----           ----
              Expected life (years)           3-10 years     4 years
              Risk-free interest rate         4.4%           6.50%
              Volatility                      100%           200%

                                                 2001                2000
                                             -------------      -------------
Net loss
  As reported                                $ (2,345,897)      $ (2,237,861)
  Pro forma                                  $ (2,384,032)      $ (2,424,891)

Basic and diluted loss per share
  As reported                                $      (0.02)      $      (0.02)
  Pro forma                                  $      (0.02)      $      (0.02)

                                      F-14


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

7.    STOCK OPTIONS (CONTINUED)
-------------------------------

      Stock option activity for the years ended December 31, 2001 and 2000
follows:

<TABLE>
<CAPTION>
                                  WEIGHTED             WEIGHTED            WEIGHTED              WEIGHTED                   WEIGHTED
                                   AVERAGE             AVERAGE              AVERAGE               AVERAGE      OTHER        AVERAGE
                     FINANCING     OPTION    1993       OPTION    1996      OPTION     2000       OPTION     MANAGEMENT      OPTION
                      OPTIONS       PRICE    PLAN       PRICE     PLAN       PRICE     PLAN        PRICE       OPTIONS        PRICE
                    ----------------------------------------------------------------------------------------------------------------
<S>                    <C>          <C>   <C>           <C>    <C>           <C>     <C>           <C>        <C>               <C>
December 31, 1999      197,093      2.00   494,600       0.77   400,000       0.03           -         -       9,852,230        -
                    ----------------------------------------------------------------------------------------------------------------
Granted                      -              50,000       0.03         -          -   1,040,000      0.05       2,318,812
Expired                      -         -  (241,000)     (0.05) (200,000)     (0.03)          -         -               -        -
Exercised                    -             (12,500)     (0.03)        -          -           -         -               -        -
                    ----------------------------------------------------------------------------------------------------------------

December 31,  2000     197,093      2.00   291,100       1.27   200,000       0.03   1,040,000      0.05      12,171,042        -
Granted                      -                   -          -         -          -   1,075,000      0.03       1,688,456        -
Expired                      -         -   (12,500)     (0.03) (200,000)     (0.03)   (250,000)    (0.05)              -        -
Exercised                    -             (50,000)     (0.03)        -          -           -         -               -
                    ----------------------------------------------------------------------------------------------------------------
December 31, 2001      197,093      2.00   228,600       1.60         -          -   1,865,000      0.04      13,859,498        -
                    ================================================================================================================

</TABLE>

      The following information applies to options outstanding at December 31,
2001:

<TABLE>
<CAPTION>
                                                    WEIGHTED            WEIGHTED                               WEIGHTED
                                                    AVERAGE              AVERAGE                                AVERAGE
                               NUMBER              REMAINING            EXERCISE             NUMBER            EXERCISE
                             OUTSTANDING        CONTRACTUAL LIFE          PRICE            EXERCISABLE           PRICE
                          ------------------  ---------------------  ----------------   ------------------  ----------------
<S>                              <C>                  <C>                     <C>              <C>                   <C>
1993 stock option plan              228,600            2                      $ 1.60              228,600            $ 1.60
2000 stock option plan            1,865,000           1.25                    $ 0.04            1,547,000            $ 0.04
Other management options         13,859,498            3                      $    -           13,859,498            $    -
Financing options                   197,093            2                      $ 2.00              197,093            $ 2.00
                          ------------------                                            ------------------
                                 16,150,191                                                    15,832,191
                          ==================                                            ==================
</TABLE>

                                      F-15


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

8.    WARRANTS
--------------

      The Company issued warrants in conjunction with the private placement
      described in Note 6 and in the year 2000. No value has been ascribed to
      the warrants as (1) the warrants were issued at exercise prices equal to
      or greater than the fair value of the Company's common stock on the date
      of issuance and (2) there is no market for the warrants. At December 31,
      2001 all warrants are outstanding and expire as follows:

               NUMBER              DATE          EXERCISE      EXPIRATION
               Issued             Issued           Price          Date
          -------------------------------------------------------------------
                   250,000      June 2000            $ 0.12    June 2003
                 2,400,000      July 2000            $ 0.12    July 2003
                   500,000     August 2000           $ 0.12   August 2003
                   290,000     October 2000          $ 0.12   October 2003
                 2,500,000     August 2001           $ 0.12   August 2004
          -----------------
                 5,940,000
          =================

9.    BASIC AND DILUTED NET LOSS PER SHARE
------------------------------------------

      The following table illustrates the reconciliation of the numerators and
      denominators of the basic and diluted loss per share computations.
      Incremental common shares associated with outstanding options, warrants
      and convertible debt are not included in the denominators as their effect
      would be antidilutive.

                                                      2001             2000
                                                 --------------   --------------
Numerator
---------
  Net loss                                       $  (2,345,897)   $  (2,237,861)
  Preferred dividends                                  (39,400)         (69,500)
                                                 --------------   --------------
  Net loss                                       $  (2,385,297)   $  (2,307,361)
                                                 ==============   ==============

Denominator
-----------
  Basic and diluted weighted average number of
  common shares outstanding during the period      135,960,193      103,206,606
                                                 --------------   --------------

Basic and diluted net loss per share             $       (0.02)   $       (0.02)
                                                 ==============   ==============

                                      F-16


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

10.   INCOME TAXES
------------------

      The Company recognizes deferred tax assets and liabilities for temporary
      differences between the financial reporting and tax bases of its assets
      and liabilities. Deferred tax assets are reduced by a valuation allowance
      when deemed appropriate.

      The Company has deferred tax assets of $4,951,000 at December 31, 2001
      relating to its net operating losses. The Company provided a 100%
      valuation allowance for these deferred tax assets. Accordingly, the
      Company recorded no benefit for income taxes during the periods presented.
      During, 2001 and 2000 the Company's valuation allowance increased
      approximately $811,000 and $646,000, respectively.

      At December 31, 2001, the Company has net operating loss carryforwards for
      federal tax purposes of $12,650,000 which, if unused to offset future
      taxable income, will expire beginning in 2004 through 2020.

11.   COMMITMENTS AND CONTINGENCIES
-----------------------------------

      Legal proceedings
      -----------------

      The Company was a party to an arbitration proceeding filed by Arthur
      Wilkes, a former officer of the Company. Mr. Wilkes contended that the
      Company breached the terms of a April 1995 Settlement Agreement ("1995
      Agreement") between him and the Company by (1) failing to make payments
      under a Promissory Note for $64,000 and (2) interfering with his ability
      to sell his shares in the Company. The liability for the $64,000
      Promissory Note had been accrued in the Company's financial statements.

      The Company responded to the arbitration demand by serving a
      counter-demand based on Mr. Wilkes' failure to provide the Company with a
      copy of software the Company contended Mr. Wilkes had developed and made
      available to his current company. Under the terms of the 1995 Agreement,
      Mr. Wilkes was obligated to provide the Company with a non-exclusive
      license to software and software derivatives based on a product Mr. Wilkes
      began to develop while still employed by the Company. Mr. Wilkes denied
      the allegations of the counter-demand.

      The arbitration hearing was conducted in May 2001 and the arbitrator
      issued the award in June 2001. The arbitrator denied all of Mr. Wilkes'
      claims and all of the Company's counterclaims. The period for disputing
      the award expired in October 2001. Neither party filed any proceeding to
      dispute the award during this time frame, so the award became final.
      Accordingly, the Company wrote off the liability for the $64,000
      Promissory Note and related interest of $28,958 during the fourth quarter
      of 2001. The gain is included as part of the caption "Gains from legal
      settlements" in the accompanying statements of operations.

      In March 2001, the Company settled a dispute with a customer over services
      the Company performed in 1999 and recognized a gain of $32,389, which is
      include as part of the caption "Gains from legal settlements" in the
      accompanying statements of operations.

                                      F-17


<PAGE>

                           PRISM SOFTWARE CORPORATION
                          Notes to Financial Statements
                                December 31, 2001

11.   COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------------

      Legal proceedings (continued)
      -----------------------------

      The Company is a party to an arbitration proceeding filed by a customer.
      The customer alleges that the software they bought from the Company in
      January 2000 did not perform as represented. In filing for arbitration,
      the customer was required to limit its eventual damage claims to $35,000.
      Damages have not yet been specified and an arbitration hearing has not yet
      been scheduled. The Company believes that the allegation is without merit,
      is vigorously defending this matter and does not believe that the outcome
      will have a material adverse effect upon the financial position or results
      of operations of the Company. No liability for this matter is accrued in
      the accompanying financial statements.

      Leases
      ------

      The office lease expires March 31, 2004 and provides for a basic rent of
      $7,950 per month. Rent expense was $94,389 and $91,356 in 2001 and 2000,
      respectively.

      Minimum annual lease payments at December 31, 2001 are as follows:

                     2002            $  95,400
                     2003               98,433
                     2004               24,861
                                     ----------

                                     $ 218,694
                                     ==========

12.   GOING CONCERN
-------------------

      The Company's continued operating losses, limited capital and
      stockholders' deficit raise substantial doubt about its ability to
      continue as a going concern. Management's plans to continue strengthening
      the Company's financial condition and operations include: restructuring
      the Company's debt and other liabilities, monitoring costs and cash flow
      activities, expanding operations through potential cooperative ventures,
      continuing to upgrade sales and marketing efforts and upgrading customer
      service and product development efforts. The Company also intends to
      continue raising capital to fund its operations, but no assurance can be
      given that such funding will be available.

                                      F-18