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, 2000
                                   -----------------

[ ]      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, 2000 were
$528,621 .

     The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 31, 2001 was approximately $1,162,000 .

     The number of shares outstanding of the registrant's only class of Common
Stock, par value $.01 per share, was 136,451,354 on March 31, 2001.

<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 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 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 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 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 PRO

     PrintConsole PRO is the company's umbrella product that incorporates all of
Prism's conversion technology expertise into an easy-to-use, cost-effective
package, enabling customers to better manage their print environments.
PrintConsole PRO offers a centralized point of control and a simple
point-and-click interface to invoke other Prism products 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.

     o    The base PRINTCONSOLE product provides the archival and reprinting
          capabilities that are needed in a print environment. It allows for
          reprinting documents without having to regenerate them at the
          application level, and also provides for accountability and print
          stream recovery.
     o    The enhanced PRINTCONSOLE PRO product comes with all the base system
          functions of the core PrintConsole product, and further allows for
          optional modules to be plugged in for additional capabilities such as
          print stream translations, resource downloads, and connectivity. All
          the other products of the Company - including the Print Manager and
          PRINTEXEC family of products, as well as the Connectivity Options
          discussed below - are available as optional modules that can
          seamlessly plug into the PrintConsole Pro environment. The optional
          modules currently available enable translation to and from Xerox
          Metacode, PCL, Postscript and AFP, as well as translation to
          Web-friendly formats such as PDF and TIFF.


     PRINT MANAGER PRODUCT FAMILY

     The Print Manager family of products converts HP PCL and/or Adobe
PostScript, the most common page description languages, to the Xerox
DJDE/Metacode protocol for printing on high-speed Xerox laser printers. These
products enable organizations to expand the use and capabilities of their
high-speed laser printers while retaining the economies of scale that those
printers offer. When the Company's Print Manager products are used in
conjunction with a high-speed laser printer, high-volume documentation
production projects (5,000 pages or more), which could otherwise take an entire
day to print, can often be completed in a matter of a few hours.

     o    PRINT MANAGER/NT-PCL converts HP PCL data streams to Xerox
          DJDE/Metacode for printing on high-speed Xerox laser printing systems.
          Operating within a high-end PC platform, Print Manager/nt-PCL acts as
          a print server on an office's LAN. It provides users with a
          contemporary, user-friendly "tool bar" graphic interface and works
          seamlessly within a Novell or Windows NT-based LAN. Through the use of
          a special interface channel card, Print Manager/nt-PCL attaches
          directly to a Xerox high-speed laser printer via the printer's Bus and
          Tag (IBM 3211) communication channel. Various connectivity options
          allow Print Manager/nt-PCL to accept parallel input or direct file
          format input. Print Manager/nt-PCL can also output directly to the LAN
          as a file instead of a hard copy printout. The file output can also be
          written to magnetic tape, transferred to a mainframe or routed to a
          BARR spooler. This flexibility allows Print Manager/nt-PCL to be
          integrated into a wide variety of electronic publishing environments.

                                       3
<PAGE>

     o    PRINT MANAGER/NT-POSTSCRIPT enables the user to convert
          PC/LAN-generated Adobe PostScript Level 2 documents to Xerox
          DJDE/Metacode for printing on high-speed Xerox laser printing systems.
          Print Manager/nt-PostScript operates within a Windows NT platform and
          acts as a print server on an office's LAN. This product eliminates the
          need for the user to learn complex Xerox printer commands, and enables
          the printers to print complex form and graphic images which previously
          had only been possible on slower desktop laser printers. Color is also
          supported by Print Manager/nt-PostScript, allowing users to fully
          utilize the highlight color capabilities of particular Xerox high-end
          laser printers.
     o    FREEFORM, the Company's Xerox forms generator, is a companion to the
          Print Manager/nt products. FreeForm enables the design of electronic
          forms for Xerox high-end printing using standard Windows forms design
          software. FreeForm also allows usage of templates that come with
          "off-the-shelf" forms design software packages. FreeForm accepts
          single or multi-page Print Manager/nt-processed files as input, and
          converts them directly to Xerox forms. The output generated consists
          of the Xerox form (.FRM) plus a set of supporting font (.FNT) and
          image (.IMG) files. Highlight color information is detected
          automatically and produces a color form.


     PRINTEXEC PLUS PRODUCT FAMILY

     The PRINTEXEC Plus family of products enables users to transform
mainframe/legacy data into high quality documents that can be printed on desktop
and LAN laser printers or to the World Wide Web without having to reprogram
their host applications. This allows organizations to combine their applications
designed for high-volume laser printers with the advantages of distributed LAN
and desktop printers.

     o    PRINTEXEC PLUS FOR PCL accepts Xerox print streams and resources and
          converts them for printing on desktop and LAN PCL printers.
     o    PRINTEXEC PLUS FOR PDF enables organizations that have previously been
          printing centrally on Xerox laser printing systems to provide the
          output electronically in a viewable format. PRINTEXEC Plus for PDF
          accepts Xerox print streams and resources and transforms them into
          standard PDF files for use with browsers such as Adobe's Acrobat
          Reader.
     o    PRINTEXEC PLUS FOR AFP accepts complex Xerox print streams and
          resources and transforms them into AFP for printing on IBM high-speed
          laser printers. This product is mainly intended to enable customers to
          replace their existing Xerox printers with equivalent ones from IBM,
          by translating print data streams without requiring application
          changes.

     All PRINTEXEC Plus products described above support all Xerox centralized
printing capabilities as well as Xerox resources including: Xerox Metacode
output from applications such as DocuMerge, Compuset, and XICS; Line Conditioned
Data Streams (LCDS); Dynamic Job Descriptor Entries (DJDE); Job Source Language
(JSL); Xerox Fonts (FNT), Forms (FRM), Logos (LGO), Images (IMG), Page
Descriptor Entries (PDE), Copy Modification Entries (CME), and Job Description
Entries (JDE).

                                       4
<PAGE>


     CONNECTIVITY PRODUCTS

     The Company's goal is to make its software and hardware products work in a
more transparent and automatic manner by accepting documents from any source and
routing output to any destination device. To this end, the Company has developed
certain connectivity solutions which make it easier for customers to manage
their print stream outputs.

     o    FTPEXEC provides an automated link from the LAN environment to an IBM
          mainframe by automatically placing files in the JES2 spool. FTPExec
          can be used in any environment in which automated FTP transfers are
          required to shuttle files back and forth, from LAN to the mainframe
          and vice-versa, or from the desktop to the Internet or vice-versa.
     o    RESLOAD is a utility that provides a drag-and-drop interface to
          download a set of resources (Fonts, Forms, Logos, Images) to the Xerox
          laser printing system through a standard Bus-and-Tag connection. The
          downloaded resources can then be invoked on the printer by any print
          stream that needs them.


     HARDWARE

     The Company also offers to its customers hardware products that
specifically enable its software solutions to function more effectively. These
are standard hardware products that are purchased on an OEM basis and sold only
with the Company's software solutions.

     o    PRISM PLUS APPLICATION READY PLATFORM ("PARP"). This standard PC
          system, with full performance capabilities and options, is an
          advanced, high-powered Pentium-based platform for the Company's
          software products. The PARP system is pre-loaded, fully configured and
          tested and allows the Company's software solutions to be installed
          more quickly and perform more effectively in a customer's environment.
     o    INTERFACE CHANNEL CARDS. These standard printed circuit cards are
          designed and manufactured to perform a specific interface function
          when installed in a PC that implements the Company's software as a
          print server. They allow a more effective performance of data input
          and output to Xerox high-speed printers.

                                       5
<PAGE>

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.

     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, 2001, the Company had 15 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.

                                       6
<PAGE>

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 is 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 contends 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 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 contends Mr. Wilkes has developed and made available to his current
company, American Printware. Under the terms of the 1995 Agreement, Mr. Wilkes
is 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 has denied the allegations of the
counter-demand.

     An arbitration hearing is scheduled for May 2001. The Company believes that
Mr. Wilkes' allegations concerning interference with his ability to sell his
stock in the Company are without merit, and intends to vigorously defend those
claims. The Company has not paid Mr. Wilkes the payments described in the
$64,000 Promissory Note, and contends that any amounts owing under that Note
must be offset by damages caused by Mr. Wilkes' breach of the Settlement
Agreement. The liability for the $64,000 Promissory Note is already accrued in
the Company's financial statements. Management does not believe that the outcome
of this action will have a material adverse effect upon the financial position
or results of operations of the Company.


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

     During the fiscal year ended December 31, 2000, the Company solicited the
vote of shareholders on a proposed amendment to the Certificate of
Incorporation, increasing the authorized number of shares of Common Stock from
200,000,000 shares to 300,000,000 shares. The Company received consents from
shareholders with a total of 36,613,000 shares. Accordingly, the Amendment to
the Certificate of Incorporation was filed with the Delaware Secretary of State
on September 19, 2000.

                                       7
<PAGE>

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, 1999 and December 31, 2000, 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, 1999                             0.08             0.01
Quarter ended June 30, 1999                              0.08             0.01
Quarter ended September 30, 1999                         0.05             0.01
Quarter ended December 31, 1999                          0.51             0.01
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

     As of March 31, 2001, there were approximately 713 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, 2000 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

     From June to August 2000, pursuant to a private placement, the Company sold
3,150,000 shares of Common Stock for $315,000, or $0.10 per share, and issued
warrants to purchase an additional 3,150,000 shares of Common Stock at an
exercise price of $0.12 per share to eight individual investors. In connection
with these transactions, the Company paid fees of $41,632 and issued a warrant
to a finder to purchase an additional 290,000 shares of Common Stock at an
exercise price of $0.l25 per share.

     In September 2000, options to purchase 12,500 shares of Common Stock were
exercised for $375.00, or $0.03 per share, by one individual investor.

                                       8
<PAGE>

     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). 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). The von
Bibra family is not an affiliate of the Company (other than as principal
stockholder). No commissions were paid in connection with these transactions.

     In May 2000, approximately $1,153,000 of debt was converted into 70,865,582
shares of Common Stock. The shares were issued to Capital Investment Partners
(approximately $109,000 converted into 10,468,075 shares), Northstar Capital
Partners (approximately $138,000 converted into 13,373,436 shares), Jean Tarr
(approximately $29,000 converted into 2,007,761 shares), 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). James Martin is the
owner of Martin Management, which is the general partner of both Capital
Investment Partners and Northstar Capital Partners. Eric Nickerson is the
managing partner of Third Century II. Carl von Bibra is the son of Conrad von
Bibra. Jean Tarr is neither an affiliate nor a principal stockholder of the
Company. 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 these transactions.

     In September 2000, the Company issued Convertible Promissory Notes in the
aggregate principal amount of $40,206 to four 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
these transactions.

     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.

     In November and December 2000, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $215,000 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 in November and December 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 Carl von
Bibra ($30,000 in the aggregate) and Conrad von Bibra ($185,000 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 principal stockholder). No
commissions were paid in connection with these transactions.

                                       9
<PAGE>

     The Company believes that the foregoing issuances of securities were exempt
from registration under the Securities Act by virtue of Section 4(2) thereof or
Regulation D promulgated thereunder.


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, 2000 AND DECEMBER 31, 1999

     For the fiscal year ended December 31, 2000, the Company reported a loss of
approximately $2,238,000, or $0.02 per share. This compares with a loss of
approximately $1,330,000, or $0.02 per share, for the fiscal year ended December
31, 1999. The increase in the loss was due primarily to the following:

     o    Revenue decreased approximately $122,000 due primarily to a decrease
          of about $147,000 in product sales, which was partially offset by an
          increase of about $22,000 in service revenue.
     o    The cost of sales increased approximately $61,000, even though revenue
          decreased. This increase was due almost entirely to costs incurred for
          sales of a third-party line of software products that was not sold in
          the prior year.
     o    Interest expense increased approximately $40,000 due primarily to an
          increase in the Company's average outstanding indebtedness.
     o    An expense of approximately $622,000 was booked for the amortization
          of a beneficial conversion feature embedded in convertible notes
          payable as of December 31, 2000. See "Liquidity and Capital
          Resources."

                                       10
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     On December 31, 2000, the Company had cash and cash equivalents of
approximately $35,000. The principal source of liquidity in the fiscal year
ended December 31, 2000 was approximately $1,108,000 of additional borrowings.
Approximately $852,000 of this debt is convertible at the lenders' option into
Common Stock at a conversion rate that is below the market price of the Common
Stock at the time the loans were made. The value of the beneficial conversion
feature (discount) on each such note is amortized beginning on the issuance date
of the note through to the earliest possible conversion date. The amortization
period is one year for most of these notes. The aggregate unamortized discount
on such notes was approximately $852,000. As of December 31, 2000, the Company
recorded approximately $622,000 as additional paid-in capital for the
amortization of the discount, with an equivalent expense being included as part
of the caption "Interest expense - stockholders" in the accompanying December
31, 2000 statement of operations.

     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.

                                       11
<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)         60               Chairman of the Board, Chief Executive Officer,
                                                     and interim Chief Financial Officer

         Barry Lathan               52               President and Chief Operating Officer

         Allard Villere (1)         67               Secretary and a Director


     SIGNIFICANT EMPLOYEES:

         Richard Nicolai            45               Technical Support Manager

         Michael Cheever            32               Controller

         Dee Shelor                 63               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.

                                       12
<PAGE>

     Mr. Lathan joined the Company in January 2000 as its President and Chief
Operating Officer. He worked for Xerox Corporation for 29 years, including
holding various senior management positions such as general manager, western
area vice-president and national sales manager. Prior to joining the Company and
for a period of five years, he was President and Chief Executive Officer of
Xerox ColorgrafX Systems, a wholly-owned subsidiary of Xerox Corporation.

     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.

     Mr. Nicolai joined the Company in March 1999. He has 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.

                                       13
<PAGE>

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).


ITEM 10.  EXECUTIVE COMPENSATION


SUMMARY COMPENSATION TABLE

     The following table sets forth certain compensation awarded or paid by the
Company to its President and Chief Executive Officer during the fiscal years
ended December 31, 2000 and December 31, 1999. 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                    2000       $198,093        $0        $10,494               $0         2,318,812               $0
President and                     1999       $180,084        $0         $9,124               $0         5,464,051               $0
Chief Executive Officer (5)

</TABLE>
--------------
     (1)  Includes 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, 2001, Mr. Daniels has been granted
          options to acquire an aggregate of approximately 15,078,945 shares
          pursuant to his employment agreement and related stock issuance
          agreement (approximately 10,948,945 of these options remain
          unexercised as of that date).
     (5)  Mr. Daniels relinquished the title of President in January 2001 when
          Mr. Barry Lathan joined the Company as President and Chief Operating
          Officer. Mr. Daniels retains the title of Chief Executive Officer. See
          "Directors, Officers and Significant Employees."

                                       14
<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, 2000, the value realized therefor, the number of
unexercised options at December 31, 2000 and the value of unexercised
in-the-money options at December 31, 2000 for the Company's Chief Executive
Officer in the Summary Compensation Table above. The Company's Chief Executive
Officer did not hold any stock appreciation rights ("SARs") during the fiscal
year ended December 31, 2000.

<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>
E. Ted Daniels                      0              $0                   12,171,042/0                     $379,737/$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 shares outstanding from time to
time and the 320,000 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.

                                       15
<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, 2000, options
for 12,500 shares of Common Stock available for grant under the 1993 Plan had
been exercised, approximately 291,100 shares of Common Stock were reserved for
issuance upon exercise of outstanding options and approximately 326,400 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 granted options to purchase 50,000 shares of Common Stock to
its executive officers under the 1993 Plan during the fiscal year ended December
31, 2000. The Company did not grant any options to its executive officers under
the 1993 Plan during the fiscal year ended December 31, 1999.


     1996 STOCK OPTION PLAN

     In May 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
"1996 Plan"). The 1996 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, 2000, none of the options available for grant under the 1996 Plan
had been exercised, approximately 200,000 shares of Common Stock were reserved
for issuance upon exercise of outstanding options and approximately 400,000
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.

                                       16
<PAGE>

     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.

     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, 2000 nor during the fiscal
year ended December 31, 1999.


     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, 2000, none of the options available for grant under the 2000 Plan had been
exercised, approximately 1,040,000 shares of Common Stock were reserved for
issuance upon exercise of outstanding options and approximately 1,960,000 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 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 Year-end Values," and "-Employment Agreements."

                                       17
<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, 2001, 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                              15,871,940  (2)                          10.7%

Barry Lathan
c/o Prism Software Corporation
23696 Birtcher
Lake Forest, CA  92630                                       0                                   *

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                                  28,473,279  (4)                          20.6%

Third Century II
1711 Chateau Court
Fallston, MD  21047                                 21,421,007  (5)                          15.6%

Threshold Technology Partners
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA  30326                                   6,800,000                                5.0%

Conrad and Carl von Bibra
1810 Fair Oaks
Suite 209
South Pasadena, CA  91030                           74,832,384  (6)                          45.6%

All Directors and
Executive Officers of the
Company as a Group (3 persons)                      16,646,471  (7)                          11.3%

</TABLE>

                                       18
<PAGE>

-------------------
     *     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, 2001, 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.
     (2)  Includes 11,431,940 shares of Common Stock issuable upon the exercise
          of options that are either vested as of March 31, 2001 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,
          2001.
     (4)  Includes 1,990,143 shares issuable upon the conversion of certain
          Convertible Promissory Notes and 69,125 shares issuable upon the
          conversion of warrants that are either vested as of March 31, 2001 or
          could vest within 60 days after such date which are beneficially owned
          by the following entities or individuals (in addition to Mr. James
          Martin as an individual): Capital Investment Partners (Martin
          Management, Inc., the general partner, is owned by Mr. Martin),
          Northstar Capital Partners (Martin Management, Inc., the general
          partner, is owned by Mr. Martin), Huntington Partners (a family
          partnership owned one-third by Mr. Martin), MARCO II Partners (a
          family partnership owned 90% by Mr. Martin), Cameron Martin (Mr.
          Martin's son) and MV Ventures (a general partnership owned 50% by
          Northstar Capital Partners). Mr. Martin individually owns 512,500
          shares of Common Stock. Capital Investment Partners beneficially owns
          10,768,075 shares of Common Stock and an additional 1,126,411 shares
          issuable upon the conversion of certain Convertible Promissory Notes
          that are either vested as of March 31, 2001 or could potentially vest
          within 60 days after such date. Northstar Capital Partners
          beneficially owns 14,458,436 shares of Common Stock and an additional
          863,732 shares issuable upon the conversion of certain Convertible
          Promissory Notes that are either vested as of March 31, 2001 or could
          potentially vest within 60 days after such date. Huntington Partners
          beneficially owns 312,500 shares of Common Stock and an additional
          69,125 shares issuable upon the exercise of outstanding warrants that
          are either vested as of March 31, 2001 or could potentially vest
          within 60 days after such date. MARCO II Partners owns 100,000 shares
          of Common Stock, Cameron Martin owns 62,500 shares of Common Stock and
          MV Ventures owns 200,000 shares of Common Stock.
     (5)  Includes 434,667 shares of Common Stock issuable upon the conversion
          of certain Convertible Promissory Notes and 441,375 shares
          issuable upon the conversion of warrants that are either vested as of
          March 31, 2001 or could vest within 60 days after such date.

                                       19
<PAGE>

     (6)  Includes 27,718,039 shares of Common Stock issuable upon the
          conversion of certain Convertible Promissory Notes that are either
          vested as of March 31, 2001 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 23,849,633 shares issuable upon the
          conversion of certain Convertible Promissory Notes that are either
          vested as of March 31, 2001 or could vest within 60 days after such
          date. Carl von Bibra beneficially owns 15,907,500 shares of Common
          Stock and 3,868,406 shares issuable upon the conversion of certain
          Convertible Promissory Notes that are either vested as of March 31,
          2001 or could vest within 60 days after such date.
     (7)  Includes shares of Common Stock issuable upon the exercise of options
          described in notes (2) and (3) above.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     ISSUANCE OF COMMON STOCK AND WARRANTS

     From June to August 2000, pursuant to a private placement, the Company sold
3,150,000 shares of Common Stock for $315,000, or $0.10 per share, and issued
warrants to purchase an additional 3,150,000 shares of Common Stock at an
exercise price of $0.12 per share to eight individual investors. In connection
with these transactions, the Company paid fees of $41,632 and issued a warrant
to a finder to purchase an additional 290,000 shares of Common Stock at an
exercise price of $0.l25 per share.

     In September 2000, options to purchase 12,500 shares of Common Stock were
exercised for $375.00, or $0.03 per share, by one individual investor.


     CERTAIN NOTES AND NOTE CONVERSIONS

     From January to March 1999, the Company issued Convertible Promissory Notes
in the aggregate principal amount of $108,000 to Conrad von Bibra. The notes
bear interest at the rate of 10% per annum (with payments of accrued interest
due every three months) and mature at various dates from January to March 2000.
The notes are convertible into shares of Common Stock at the rate of $0.05 per
share at any time at the option of the holder. Mr. von Bibra is not an affiliate
of the Company (other than as a principal stockholder). No commissions were paid
in connection with these transactions. All such notes (including unpaid accrued
interest) were converted into shares of Common Stock in May 2000.

     From March 1999 to July 2000, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $1,635,000 to six 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 March 2000 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
Capital Investment Partners ($5,000), Northstar Capital Partners ($5,000), Jean
Tarr ($10,000), Third Century II ($30,000 in the aggregate), Carl von Bibra
($186,000 in the aggregate) and Conrad von Bibra ($1,399,000 in the aggregate).
Holders of $5,000 of such notes have piggyback registration rights with respect
to shares of Common Stock into which such notes are convertible, which

                                       20
<PAGE>

registration rights expired on December 31, 1999. James Martin is the owner of
Martin Management, which is the general partner of both Capital Investment
Partners and Northstar Capital Partners. Jean Tarr is neither an affiliate nor a
principal stockholder of the Company. 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 these transactions. $180,000 of such notes (plus
unpaid accrued interest) were converted into shares of Common Stock in May 2000.

     In May 2000, approximately $1,153,000 of debt was converted into 70,865,582
shares of Common Stock. The shares were issued to Capital Investment Partners
(approximately $109,000 converted into 10,468,075 shares), Northstar Capital
Partners (approximately $138,000 converted into 13,373,436 shares), Jean Tarr
(approximately $29,000 converted into 2,007,761 shares), 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). James Martin is the
owner of Martin Management, which is the general partner of both Capital
Investment Partners and Northstar Capital Partners. Eric Nickerson is the
managing partner of Third Century II. Carl von Bibra is the son of Conrad von
Bibra. Jean Tarr is neither an affiliate nor a principal stockholder of the
Company. 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 these transactions.

     In September 2000, the Company issued Convertible Promissory Notes in the
aggregate principal amount of $40,206 to four 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
these transactions.

     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.

     In November and December 2000, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $215,000 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 in November and December 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 Carl von
Bibra ($30,000 in the aggregate) and Conrad von Bibra ($185,000 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 principal stockholder). No
commissions were paid in connection with these transactions.

                                       21
<PAGE>








                           PRISM SOFTWARE CORPORATION

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 2000

<PAGE>

                           PRISM SOFTWARE CORPORATION
                          INDEX TO FINANCIAL STATEMENTS



Report of Independent Certified Public Accountants                         F-2

Balance Sheet as of December 31, 2000                                      F-3

Statements of Operations for the Years Ended
     December 31, 2000 and 1999                                            F-4

Statements of Stockholders' Deficit for the Years Ended
     December 31, 2000 and 1999                                            F-5

Statements of Cash Flows for the Years Ended
     December 31, 2000 and 1999                                            F-6
Notes to Financial Statements                                              F-7



<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 as
of December 31, 2000, and the related statements of operations, stockholders'
deficit and cash flows for each of the years in the two year period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with 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, 2000 and the results of its operations and cash flows for each
of the years in the two year period ended December 31, 2000 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 6, 2001

                                      F-2
<PAGE>

                           PRISM SOFTWARE CORPORATION
                                 Balance Sheet


                                                                    DECEMBER 31,
                                                                        2000
                                                                   -------------
                                       ASSETS
Current assets

 Cash                                                              $     35,424
 Accounts receivable, net of allowance
      for doubtful accounts of $4,383                                    37,349
 Inventory                                                               25,607
                                                                   -------------

    Total current assets                                                 98,380

 Equipment                                                               51,038
 Other                                                                   17,736
                                                                   -------------

                                                                   $    167,154
                                                                   =============

                        LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

  Notes payable - stockholders                                     $  2,032,730
  Notes payable                                                          62,358
  Accounts payable                                                      177,286
  Accrued expenses                                                      556,402
  Deferred revenue                                                      171,630
                                                                   -------------

    Total current liabilities                                         3,000,406
                                                                   -------------


Commitments and contingencies                                                 -

Stockholders' deficit

  Preferred stock - 5,000,000 shares authorized, $.01 par value
    Series A - 99,000 shares issued and outstanding                         990
    Series B - 27,777 shares issued and outstanding                         278
  Common stock - 300,000,000 shares authorized, $.01 par value
    134,151,354 shares issued and outstanding                         1,341,514
  Additional paid-in capital                                          7,956,117
  Unamortized discount of beneficial conversion feature                (230,333)
  Accumulated deficit                                               (11,901,818)
                                                                   -------------

    Total stockholders' deficit                                      (2,833,252)
                                                                   -------------

                                                                   $    167,154
                                                                   =============

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

                                      F-3
<PAGE>

                           PRISM SOFTWARE CORPORATION
                            Statements of Operations

                                                           YEAR ENDED
                                                          DECEMBER 31,
                                                 -------------------------------
                                                      2000             1999
                                                 --------------   --------------

Net sales                                        $     528,621    $     650,252

Cost of sales                                          103,577           42,902
                                                 --------------   --------------

   Gross profit                                        425,044          607,350
                                                 --------------   --------------

Operating expenses
  Selling and administrative                         1,722,773        1,660,662
  Research and development                             135,991          133,951
                                                 --------------   --------------

                                                     1,858,764        1,794,613
                                                 --------------   --------------

   Loss from operations                             (1,433,720)      (1,187,263)
                                                 --------------   --------------

Interest expense                                         3,821            4,870
Interest expense - stockholders                        800,320          137,670
                                                 --------------   --------------
                                                       804,141          142,540
                                                 --------------   --------------

Net loss                                         $  (2,237,861)   $  (1,329,803)
                                                 ==============   ==============

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

Basic and diluted weighted average
 number of common shares outstanding               103,206,606       60,123,272
                                                 ==============   ==============

   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, 2000 and 1999
<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, 1998                  99,000   $        990         27,777   $        278     60,123,272   $    601,233

  Issuance of stock options                      -              -              -              -              -              -

  Net loss                                       -              -              -              -              -              -
                                      -------------  -------------  -------------  -------------  -------------  -------------

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 debt                            -              -              -              -     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
                                      =============  =============  =============  =============  =============  =============

</TABLE>
<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, 1998            $  6,055,333   $          -    $ (8,334,154)   $ (1,676,320)

  Issuance of stock options                204,902              -               -         204,902

  Net loss                                       -              -      (1,329,803)     (1,329,803)
                                      -------------  -------------   -------------   -------------

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 debt                      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)
                                      =============  =============   =============   =============

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

                                                     F-5
<PAGE>
<TABLE>

                                     PRISM SOFTWARE CORPORATION
                                      Statements of Cash Flows
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                                   ---------------------------
                                                                       2000           1999
                                                                   ------------   ------------
<S>                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                         $(2,237,861)   $(1,329,803)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
    Depreciation                                                        31,494         37,419
    Issuance of stock options                                          157,152        204,902
    Intrinsic value of beneficial conversion feature                   621,997              -
    (Increase) decrease in assets
      Accounts receivable                                                8,839         96,606
      Inventory                                                        (17,816)        (4,637)
      Other assets                                                      (1,599)        (1,417)
    Increase (decrease) in liabilities
      Accounts payable                                                 (28,021)         9,356
      Deferred revenue                                                  22,758        (34,417)
      Accrued expenses                                                 108,319        159,112
                                                                   ------------   ------------

        Net cash used by operating activities                       (1,334,738)      (862,879)
                                                                   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of equipment                                                (20,113)       (30,874)
                                                                   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of notes payable - stockholders             1,107,536        910,000
  Payments on notes                                                     (9,133)        (5,609)
  Exercise of stock options                                                375              -
  Proceeds from issuance of common stock                               273,368              -
                                                                   ------------   ------------

        Net cash provided by financing activities                    1,372,146        904,391
                                                                   ------------   ------------

Net increase in cash                                                    17,295         10,638

Cash, beginning of year                                                 18,129          7,491
                                                                   ------------   ------------

Cash, end of year                                                  $    35,424    $    18,129
                                                                   ============   ============

Cash paid during the year for interest                             $         -    $     2,461
                                                                   ============   ============

Supplemental disclosure of non-cash investing and
financing activities
Conversion of notes payable and accrued interest to common stock   $ 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, 2000


NOTE 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 2000 and 1999 the three largest customers accounted for 34% and 21%,
respectively, of sales. At December 31, 2000 and 1999, the three largest
accounts receivable totaled 82% and 81%, 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,
2000.

                                      F-7
<PAGE>


                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 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 2000 and 1999 advertising
costs totaled $10,678 and $10,954, 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, 2000


NOTE 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.


NOTE 2 - EQUIPMENT
------------------

                       Furniture                                 $    6,085
                       Computers                                    278,531
                                                                 -----------

                                                                    284,616

                       Accumulated depreciation                    (233,578)
                                                                 -----------

                                                                 $   51,038
                                                                 ===========

NOTE 3 - ACCRUED EXPENSES
-------------------------

                      Wages and benefits                         $    76,013
                      Interest - shareholders                        301,532
                      Interest other                                  29,547
                      Sales commissions                               47,140
                      Other                                          102,170
                                                                 ------------

                                                                 $   556,402
                                                                 ============

                                      F-9
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 4 - NOTES PAYABLE
----------------------

All notes are unsecured.

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

<TABLE>
<CAPTION>

      <S>                                                                           <C>
      7% to 10%, past due August 1996                                               $     203,195

      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, due on various dates between January and July 2001              833,000

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

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

                                                                                    $   2,032,730
                                                                                    ==============

      Other                                                                         $      62,358
                                                                                    ==============
</TABLE>

The $833,000 and $19,330 notes above contain a beneficial conversion feature
equal to the face value of the notes, which is reflected in additional paid-in
capital in the accompanying financial statements. During 2000, $621,997 of the
beneficial conversion feature has been amortized and is included in interest
expense. The remaining $230,333 will be amortized during 2001.


NOTE 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), and 27,777 shares have been designated
as $9.00 Series B 8% cumulative convertible preferred stock (Series B).

                                      F-10
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 5 - PREFERRED STOCK (CONTINUED)
------------------------------------

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 99,000 shares
of Series A outstanding at December 31, 2000 are currently convertible at the
election of the holders into 9,900,000 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.

At December 31, 2000, the amount of dividends in arrears on the Series A 10%
cumulative preferred stock was $422,500 ($4.27 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.

Series B is redeemable at the Company's election upon 30 days' notice at a price
per share of $10.00 plus accrued but unpaid dividends thereon. The 27,777 shares
of Series B outstanding at December 31, 2000 are currently convertible at the
election of the holders into 4,999,860 shares of common stock. The conversion
rate is subject to the adjustments set forth in the certificate of designation
for Series B based on the current market price of the Company's common stock.
The holders of Series B are entitled to cast one noncumulative vote per share of
Series B in all matters presented to the shareholders, and the majority of
holders of Series B, 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 B redemption as the likelihood of the Company electing to
repurchase is remote.

At December 31, 2000, the amount of dividends in arrears on the Series B 8%
cumulative preferred stock was $149,996 ($5.40 per share).

                                      F-11
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 6 - COMMON STOCK
---------------------

In May 2000, the Company converted debt totaling $1,152,938 into 70,865,582
shares of common stock at prices of $.01 - $.05 per share.

Between June and October 2000, the Company sold 3,150,000 shares of common stock
and 3,150,000 warrants exercisable at $.12 in a private offering for net
proceeds of $273,368. In addition to offering expenses of $41,632, the Company
issued 290,000 warrants to a broker (see Note 8).

In June 2000, the Company's Board of Directors and stockholders voted to
increase the number of authorized shares of common stock from 200,000,000 to
300,000,000.


NOTE 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 are vested at issuance, exercisable at $2.00 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 an 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. The options were granted at an
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
----------------------

During 2000, the Company's adopted the 2000 Stock Option Plan which 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. Options vest over three years and expire within ten years from the date
of grant or within 90 days after termination of employment.

                                      F-12
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 7 - STOCK OPTIONS (CONTINUED)
----------------------------------

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

In connection with the employment terms of the Company's President and Chief
Executive Officer, options are awarded to maintain an 8% interest in the
Company's fully-diluted common stock. 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 2000 and 1999 were $157,152 and $204,902.
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.

                   Expected life (years)           4 years
                   Risk-free interest rate         6.50%
                   Volatility                      200%

                                                  2000           1999
                                             -------------  -------------
Net loss
  As reported                                $ (2,237,861)  $ (1,329,803)
  Pro forma                                  $ (2,424,891)  $ (1,606,803)

Basic and diluted loss per share
  As reported                                $      (0.02)  $      (0.02)
  Pro forma                                  $      (0.02)  $      (0.03)

                                      F-13
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 7 - STOCK OPTIONS (CONTINUED)
----------------------------------

Stock option activity for the years ended December 31, 2000 and 1999 follows:

<TABLE>
<CAPTION>
                                 WEIGHTED              WEIGHTED                WEIGHTED             WEIGHTED                WEIGHTED
                                 AVERAGE                AVERAGE                 AVERAGE              AVERAGE      OTHER      AVERAGE
                   FINANCING     EXERCISE    1993      EXERCISE      1996      EXERCISE    2000     EXERCISE    MANAGEMENT  EXERCISE
                    OPTIONS       PRICE      PLAN        PRICE       PLAN        PRICE     PLAN       PRICE      OPTIONS      PRICE
                   -----------------------------------------------------------------------------------------------------------------
<S>                    <C>           <C>  <C>            <C>      <C>          <C>      <C>            <C>    <C>                <C>
December 31, 1998     197,093        -     492,600           -     600,000          -           -         -    4,388,179         -
                   -----------------------------------------------------------------------------------------------------------------
Granted                     -        -      80,000        0.03           -          -           -              5,464,051         -
Expired                     -        -     (78,000)      (0.51)   (200,000)     (0.03)          -         -            -         -
Exercised                   -        -           -           -           -          -           -         -            -         -

                   -----------------------------------------------------------------------------------------------------------------
December 31, 1999     197,093        -     494,600           -     400,000          -           -         -    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        -     291,100           -     200,000          -   1,040,000         -   12,171,042         -
                   =================================================================================================================
</TABLE>


The following information applies to options outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                                    WEIGHTED            WEIGHTED                               WEIGHTED
                                                    AVERAGE              AVERAGE                                AVERAGE
                               NUMBER              REMAINING            EXERCISE             NUMBER            EXERCISE
                            OUTSTANDING        CONTRACTURAL LIFE          PRICE            EXERCISABLE           PRICE
                          -----------------   ---------------------  ----------------   ------------------  ----------------
<S>                             <C>                    <C>           <C>                       <C>           <C>
1993 stock option plan             291,100             5             $          0.19              278,600    $         0.20
1996 stock option plan             200,000             1             $          0.03              200,000    $         0.03
2000 stock option plan           1,040,000             2             $          0.05              346,424    $         0.05
Other management options        12,171,042             4             $             -           12,171,042    $         -
Financing options                  197,093             2             $          2.00              197,093    $         2.00

                          -----------------                                             ------------------
                                13,899,235                                                     13,193,159
                          =================                                             ==================
</TABLE>

                                                               F-14
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 8 - WARRANTS
-----------------

The Company issued warrants in private placements as described in Note 6 and in
years prior to 1999. No value has been ascribed to the warrants as (1) the
warrants were issued at exercise prices equal to 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, 2000 the following warrants are outstanding and expire
as follows:

     NUMBER            DATE        EXERCISE      EXPIRATION
     Issued           Issued         Price          Date
-------------------------------------------------------------
         250,000     March 1996       $ 0.50       May 2001
         450,000  November 1996       $ 0.50   January 2001
         510,500    August 1998       $ 0.04       May 2001
         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
-----------------
       4,650,500
=================


NOTE 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.

                                                      2000             1999
                                                 --------------   --------------
Numerator
---------
Net loss                                         $  (2,237,861)   $  (1,329,803)
Preferred dividends                                    (69,500)         (69,500)
                                                 --------------   --------------
Net loss                                         $  (2,307,361)   $  (1,399,303)
                                                 ==============   ==============

Denominator
-----------
Basic and diluted weighted average number of
common shares outstanding during the period        103,206,606       60,123,272
                                                 --------------   --------------

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

                                      F-15
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 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 $4,140,000 at December 31, 2000 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, 2000 and 1999 the Company's
valuation allowance increased approximately $646,000 and $527,000, respectively.

At December 31, 2000, the Company has net operating loss carryforwards for
federal tax purposes of $4,140,000 which, if unused to offset future taxable
income, will expire beginning in 2004 through 2020.


NOTE 11 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Legal Proceedings
-----------------

In April 1999, a former officer of the Company filed a demand for arbitration
against the Company. He contends that the Company breached the terms of a 1995
settlement agreement by failing to make payments under a promissory note for
$64,000 and interfering with his ability to sell his shares of Company stock.
The former officer seeks payment of the $64,000 note and damages due to his
inability to sell his Company stock. The Company believes the charges are
without merit and intends to vigorously defend against the claims and has filed
a counter-demand. The former officer has denied the allegations of the
counter-demand. Management believes that an unfavorable outcome of this matter
would not have a material effect on the Company. The $64,000 is included in
notes payable in the accompanying financial statements.

Leases
------

The office lease expires March 31, 2004 and provides for a basic rent of $7,613
per month. Rent expense was $91,356 and $90,345 in 2000 and 1999, respectively.

Minimum annual lease payments at December 31, 2000 are as follows:

                    2001                       $  94,389
                    2002                          95,400
                    2003                          98,433
                    2004                          24,861
                                               ----------

                                               $ 313,083
                                               ==========


                                      F-16
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


NOTE 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 joint 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-17
<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 issued September 1994 to August 1998 (1) (Exhibit 4.2)

4.5      Form of Warrant issued May to October 2000 (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)

<PAGE>

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

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

10.9     Amendments dated April 15, 1999 to the lease made 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 ("Northstar") in the principal amount of
         $40,000 (1) (Exhibit 10.15)

10.20    Amendment dated October 20, 1997 to Convertible Promissory Note made to
         the order of Northstar in the principal amount of $40,000 (dated July
         29, 1995) (2) (Exhibit 10.18)

<PAGE>

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

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

10.22    Amendment dated October 20, 1997 to Convertible Promissory Note made to
         the order of Peachtree in the principal amount of $60,000 (dated July
         29, 1995) (2) (Exhibit 10.20)

10.23    Form of Convertible Promissory Notes dated March 31, 1999 to July 3,
         2000 in the 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 in the aggregate principal amount of $40,206 (5)

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

10.26    Form of Convertible Promissory Notes dated November 14, 2000 to
         December 28, 2000 in the aggregate principal amount of $215,000 (5)

10.27    Original Equipment Manufacturer ("OEM") Agreement dated May 13, 1997 by
         and between the Company and Artifex Software, Inc., as amended to date
         (2) (Exhibit 10.29)

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

(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)      Filed herewith.




<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 17, 2001            By:  /s/ E. Ted Daniels
                                      -------------------
                                      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               Chief Executive Officer,                    April 17, 2001
------------------               Chief Financial Officer and Director
E. Ted Daniels                   (Principal Executive Officer and
                                 Principal Financial and Principal
                                 Accounting Officer)

/s/ Allard C. Villere            Director                                    April 17, 2001
---------------------
Allard C. Villere
</TABLE>