<PAGE>


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

                                   FORM 10-KSB
(MARK ONE)
[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934
         For the fiscal year ended December 31, 1999
                                   -----------------

[ ]      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    No  X
                                                                   ---   ---

     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, 1999 were
$650,252.

     The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 15, 2000 was approximately $5,280,000.

     The number of shares outstanding of the registrant's only class of Common
Stock, par value $.01 per share, was 60,123,272 on March 15, 2000.


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

      Prism Software Corporation (the "Company"), was organized under the laws
of Delaware in September 1970, under the name Foothill General Corporation and
subsequently changed its name to Century General Corporation. Between 1970 and
1983, the Company, either directly or indirectly through subsidiaries or other
affiliates, engaged in various business operations in various industries,
undergoing several corporate restructurings during this period of time. The
Company, having divested itself of all of its assets, merged out, sold or
otherwise disposed of all subsidiaries and other interests in other affiliates
and other entities, was dormant between June 1983 and September 1992. On
September 30, 1992, the Company acquired Wilkes Publishing Corporation, a
California corporation ("Wilkes"). In connection with the acquisition of Wilkes,
both the Company and Wilkes, a wholly-owned subsidiary of the Company upon
consummation of the acquisition, changed their respective names to Prism
Software Corporation. On January 25, 1995, Wilkes merged with and into the
Company.

     The Company develops and markets print stream translation and document
management solutions that enable documents generated on PCs or mainframes to be
electronically distributed or printed to other locations or printers. Prism's
Print Manager products lower the printing cost per page by printing documents at
higher speeds and higher volumes on Xerox production printers. Prism's PRINTEXEC
products help desktop users accommodate the growth in information processing by
allowing legacy (host) data to be printed on LAN/WAN-attached printers or
formatted for distribution to the Internet. The Company's growing customer base
covers participants in a broad range of industries including Monumental Life
Insurance, City University of New York, HarperCollins Publishers and the Florida
Department of Banking and Finance, among other corporate and government
customers.

     The Company distributes its products throughout North America, South
America and Europe through direct sales and resellers. Marketing, sales,
training and technical support are provided from its Lake Forest, California
corporate headquarters.

     Management of the Company believes that one of the Company's key strengths
is its ability to respond rapidly to evolving niche markets with innovative
solutions.

     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 PRISM SOLUTION

     The computer industry of today is primarily concerned with connectivity -
the ability of companies to connect their existing and/or new computer equipment
to send and receive information. This includes the ability to print from
anywhere-to-anywhere and to utilize existing assets. This connectivity
requirement is the basis for the Company's product base and new development.

     As a result, the Company believes that the continuing evolution from
centralized, mainframe-based corporate information systems to distributed data
networks and desktop computing presents a considerable opportunity for the
Company to sell its protocol conversion and document management solutions for
high volume printing and associated connectivity needs, as more mission-critical
applications are transformed from the mainframe computer to a PC-based
environment.

                                                                               2
<PAGE>

     Currently, the vast majority of PCs and PC-based networks rely on
conventional desktop laser printers to produce "hard copy" documentation. These
laser printers generally produce documents at a relatively slow rate, ranging
from only 6 to 30 pages per minute ("PPM"). By utilizing the Company's products,
individuals using PCs can access high production laser printers (50 to 250 PPM)
and greatly reduce the length of time in which it takes to physically output a
document. In addition, the Company's products allow organizations to maximize
the use of high production laser printers already installed within their
communications infrastructure, which previously may have been underutilized due
to the limitations on the source of data and communications protocol which such
printers would accept.

     To keep in line with connectivity solutions and therefore broaden its
market opportunities, the Company also distributes a line of related software
products that essentially work in reverse of the Company's other products.
Marketed under the name PRINTEXEC, these products provide a complete
enterprise-wide printing solution. The page description language conversion
employed allows users flexibility to print to any printer, whether desktop or
high-speed laser, from an organization's PC network, mainframe or minicomputer,
representing thousands of currently-installed systems.

BUSINESS STRATEGY

     The Company's strategy is to become a leading provider of protocol
conversion and document management solutions to connect desktop personal
computers with high-volume, high-speed laser printers. The Company intends to
implement this strategy by pursuing the following initiatives:

      o     LEVERAGE SALES THROUGH STRATEGIC ALLIANCES. The Company believes
            there are a broad range of business applications for its protocol
            conversion and document management solutions. In order to more
            rapidly capitalize on the demand for such software, the Company is
            establishing relationships with printer manufacturers, other
            software providers and Original Equipment Manufacturers.
      o     EXPAND THE COMPANY'S MARKETING AND SALES EFFORTS. To date, the
            Company has relied primarily on sales to an installed base of users
            of Xerox high-volume laser printers. The Company intends to expand
            its marketing and sales activities by marketing directly to other
            high production laser printer OEMs who in turn would offer the
            Company's products to printer end-users as a "value-added" bundle
            with their hardware solution. In addition, the Company intends to
            expand the distribution channels for its products by establishing
            additional distribution arrangements with other resellers, systems
            integrators, distributors and third party suppliers. The Company
            also intends to increase its market presence by expanding
            telemarketing and direct mail campaigns, attending prominent trade
            shows in the printing industry, increasing its advertising and
            strengthening its media and public relations efforts.
      o     LEVERAGE EXISTING CUSTOMER RELATIONSHIPS. The Company considers its
            relationships with its existing customers to be an important
            corporate asset. The Company has about 150 customers worldwide
            accounting for over 250 software installations. The Company
            routinely introduces upgrades to enhance and extend its product
            line. The Company believes that its direct and frequent contacts
            with its customers provides the Company with information that
            enhances its ability to continue to develop technologically advanced
            products and to sell new products to existing customers.
      o     MAINTAIN COMMITMENT TO RESEARCH AND DEVELOPMENT ACTIVITIES. The
            Company believes that to become a leader in providing protocol
            conversion and document management solutions that connect desktop
            personal computers with high-volume, high-speed laser printers, it
            must continue to design and develop new and enhanced engineering
            software products that incorporate advanced technologies.
            Accordingly, the Company believes that its commitment to continuous
            research and development efforts provides a competitive advantage.
            See "Product Development."

                                                                               3
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CURRENT STATUS OF THE INDUSTRY

     Historically, office output has not been perceived as a major cost of doing
business relative to other forms of output. Today, the cost of office document
output is being accorded the serious consideration that is its due. A 1999
Gartner Group study reveals that office document output accounts from 4% to 12%
of a company's revenues. The average corporation in the United States spends
2.2% of its revenues on information technology infrastructure, maintenance and
personnel while spending nearly three times as much, or 6.5% of its revenues, on
office documentation. All of this translates to a large amount of paper and
employee time spent on creating and handling documents.

     The Gartner study further stated that hospitals and other care facilities
create nearly 9 inches of paper per patient per day, and that 30% to 60% of
office workers spend time dealing with documents.

     In a 1999 study, Deloitte Consulting stated that because the management of
hard copy and electronic output on a distributed basis is becoming so very
challenging for most enterprises, document management is the fastest growing
productivity enabling technology.

     The Company's strategy for the next three years is to provide an
ever-increasing array of solutions to lower document output costs while
streamlining the customer operations without impacting the customer environment.

     The Company has reached a major milestone with the development of
PRINTCONSOLE PRO, which is a product that can literally accept a print or data
stream from any input source and then translate it and output it to virtually
any destination source. PrintConsole PRO is marketed with one or many
translation and conversion modules embedded in the product which enable it to
function quickly and economically in client environments, even in changing
environments. For example, if a client replaces a Xerox production printer with
an IBM unit after PrintConsole Pro has initially been set up to deal with the
Xerox Metacode data stream language, the software can be reconfigured to deal
with the IBM AFP language.

     The Company also plans to create conversion language to the Internet
protocols HTML and XML in the near future. This step will truly enable clients
to turn paper into e-documents.

SALES AND MARKETING

     The Company has embarked upon a four-pronged effort to reach its sales
goals:

      o     Direct in-house sales by a telemarketing team to "end users."
      o     Direct marketing of a new Prism utility product to selected document
            managers via an e-mail campaign. This product (PrintConsole, a base
            version of PrintConsole Pro) provides for archiving and reprinting
            capabilities.
      o     Alliances/partnering sales through an increasing number of channel
            partners.
      o     Generating one-time file conversions and print jobs for our internal
            Technical Support Department.

     Toward this end, the Company has recently completed a significant upgrade
to its prospect database. The second enhancement to the sales process has been
the establishment of relationships with leasing companies willing to finance
packages that are heavy with "soft costs" (software and installation services,
as well as consulting and service contracts, as opposed to hardware-only
configurations). This financing alternative may help to close sales when budget
limitations may stall a sale.

                                                                               4
<PAGE>

     The Sales Department's goals will include the training and retention of
three full time internal telemarketing personnel, as well as two outside sales
personnel to work the local territory on a face-to-face basis. This latter
effort represents a departure from the Company's historical method of doing
business, but will take full advantage of the Company's locally based technical
support team, which can be ready to respond to technical issues on the spot. The
outside sales personnel will also interface with local channel marketing
partners in joint efforts to call on and sell to local prospects.

WARRANTIES

     The Company typically provides a ninety-day material and workmanship
warranty on the diskettes or other media on which the Company's software
products are recorded, in addition to the pass-through warranties provided by
component suppliers and other vendors, which permits customers to return any
product for repair or replacement if the product does not perform as warranted.
Historically, warranty expenses have not had a material impact on the Company's
operations or its financial condition. However, there can be no assurance that
this will continue to be the case or that disputes over components or other
materials or workmanship will not arise in the future.


CURRENT PRODUCTS

     The Company's product portfolio has been greatly expanded and refreshed
over the last few months. Set forth below is a list of the current products of
the Company, followed by a brief description thereof.

     PRINTCONSOLE PRODUCT FAMILY

     The PrintConsole family of products simplify the usage of all of the
Company's other products, and enables the users to cost-effectively manage their
print environments. These products offer a centralized point of control and a
simple point-and-click interface to invoke other Prism products without exposing
the user to complex details. They provide the flexibility to install just the
components that meet the user's current requirements, and then incrementally add
other modules as needed in the future.

     The PRINTCONSOLE base 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. It allows users to
generate and store streams for later printing in the event of a broken printer,
or heavy print volume.

     PRINTCONSOLE PRO comes with all the base system functions of the Company's
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, and function in an effective manner.
The optional modules available under PrintConsole enable translation to and from
Xerox Metacode, translation to and from PostScript, translation to PCL,
translation to PDF, translation to AFP, and translation to TIFF formats.

                                                                               5
<PAGE>

     PRINT MANAGER PRODUCT FAMILY

     The Print Manager family of products convert HP PCL and/or Adobe
PostScript, the most common page description languages, to 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. By
using the Company's Print Manager products in conjunction with a high-speed
laser printer, high volume documentation production projects (5,000 pages or
more) which might otherwise take most of an entire day to print, can often be
completed in a matter of several hours.

     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
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 be in magnetic tape, online, mainframe or
other format, such as BARR spooler. This flexibility allows Print Manager/nt-PCL
to be integrated into a wide variety of electronic publishing environments.

     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. 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. As with the Company's
Print Manager/nt-PCL product, Print Manager/nt-PostScript operates within a
Windows NT and Windows 95 PC platform and acts as a print server on an office's
LAN.

     PRINT MANAGER/NT-PRO is a print stream management solution that moves PC-
or LAN-generated documents seamlessly to Xerox high-speed production printing.
Print Manager/nt-PRO supports both HP PCL and PostScript Level 2 translation
capabilities with automatic emulation sensing. This dual print language
capability allows for the broadest range of print stream conversion for
mainframe or Windows based documents within an enterprise, taking full advantage
of Windows NT's features and benefits. In addition to its primary page
translation function, Print Manager/nt-PRO allows for adding user-defined
configurations for automated processing and printing.

     FREEFORM, which is a companion product to the Print Manager/nt series, is
Prism Software's Xerox forms generator. 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 (-PCL or -PostScript) 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 PRODUCT FAMILY

     The PRINTEXEC family of products enables users to transform mainframe 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.

                                                                               6
<PAGE>

     PRINTEXEC PLUS FOR PCL accepts Xerox print streams and resources and
converts them for printing on desktop and LAN PCL printers.

     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.

     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).

     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
connectivity solutions which make it easy for the customer to manage their print
stream outputs.

     FTPEXEC provides an automated link from the LAN environment to the
mainframe and 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.

     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.

                                                                               7
<PAGE>

     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. These products include:

      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.


     NEW PRODUCT DEVELOPMENT

     The Company offers a broad range of products which are designed to keep
pace with technological developments in the marketplace and address the
increasingly sophisticated needs of its customers. The Company continually
focuses on upgrading or expanding its existing product line offerings and also
on developing and introducing new products. The Company releases enhanced
versions of its software products on an ongoing basis. The Company works closely
with its existing and prospective customers to determine their requirements and
to design enhancements and new products to meet their needs. The Company
believes that a substantial number of its product enhancements in recent years
have been developed as a result of the ideas and suggestions of its customers.

     Standard procedures have been implemented within the Company for version
control, problem tracking, testing and release. Industry standard test suites
for both HP PCL and Adobe PostScript were purchased from Genoa Technologies to
verify compatibility with the HP and Adobe page description languages. The
Company believes that the establishment of these and other quality assurance
procedures will result in improved product performance and high-quality
technical support services.

     Due to limited capital resources the Company must continue to pursue
sources of capital in order to fund operations, including its product research
and development efforts. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate its research and development programs
or to obtain funds through arrangements with partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of its
proprietary technology and other important Company assets and could also
adversely affect the Company's ability to continue its research and development
efforts, which the Company believes contributes significantly to its competitive
advantage. If any of such circumstances were to arise, the Company's product
research and development efforts could be significantly deferred or curtailed,
or even eliminated altogether.

                                                                               8
<PAGE>

     Set forth below is a list of the products currently under development
within the Company, followed by a brief description thereof:

     o      CLUSTER PRINTING. Large organizations often have significant excess
            printing capacity due to acquiring multiple printers (of different
            kinds) in order to print their business critical documents. The
            Company plans to develop a Cluster Printing product that will
            increase the utilization of a company's printing resources by
            effectively managing a group of physical printers as if it were one
            virtual printer. Large jobs will be split into smaller pieces and
            printed simultaneously on multiple available printers. In case of a
            printer failure, just that portion of the output is rerouted to
            another available printer and the print job is recovered with a
            minimum amount of ink and paper wastage.
     o      CONNECTIVITY PRODUCTS. As an aide to developing Channel marketing
            relationships, the company is researching the "Plug-and-Play" model
            for software distribution and installation. To this end, the Company
            is continuing to expand its range of connectivity options, in order
            to make it easier for the user to install, configure, use, and
            maintain the Company's products.


TECHNICAL SUPPORT AND CUSTOMER SERVICE

     One of the critical aspects of customer satisfaction is the ability to
provide a high-level of service and support during all phases of customer
interaction (pre-sales, installation and post-installation). The Company's
Technical Support Department ("TSD") is staffed with highly-qualified
technicians who work with our customers in all of these phases to provide
front-line support as well as on-site installation and follow-up.

     Prior to a sale, the Company's TSD tests selected print files for the
prospective customer, assists in designing a detailed and cost-effective print
stream management solution and helps set proper product performance
expectations.

     Once the customer commits to purchasing the product, the TSD technician
works closely with the customer's technical staff to review the plans for
implementation and then performs the actual on-site installation. After
successful installation, TSD management follows up with a post-installation
survey to the customer to get feedback on product performance and expectations,
review the installation process and obtain any customer comments and
recommendations.

     Qualified technicians must be well-versed in a variety of areas including
personal computer hardware and software, networking, printer technologies and
customer service techniques. As of March 15, 2000, the Technical Support
Department had 5 full-time employees providing technical and customer support
services and training.

MANUFACTURING AND SHIPPING

     The Company's primary software products consist of diskette media or CD-ROM
and manuals. The Company's hardware products are supplied by third party
vendors. Master diskettes and manuals are prepared by the Company and mass
reproduced internally. The final integration and packaging of its software and
hardware products and manuals is performed at the Company's principal business
office in Lake Forest, California.

                                                                               9
<PAGE>

     The Company ships its products using standard packaging materials. Shipping
is normally accomplished through the use of an overnight carrier. The Company
also uses its Website as an alternate form of distribution.

STRATEGIC RELATIONSHIPS

     Relationships have been or are in the process of being developed in four
general areas: software and hardware vendors that have products that the Company
resells or integrates into existing products; hardware resellers that use the
Company's products and services in their packaged sale; consulting organizations
that present the Company's products and services as part of their solution; and
value-added resellers ("VARs"), resellers and integrators that provide customer
leads to the Company for a referral fee. Some examples of the Company's efforts
in developing strategic relationships in these areas are set forth below:

      o     Some of the companies that manufacture products that are sold and
            integrated by the Company include Xerox, BARR Systems, Spur
            Products, Dell Computers, IBM Corporation, Dataware, AFP, XLPrint,
            JetLetter and Artifex.
      o     Verilease, Officeland, LSI, IKON and Xerox have used the Company's
            products and services as a part of their complete sale to their
            customers.
      o     Harris Group, IBM Global, KPMG and Andersen Consulting have worked
            with the Company on a number of projects.
      o     Relationships with several resellers, VARs and integrators have been
            developed to support leads for the Company.

COMPETITION

     The printer protocol conversion and document management industry is
intensely and increasingly competitive and is characterized by rapid
technological advances and changes in industry standards. A number of companies
offer software or hardware products that compete with and target the same
markets as the Company, including Solimar Systems, Inc., Elixir Technologies
Corporation and ENTIRE, Inc. Some or all of these competitors and other
potential competitors have larger technical staffs, more established and larger
marketing and sales organizations, greater name recognition and significantly
greater financial resources than the Company. There can be no assurance that the
Company will be able to successfully compete against either current or potential
competitors.

     The principal competitive factors in this industry include product
functionality, product reliability, price/performance characteristics, ease of
product use, availability of products on popular computer platforms, end user
support and documentation, ability to keep pace with technological advances,
corporate reputation and financial stability. The Company believes it competes
favorably in all of these areas. However, the Company expects substantial
additional competition from existing competitors and from a number of other
companies which may enter the Company's existing or future markets. There can be
no assurance that any such competitor will not develop products that are
superior to the Company's products or that achieve greater market acceptance.
This additional competition could adversely affect the Company's sales and
profitability through price reductions, reduced gross margins and loss of market
share. There can be no assurance that the Company will be able to continue to
compete successfully against current and future competitors.

                                                                              10
<PAGE>


CUSTOMERS

     Prism has about 150 customers worldwide. The following is a representative
list of the Company's customers by industry sectors.

     SERVICE BUREAUS                         GOVERNMENT

     COPI                                    Beaver County, Pennsylvania
     Gateway Data Solutions                  City of Calgary, Canada
     Le Groupe Repro                         Florida Dept. of Banking & Finance
     EDS                                     State of Mississippi
     Policy Management Systems               City of Columbus, Ohio
     Periodical Publishers
     Spar Marketing Force
     IBM Global Services

     INSURANCE                               EDUCATIONAL INSTITUTIONS

     Workmen's Auto Insurance                City University of New York
     Berkshire Life Insurance                University of Iowa
     Monumental Life Insurance               Loyola Marymount University
     Maryland Automobile Insurance Fund

     FINANCIAL/RESALE/LEASING                MANUFACTURING/RETAIL

     Merrill/May Corporation                 Brown & Williamson
     Republic National Bank                  HarperCollins Publishers
     Tokio Marine                            Johnson Controls
     Bank One                                The Children's Place
     Commercial Credit                       Toyota Motors
     Union Planters Bank                     Nabisco
     Sun Life of Canada                      Safilo USA


     HEALTH CARE

     Mercy Information Systems
     Eckerd Corporation


                                                                              11
<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, the Company believes that, because of the rapid pace of
technological change in the protocol conversion and document output management
industry, the legal intellectual property protection for its products is a less
significant factor in the Company's 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. To license its products, the Company primarily relies on signed
agreements. 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 or that such agreements will be enforceable. 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. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.

     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. Any such third party claims,
whether or not they are meritorious, could result in costly litigation or the
requirement of royalty or license arrangements, which may not be available on
terms acceptable to the Company, or at all. Although the Company has not been
subject to any infringement claims, if the Company were found to have infringed
upon the proprietary rights of third parties, it could be required to pay
damages, cease sales of the infringing products and redesign or discontinue such
products, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.

EMPLOYEES

     As of March 15, 2000, the Company had 17 employees, including 3 in product
development, 5 in customer service and training, 5 in sales and marketing and 4
in finance and administration. 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.

                                                                              12
<PAGE>


ITEM 2.  FACILITIES

     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

     In or about April 1999, Arthur Wilkes, a co-founder and former President
and Chief Executive Officer of the Company, filed a demand for arbitration
against the Company with 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 arbitrator has been selected and a hearing has been scheduled with the
American Arbitration Association for June 2000. 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.

     Other than with respect to the foregoing matter, the Company does not
believe that it is or has been involved in any litigation or proceeding that
will, individually or in the aggregate, have a material adverse effect on its
financial condition, results of operations or cash flow.

                                                                              13
<PAGE>


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

     On April 15, 1999, the Company mailed to its stockholders a notice of
action to increase the number of authorized shares of Common Stock of the
Company from 100,000,000 to 200,000,000, pursuant to the written consent of such
stockholders. The number of shares for which consent for such action was given
was 44,406,621, which exceeded the vote required to approve such action. The
number of shares for which consent against such action was voted or withheld was
486,046. The number of shares which abstained from such consent solicitation was
11,571,351. The number of shares which represented broker non-votes was
3,659,254.


ITEM 5.  MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER 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" and is not listed for trading on any exchange. The OTCBB, which is
separate and distinct from the Nasdaq Stock Market, 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 calendar quarter ending December 31, 1997 through December 31,
1999, and for the current quarter through March 15, 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.
See "Risk Factors-Limited Trading Market; Potential Volatility of Stock Price;
Risk of Securities Class Action Litigation."

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

Quarter ended December 31, 1997                          0.04             0.04
Quarter ended March 31, 1998                                No known trades
Quarter ended June 30, 1998                              0.12             0.03
Quarter ended September 30, 1998                         0.10             0.03
Quarter ended December 31, 1998                          0.20             0.01
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 through March 15, 2000                           0.40             0.07

     As of March 15, 2000, there were approximately 852 stockholders of record
of the Company's Common Stock. Within the holders of record of the Company's
Common Stock are depositories such as Cede & Co. that hold shares of stock for
brokerage firms which, in turn, hold shares of stock for beneficial owners.

     The Company currently anticipates that it will retain all of its earnings
for use in the development of its business. The Company has never paid cash
dividends on its Common Stock and does not currently intend to pay cash
dividends in the foreseeable future. See "Risk Factors-Lack of Cash Dividends;
Dividend Policy."

                                                                              14
<PAGE>

     The following is a summary of transactions by the Company during the fiscal
year ended December 31, 1999 involving issuances and sales of the Company's
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act").

     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 (as part of
the "1998/1999 Notes"). The notes bear interest at the rate of 10% per annum
(with payments of accrued interest due every three months) and matured at
various dates from January to March 12, 2000. All or any portion of unpaid
principal and accrued interest is convertible into shares of Common Stock at the
rate of $0.05 per share at any time at the option of the holder. The von Bibra
family is not an affiliate (other than as a principal stockholder) of the
Company. No commissions were paid in connection with these transactions.

     From March to December 1999, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $802,000 (as part of the "1999/2000
Notes") 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 December 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 ($5,000), Jean Tarr ($10,000), Third Century ($10,000 in the
aggregate), Carl von Bibra ($79,000 in the aggregate) and Conrad von Bibra
($693,000 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 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. 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, nor any of its directors, officers or
affiliates, is an affiliate (other than as a principal stockholder) of the
Company. Neither James Martin nor the von Bibra family is an affiliate (other
than as a principal stockholder) of the Company. No commissions were paid in
connection with these transactions.

     The issuance of securities of the Company in each of the above transactions
was deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) thereof or Regulation D promulgated thereunder, as a transaction by
an issuer not involving a public offering.

                                                                              15
<PAGE>


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     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. See "Forward-Looking Statements;
Cautionary Statement." The Company's actual results may differ materially from
the results discussed in the forward-looking statements as a result of certain
factors including, but not limited to, those discussed in "Risk Factors" and
elsewhere in this Annual Report on Form 10-KSB.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998

REVENUES

     Revenue increased approximately $48,000 (7.9%) from approximately $602,000
for the fiscal year ended December 31, 1998 ("Fiscal 1998") to approximately
$650,000 for the fiscal year ended December 31, 1999 ("Fiscal 1999"). This was
due primarily to the following factors:

      o     Revenue recognized from annual service contracts increased
            approximately $30,000, from approximately $214,000 for Fiscal 1998
            to approximately $244,000 for Fiscal 1999.
      o     Sales of the Company's PRINTEXEC products increased approximately
            $33,000, from approximately $18,000 for Fiscal 1998 to approximately
            $51,000 for Fiscal 1999.
      o     Certain new utility software products developed in Fiscal 1999
            generated approximately $16,000 in additional revenue.
      o     The increases described above were partially offset by a decrease in
            commission revenue of approximately $18,000, from approximately
            $18,000 for Fiscal 1998 to under $1,000 for Fiscal 1999.

COST OF REVENUES

     The cost of revenues increased approximately $7,000, from approximately
$36,000 for Fiscal 1998 to approximately $43,000 for Fiscal 1999. This was due
primarily to a comparable increase in sales of hardware. Hardware revenue
increased approximately $10,000 (approximately 19.4%) from Fiscal 1998 to Fiscal
1999, while the cost of hardware sales increased approximately $8,000
(approximately 25.8%) from Fiscal 1998 to Fiscal 1999.


                                                                              16
<PAGE>

OPERATING EXPENSES

     Selling, general and administrative expenses increased approximately
$338,000 (approximately 25.6%) from approximately $1,323,000 for Fiscal 1998 to
approximately $1,661,000 for Fiscal 1999. This was due primarily to the
following:

      o     Increased payroll expenses, primarily for departmental managers and
            administrative staff.
      o     An increase in professional service expenses, primarily for various
            legal matters, accounting services, employment recruiting and
            training needs.
      o     Higher expenses associated with the granting of options to the
            Company's President and Chief Executive Officer. See "Executive
            Compensation."

     Research and development expenses increased approximately $75,000, from
approximately $59,000 for Fiscal 1998 to approximately $134,000 for Fiscal 1999.
As a percentage of revenue, research and development expense increased from
approximately 9.8% to 20.6%. This was due primarily to the hiring of additional
engineering personnel.

BENEFIT FROM RELIEF OF INDEBTEDNESS

     The benefit from the relief of indebtedness was approximately $184,000 for
Fiscal 1998. This was due primarily to settlements on certain accounts payable.

INTEREST EXPENSE

     Interest expense increased approximately $9,000 (approximately 6.4%) from
approximately $134,000 for Fiscal 1998 to approximately $143,000 for Fiscal
1999. The Company's outstanding indebtedness did increase during Fiscal 1999,
but the effect on interest expense for the year was partially offset by two
factors: 1) the fact that approximately 61% of the new indebtedness was incurred
in the last half of the year and 2) lower interest rates being incurred on the
new indebtedness.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 1999, the Company had a negative working capital of
approximately $2,836,000 and an accumulated deficit of approximately $9,664,000.
As of that date, the Company had approximately $18,000 in cash, approximately
$46,000 in net accounts receivable and approximately $1,718,000 in convertible
notes payable. While the Company intends to repay some or all of the amounts of
such indebtedness out of future cash flow from operations, management's internal
cash projections estimate that such borrowings may remain outstanding for the
foreseeable future.

     From Fiscal 1998 to Fiscal 1999, the Company's net cash used in operating
activities increased approximately $26,000 from approximately $837,000 to
approximately $863,000, net cash used in investing activities increased
approximately $22,000 from approximately $9,000 to approximately $31,000 and net
cash provided by financing activities increased approximately $59,000 from
approximately $845,000 to approximately $904,000. The increase in net cash used
in operating activities was primarily due to the increase in overall operating
expenses (see "Operating Expenses"), which was partially offset by an increase
in collections on sales. The increase in net cash used in investing activities
was primarily due to the purchase of upgraded computer equipment. The increase
in net cash provided by financing activities was primarily due to an increase in
net proceeds from the issuance of debt (primarily convertible promissory notes)
of approximately $351,000, offset by a decrease in net proceeds from the
issuance of common stock of approximately $300,000.

                                                                              17
<PAGE>

     The Company believes that current and future available capital resources,
cash flow from operations and other existing sources of liquidity will be
adequate to fund its operations for the remainder of the current fiscal year.
However, there can be no assurance that sufficient funds will be available or
that future events will not cause the Company to seek additional capital sooner,
including, but not limited to, the failure by the Company to timely collect
outstanding accounts receivable. To the extent the Company is in need of any
additional financing, there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. The inability
to obtain such financing could have a material adverse effect on the Company's
business, financial condition and results of operations. If additional funds are
raised by issuing equity or convertible debt securities, options or warrants,
further dilution to the existing stockholders of the Company may result.

     If adequate funds are not available, the Company may also be required to
delay, scale back or eliminate its product development efforts or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of its
proprietary technology and other important Company assets and could also
adversely affect the Company's ability to continue its product development
efforts, which the Company believes contributes significantly to its competitive
advantage. If any of such circumstances were to arise, the Company's business,
financial condition and results of operations could be materially and adversely
affected. See "Risk Factors-Future Capital Requirements; Uncertainty of
Additional Funding."

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 of Financial
Condition and Results of Operations," and especially those contained under
"Liquidity and Capital Resources" are "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,
risks associated with managing the Company's growth, as well as those factors
discussed in "Risk Factors" described below in this Item 6 of this Annual Report
on Form 10-KSB. 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.
Prospective purchasers of securities of the Company should also consult the risk
factors listed from time to time in the Company's periodic Reports on Forms
10-QSB, 8-K and 10-KSB and its Annual Reports to Stockholders.

     The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact. However, no assurance can
be given that such risks and uncertainties will not affect the Company's future
results of operations or its financial position.

                                                                              18
<PAGE>


RISK FACTORS

     The Company is subject to the following risk factors, among others:

HISTORY OF LOSSES, ACCUMULATED DEFICIT AND NEGATIVE NET WORTH

     The Company has incurred net losses in each year since inception. The net
losses for Fiscal 1998 and Fiscal 1999 were approximately $1,330,000 and
$765,000, respectively. As of December 31, 1999, the Company had an accumulated
deficit of approximately $9,664,000, a stockholders' deficit of approximately
$2,801,000 and negative working capital of approximately $2,836,000. The Company
also expects to report a net loss for the three months ending March 31, 2000.
There can be no assurance that the Company's operations after March 31, 2000
will be successful or result in profits to the Company. Furthermore, profitable
operations, of which there can be no assurance, are dependent upon market
acceptance of the Company's products and services.

RISKS ASSOCIATED WITH THE COMPANY'S FINANCIAL CONDITION

     The President, Chief Executive Officer, Chairman of the Board and interim
Chief Financial Officer of the Company, E. Ted Daniels, joined the Company in
1994. Most of the other current members of management joined the Company within
the past two years. Management of the Company has developed plans to stabilize
the Company's financial condition and operations. These plans include, among
other things, a restructuring of certain debt, a reduction of operating and
overhead costs, the expansion of operations through potential strategic
relationships, an upgrade of product development, customer service, sales and
marketing efforts and improvement of the Company's reporting methods. Current
management of the Company believes that the implementation of these plans is
well underway, but that additional time is required for such plans to produce
favorable results and long-term effectiveness and for the new products and
services of the Company to begin to generate significant revenue. There can be
no assurance that such plans will ever be fully implemented or, if implemented,
that any improvement in the financial condition or operations of the Company
will ever occur. Also see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."

     In addition, the independent auditors who have audited the financial
statements of the Company as of December 31, 1999 included in this Form 10-KSB
have expressed in their report appearing herein an explanatory paragraph
referring to substantial doubt about the Company's ability to continue as a
going concern.

FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING

     The Company's future capital requirements will depend upon many factors,
including the development of new products and services, possible future
strategic acquisitions, the progress of the Company's research and development
efforts, the expansion of the Company's sales and marketing efforts and the
status of competitive products. The Company must continue to pursue and obtain
present and future sources of capital in order to fund its operations. However,
there can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. The inability to obtain such financing
could have a material adverse effect on the Company's business, financial
condition and results of operations. If additional funds are raised by issuing
equity securities, further dilution to the existing stockholders may result. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."

                                                                              19
<PAGE>


RISKS ASSOCIATED WITH GROWTH STRATEGY

     The Company's strategy envisions a period of growth that may put a strain
on its administrative and operational resources. While the Company believes that
it has established a significant infrastructure to support growth, its ability
to effectively manage growth will require it to continue to expand the
capabilities of its operational and management systems and to attract, train,
manage and retain qualified engineers, technicians, salespeople and other
personnel. There can be no assurance that the Company will be able to do so. If
the Company is unable to successfully manage its growth, the Company's business,
operating results and financial condition could be adversely affected.

DEPENDENCE ON SALES OF HIGH-SPEED PRODUCTION PRINTERS

     A significant portion of the Company's revenues to date have been derived,
and the Company believes that a significant portion of its future revenues will
be continue to be derived, from sales of its products and services for use with
high-speed production laser printers, primarily such printers manufactured by
Xerox Corporation ("Xerox"). The Company's success is therefore dependent, to a
large degree, on the continuing use of existing Xerox high-speed production
printers and on the success of Xerox and various third parties in selling new
such printers. To offset this dependence, the Company is pursuing the
development of new products, along with additional distribution channels and
strategic relationships. There can be no assurance, however, that the Company
will be able to do so.

REVENUE CONCENTRATION

     Sales of the Company's Print Manager/nt-PCL product constituted
approximately 34% and 24% of the Company's total revenues for Fiscal 1998 and
Fiscal 1999, respectively (see "Description of Business-Current Products"). In
addition, revenue derived from annual support contracts constituted
approximately 36% and 38% of the Company's total revenues for Fiscal 1998 and
Fiscal 1999, respectively. A significant reduction in either source of revenue
resulting from changes in the industry, including the entry of new competitors
into the market, from the introduction of new or improved technology or an
unanticipated shift in the needs of the Company's customers, or for other
reasons, could have a material adverse effect on the Company's business,
operating results and financial condition.

DEFAULTS UNDER CERTAIN OBLIGATIONS OF THE COMPANY

     The Company is in default under certain debt obligations and related
agreements, such as its 1995 Convertible Promissory Notes with Northstar Capital
Partners, LP ("Northstar") and Peachtree Capital Partners, LP ("Peachtree").
Peachtree subsequently merged into Capital Investment Partners. See "Certain
Relationships and Related Transactions-Certain Notes and Note Conversions" and
"Security Ownership of Certain Beneficial Owners and Management."

     Specifically, the Company is in default under certain provisions of its
1995 Convertible Promissory Notes which required the Company to (i) file, on or
prior to October 29, 1995, a Form 10-SB or other applicable form with the
Securities and Exchange Commission (the "Commission") to voluntarily become a
Section 12(g) reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) prepare and file, on or before December 31,
1995, a registration statement under the Securities Act covering shares held by
Northstar and Peachtree, (iii) pay to Northstar and Peachtree on or prior to
December 1, 1995, all principal and accrued interest then due to them under
their respective 1995 Convertible Promissory Notes, (iv) abstain from issuing
any shares of Common Stock, or securities convertible into shares of Common
Stock, at a price per share of Common Stock less than $0.25.

                                                                              20
<PAGE>

     In October 1997, Northstar and Peachtree agreed to amend their respective
1995 Convertible Promissory Notes to (i) reduce the conversion price from $0.25
to $0.10 per share of Common Stock, (ii) extend to December 1, 1999, the date
for preparing and filing a registration statement under the Securities Act
covering shares held by Northstar and Peachtree and (iii) extend the maturity of
all principal and accrued interest to December 31, 1999. Notwithstanding such
amendments, the Company is still in default under certain other provisions of
such notes described above. As provided by the terms of these notes, the Company
is in the process of converting the defaulted payments (aggregate principal and
interest of approximately $142,000) into approximately 1,421,000 shares of
Common Stock

     The Company is also in default under other promissory notes owed to the
following: George E. Williams, Personal Computer Products, Inc., James or Judith
Bone, Shirley McGarvey, James Bone and Allard Villere. The aggregate principal
balance of these notes is approximately $178,000. None of George E. Williams,
Personal Computer Products, James Bone, Judith Bone or Shirley McGarvey is an
affiliate or principal stockholder of the Company. Allard Villere is the
Secretary and a Director of the Company. Specifically, the Company is in default
under the payment terms of each such debt obligation.

     These defaults described above are primarily attributable to the former and
current financial instability of the Company which has rendered the Company
unable to make the payments and other expenditures necessary in order to comply
with such provisions. As a result of these defaults, each holder of such
defaulted debt obligations has the right to demand payment in full of such
obligations.

     While no such holder has made any presentment or demand for payment as of
the date of this Form 10-KSB, there can be no assurance that any such holder
will not make a presentment or demand for payment in the future or otherwise
exercise any rights or remedies it may have with respect to such obligations. If
any or all of such holders were to make any such presentment or demand or
otherwise exercise any rights or remedies available to them under their
respective debt obligations and/or related agreements with the Company, such
action would have a material adverse effect on the business, financial condition
and results of operations of the Company.

     The Company is also in default under certain payment terms of its 1998
Notes and 1998/1999 Notes. These notes include the 1997 Notes for Capital
Investment Partners, Northstar and Third Century II, which were rolled into the
terms of certain 1998 Notes. As provided by the terms of these notes, the
Company is in the process of converting the defaulted payments (aggregate
principal and interest of approximately $923,000) into approximately 64,587,000
shares of Common Stock. Not all of the note holders have formally notified the
Company in writing of their intent to convert. See "Certain Relationships and
Related Transactions-Certain Notes and Note Conversions."

                                                                              21
<PAGE>


NEED FOR ADDITIONAL SALES, MARKETING AND TECHNICAL PERSONNEL

     Although the Company anticipates generating significant revenues from sales
to printer OEMs, it nevertheless will need to continue to expand its sales to
end users and to other distribution channels in order to meet the goals of its
business strategy. This will require the Company to attract and retain
additional qualified sales, marketing and technical personnel, in addition to
other personnel. Such personnel are in high demand and there can be no assurance
that the Company will be able to attract and retain the personnel it will need.
See "Description of Business-Business Strategy" and "Description of
Business-Sales and Marketing."

NEW PRODUCTS AND TECHNOLOGICAL CHANGE

     The high technology software industry has been historically marked by very
rapid technological change and frequent introductions of new products and
product enhancements. Accordingly, the Company's future growth and profitability
depend in part on its continuing ability to anticipate or respond to
technological changes by maintaining its employees' technical and analytical
skills, enhancing its current products and successfully developing and marketing
new products and services. In particular, the Company believes it must continue
to respond quickly to users' needs for broad functionality and new services and
to advances in hardware and operating systems. There can be no assurance given
that the Company will be able to continue to respond to such technological
changes or that its products and services will achieve significant market
acceptance. Furthermore, any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could result in a
loss of competitiveness or revenues.

POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE

     The Company's quarterly results of operations may vary significantly
depending on a number of factors, including the timing of the introduction or
enhancement of products by the Company or its competitors, market acceptance of
new products, customer order deferrals in anticipation of new products, changes
in the Company's operating expenses, personnel changes, mix of products sold,
mix of distribution channels through which products are sold, changes in product
pricing, acquisitions of additional products or businesses and general business
and economic conditions. The Company has experienced substantial net losses in
each of the past two fiscal years and expects to report a net loss for the three
months ending March 31, 2000. Sales of the Company's products may also be
negatively affected by delays in the introduction or availability of new
hardware or software products from third parties, particularly Xerox. There can
be no assurance that the Company will be able to grow or sustain its
profitability on a quarterly basis.

COMPETITION

     The Company competes with a small group of direct and indirect competitors
in the protocol conversion and document output management industry. Some of such
companies and other potential competitors of the Company have larger technical
staffs, more established and larger marketing and sales organizations and
significantly greater financial resources, and thus the capability to develop
new products which may be perceived to be superior to the Company's products.
There can be no assurance that such competitors will not develop products that
are superior to the Company's products or that achieve greater market
acceptance. In addition, the Company's software products are designed to improve
the productivity of the hardware products of extremely large, international
companies, such as Xerox, Hewlett-Packard and IBM. These companies have the
resources, if they choose to so apply them, to develop software for their own
hardware products which competes with the Company's products. Such an occurrence
would materially and adversely affect the Company's business and results of
operations. See "Description of Business-Competition."

                                                                              22
<PAGE>

PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company 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, the Company believes that, because of the rapid pace of technological
change in the protocol conversion and document output management industry, the
legal intellectual property protection for its products is a less significant
factor in the Company's 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.


                                                                              23
<PAGE>


DEPENDENCE UPON KEY PERSONNEL

     The success of the Company is dependent in part upon the active
participation and continued services of certain key executive officers and key
employees, including E. Ted Daniels, President, Chairman of the Board, Chief
Executive Officer and interim Chief Financial Officer; C. Thomas Musson, Sales
Manager; Richard Nicolai, Technical Support Manager; Siva Gogulapati, Director
of Engineering; Michael Cheever, Controller; and Dee Shelor, Executive
Administrator and Office Manager. The loss of any one of such officers or key
employees could have a material adverse effect on the Company's business and
results of operations. The Company intends to obtain key-man life insurance on
Mr. Daniels, but there can be no assurance that the proceeds from any such
insurance would be sufficient to compensate the Company in the event of Mr.
Daniels' death.

CUMULATIVE VOTING AND LACK OF CONTROL

     Cumulative voting in the election of directors is not allowed by the
Company's Certificate of Incorporation (except to the extent, if any, required
by California law). Accordingly, the holders of a majority of the shares of the
Company's Common Stock, present in person or by proxy, will be able to elect all
of the Company's Board of Directors.

ABILITY TO ISSUE ADDITIONAL COMMON STOCK AND PREFERRED STOCK; DILUTION DUE TO
FUTURE ISSUANCES OF STOCK WITHOUT STOCKHOLDER APPROVAL

     The Articles of Incorporation of the Company, as amended, currently
authorize the issuance of a maximum of 200,000,000 shares of Common Stock, par
value $0.01 per share, and 5,000,000 shares of Preferred Stock, par value $0.01
per share. In 1992, the Board of Directors established a series of preferred
shares designated $5.00, 10% Class A Cumulative Convertible Preferred Stock
("Class A Preferred Stock") and authorized the issuance of 100,000 shares of
Class A Preferred Stock, all of which were issued and 99,000 of which are
presently outstanding. Each share of Class A Preferred Stock is convertible into
approximately 100 shares of Common Stock, subject to adjustment upon the
occurrence of certain events. The number of shares of Common Stock currently
issuable upon conversion of the shares of Class A Preferred Stock is
approximately 9,900,000. In May 1993, the Board of Directors established a
series of preferred shares designated $9.00, 8% Class B Cumulative Convertible
Preferred Stock ("Class B Preferred Stock") and authorized the issuance of
27,777 shares of Class B Preferred Stock, all of which have been issued and are
outstanding. Each share of Class B Preferred Stock is convertible into
approximately 180 shares of Common Stock, subject to adjustment upon the
occurrence of certain events. The number of shares of Common Stock currently
issuable upon conversion of the shares of Class B Preferred Stock is
approximately 4,999,860. Accordingly, the Board of Directors may authorize the
issuance of up to an additional 139,876,728 shares of Common Stock and an
additional 4,872,223 shares of Preferred Stock without any approval of such
issuance by the stockholders of the Company.

     Owners of the shares of Common Stock may be further diluted in their
percentage ownership of the Company if any such additional shares are issued by
the Company in the future. In addition, there is no assurance that the Board of
Directors will not authorize the establishment of an additional class of
preferred shares in the future which could operate to the significant
disadvantage of present holders of the Preferred Stock.

                                                                              24
<PAGE>


LACK OF CASH DIVIDENDS; DIVIDEND POLICY

     Under the Delaware General Corporation Law, dividends may be paid only out
of legally available funds as prescribed by statute, subject to the discretion
of the Company's Board of Directors. The Company has paid no cash dividends on
its Common Stock to date and the Company does not intend to pay cash dividends
on its Common Stock in the foreseeable future, including on shares of Common
Stock issued upon conversion of shares of Preferred Stock. The Company currently
intends to retain any available earnings the Company may realize in the future
for working capital and to finance future growth of the Company. The payment of
cash dividends, of which there can be no assurance, will be directly dependent
upon earnings of the Company, working capital requirements and other factors
which cannot now be determined.

     Dividends on shares of Preferred Stock of the Company are cumulative.
Accordingly, dividends not paid by the Company on any payment date shall accrue
from the respective dividend payment date. The Company is not obligated to
declare dividends on any class of Preferred Stock. However, when, as and if the
Company's Board of Directors declares the payment of dividends on Preferred
Stock, such dividends shall be payable semi-annually at the rate of $0.50 per
share per year with respect to the Class A Preferred Stock and payable quarterly
at the rate of $0.72 per share per year with respect to the Class B Preferred
Stock.

CONCENTRATION OF OWNERSHIP

     As of March 15, 2000, 60,123,272 shares of Common Stock were outstanding
and additional shares were in the process of being issued for the conversion of
certain Convertible Promissory Notes (See "Certain Relationships and Related
Transactions-Certain Notes and Note Conversions"). Of the combined total of
126,131,968 shares, the major beneficial owners are E. Ted Daniels (President,
Chief Executive Officer and Chairman of the Board of the Company; 2,440,000
shares, or 1.9%), Allard C. Villere (Secretary and a Director of the Company;
408,834 shares, or 0.3%), James Martin (26,872,129 shares, or 21.3%), Third
Century II (24,751,285 shares, or 19.6%), and Conrad and Carl von Bibra
(42,965,699 shares, or 34.1%). As a result, this group of stockholders has
sufficient voting power to control the outcome of all corporate matters
submitted to the vote of the stockholders. Those matters could include the
election of directors, changes in the size and composition of the Board of
Directors (and, thereby, the qualification and appointment of officers of the
Company) and mergers and other business combinations involving the Company. In
turn, through its potential effect on the Board of Directors and beneficial
ownership of Common Stock of the Company, this group could control certain
decisions, including decisions with respect to the Company's dividend policy,
the Company's access to capital (including borrowing from third-party lenders
and the issuance of additional equity securities) and the acquisition or
disposition of assets by the Company. The concentration of ownership in this
group of stockholders could have the effect of delaying or preventing a change
in control of the Company and may affect the market price of the Common Stock of
the Company.

POSSIBLE ADVERSE EFFECTS DUE TO SHARES ELIGIBLE FOR FUTURE SALE

     Sales of shares by existing security holders of the Company, or the
perception that such sales could occur, could adversely affect the market price
of the Company's Common Stock or otherwise impair the Company's ability to raise
additional capital. As of March 15, 2000, the Company had approximately
176,891,000 shares of Common Stock outstanding (assuming the exercise of all
outstanding options and warrants to purchase Common Stock of the Company, the
conversion of all outstanding shares of Class A and Class B Preferred Stock of
the Company and the conversion of all outstanding Convertible Promissory Notes

                                                                              25
<PAGE>

of the Company). Approximately 39,606,000 shares are generally freely tradeable
without restriction or registration under the Securities Act of 1933, as amended
(the "Securities Act"), approximately 2,555,000 shares will be freely tradeable
within one year pursuant to the provisions of Rule 144(k) promulgated under the
Securities Act, approximately 2,123,000 shares will be freely tradeable within
two years pursuant to the provisions of Rule 144(k) promulgated under the
Securities Act and the remaining 132,607,000 shares (which are owned by
affiliates of the Company), will be freely tradeable within two years subject to
the limitations of Rule 144 promulgated under the Securities Act.

     In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned such shares for at least one year will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of (i)
one percent (1%) of the then outstanding shares of the Company's Common Stock or
(ii) the average weekly trading volume of the Company's Common Stock during the
four calendar weeks immediately preceding the date on which notice of sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
pursuant to Rule 144 are subject to certain requirements relating to manner of
sale, notice and the availability of current public information about the
Company, and the requirement that the Company has been subject to the reporting
requirements of Section 15(d) of the Exchange Act for a period of at least 90
days immediately preceding the sale of the securities and has filed all reports
required to be filed thereunder during the twelve months preceding such sale. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned such shares for at least two years is
entitled to sell such shares under Rule 144(k) without regard to the limitations
described above.

     Up to an additional 160,400 shares of Common Stock of the Company are
issuable upon exercise of options available for grant under the Company's
Amended and Restated 1993 Stock Option Plan (the "1993 Plan") and an additional
300,000 shares of Common Stock are issuable upon exercise of options available
for grant under the Company's 1996 Stock Option Plan (the "1996 Plan"). The
shares of Common Stock issuable upon the exercise of such options will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of a registration under the Securities Act
unless an exemption from registration is available, including the exemption
contained in Rule 144 (see "Executive Compensation-Stock Option Plans").

     Generally, such "restricted securities" will become eligible for resale
under Rule 144 after expiration of a minimum two-year holding period, subject to
the restrictions on manner of sale and volume limitations imposed by Rule 144.
In addition, Rule 701 under the Securities Act provides that shares of Common
Stock acquired upon exercise of outstanding options granted to employees or
consultants under the 1993 Plan or the 1996 Plan may be resold by such persons
(other than affiliates) subject only to the manner of sale provisions of Rule
144 and by affiliates subject to all provisions of Rule 144 except its two-year
minimum holding period requirement.

EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS

     As of March 15, 2000, the Company had reserved approximately 12,564,000
shares of Common Stock for issuance upon exercise of options and warrants
outstanding as of the date hereof. During the terms of such options and
warrants, the holders thereof will have the opportunity to profit from an
increase in the market price of Common Stock, with resulting dilution in the
interest of holders of Common Stock. The existence of such options and warrants
may adversely affect the terms on which the Company can obtain additional

                                                                              26
<PAGE>

financing. The holders of such options and warrants can be expected to exercise
such options and warrants at a time when the Company, in all likelihood, would
be able to obtain additional capital by offering shares of its Common Stock on
terms more favorable to the Company than those provided by the exercise of such
options and warrants. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."

LIMITED TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; RISK OF SECURITIES
CLASS ACTION LITIGATION

     There is currently an extremely limited trading market for the Company's
Common Stock. From June 1, 1998 to March 15, 2000, the closing bid prices for
the Company's Common Stock as quoted on the National Association of Securities
Dealers OTC Bulletin Board ranged from $0.01 to $0.51 per share. As of March 15,
2000, the closing price of the Company's Common Stock was $0.23 per share. Such
prices, however, may not be considered valid indications of market value because
of the extremely limited amount of trading in the Company's Common Stock. There
can be no assurance given that any regular trading market for the securities
will develop or, if developed, will be sustained.

     The trading prices of the Company's securities could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, material announcements of technological innovations, price
reductions, significant customer orders or establishment of strategic
partnerships by the Company or its competitors or providers of alternative
products, general conditions in the protocol conversion and document output
management industry, or other events or factors, many of which are beyond the
Company's control. In addition, the stock market as a whole, as well as
individual stocks, including those of many technology-based companies, have
experienced extreme price and volume fluctuations, which have often been
unrelated to the performance of the companies. The Company's operating results
in future quarters may be below the expectations of market makers, securities
analysts and investors. In any such event, the price of the Company's securities
could fluctuate substantially.

     In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has occurred against
the issuing company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Any adverse determination in such
litigation could also subject the Company to substantial liabilities.

CLASSIFICATION OF COMMON STOCK AS PENNY STOCK

     In October 1990, Congress enacted the "Penny Stock Reform Act of 1990." A
"penny stock" is defined as an equity security that does not meet certain
criteria established by the Commission or that is not: (a) registered or
approved for registration and traded on a national securities exchange; (b)
authorized for quotation on an automated quotation system established and
operating prior to January 1, 1990; or (c) a security of a registered investment
company. None of the equity securities of the Company meets these criteria and
therefore they are subject to Rule 15c2-6 under the Exchange Act, which imposes
additional sales practice requirements on brokers and dealers and requires that
such brokers and dealers must make a special suitability determination of each
purchaser and have received the purchaser's written consent to the transaction
prior to the sale. Consequently, Rule 15c2-6 may affect the ability of brokers
and dealers to sell the Company's securities and may affect the ability of
purchasers in this offering to sell any of the securities acquired hereby in the
secondary market.

                                                                              27
<PAGE>

     The Common Stock, as well as the Preferred Stock of the Company, is
presently within the definition of "penny stock" as defined in Section 3(a)(51)
of the Exchange Act and the rules and regulations promulgated thereunder. Unless
the offering price per share of the Common Stock of the Company is equal to or
greater than $5.00 at the time of an initial public offering of the Common Stock
of the Company, the Common Stock will be subject to substantial additional risk
disclosures and document and information delivery requirements on the part of
brokers and dealers effecting transactions in the Common Stock of the Company.
Such additional risk disclosures and document and information delivery
requirements on the part of such brokers and dealers may have an adverse effect
on the market for and/or value of the Common Stock in connection with such
initial public offering.

CERTAIN CHARTER PROVISIONS AND ANTI-TAKEOVER EFFECT OF DELAWARE LAW

     The Company's Board of Directors has the authority to issue up to 4,872,223
additional shares of Preferred Stock and to determine the price, rights,
preferences and privileges, including voting rights, of such shares without any
further vote or action by the Company's stockholders. The rights of the holders
of Common Stock will be subject to, and could be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
The issuance of shares of Preferred Stock under certain circumstances could have
the effect of delaying, deferring or preventing a change of control of the
Company. In addition, Section 203 of the General Corporation Law of Delaware
prohibits the Company from engaging in certain business combinations with
interested stockholders, as defined by statute. These provisions may have the
effect of delaying or preventing a change in control of the Company without
action by the stockholders, and therefore could adversely affect the price of
the Company's Common Stock. The Company has no present plan or arrangement to
issue any additional shares of Preferred Stock.


ITEM 7.  FINANCIAL STATEMENTS.

     The financial statements of the Company are submitted as a separate section
of this Annual Report on Form 10-KSB on pages F-1 through F-25.


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

     None.

                                                                              28
<PAGE>


                                     PART II

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, KEY EMPLOYEES, PROMOTERS AND CONTROL
        PERSONS

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

     The following table sets forth certain information with respect to each
director, officer and key employee of the Company.
<TABLE>
<CAPTION>

         NAME                       AGE          POSITION(S)
         ----                       ---          -----------
         <S>                        <C>          <C>
         E. Ted Daniels (1)(2)      59           President, Chief Executive Officer, Chairman
                                                 of the Board and interim Chief Financial Officer

         Allard Villere (1)(2)      66           Secretary and a Director

     KEY EMPLOYEES:

         C. Thomas Musson           58           Sales Manager

         Richard Nicolai            44           Technical Support Manager

         Siva Gogulapati            43           Director of Engineering

         Michael Cheever            31           Controller

         Dee Shelor                 62           Executive Administrator and Office Manager
</TABLE>

     (1) Named Executive Officer
     (2) Member of the Audit Committee


     Mr. Daniels joined the Board of Directors of the Company in September 1994
and was appointed President, Chairman of the Board, 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/COO for Roberts Consolidated Industries, a provider
of flooring installation products which has operations in the United Kingdom,
Holland, South Africa, Mexico, Brazil, Australia, Japan and Canada.

     Mr. Villere has served as a Director of the Company and its predecessor,
Wilkes Publishing Corporation, 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.

                                                                              29
<PAGE>

     Mr. Musson joined the Company as its Sales Manager in October 1999. He has
over 30 years of experience in sales and sales management in a variety of
industries. From 1996 to 1999, he was the Northeast Regional Sales Manager at
Amplicon Financial, a computer hardware and software leasing company.
Previously, he worked for 12 years in the real estate franchising industry,
first as a senior sales representative, then as the Vice President of Sales for
Century 21 and then as the National Sales Director for the Realty World
Organization.

     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. Gogulapati joined the Company in February 1999. He has seventeen years
of experience in software product development and management. Mr. Gogulapati was
formerly the Software Development Program Manager for Unisys Corporation from
1992 to 1999.

     Mr. Cheever has been with the Company since October 1993 as its Controller.
He is a licensed CPA and was formerly with the accounting firm of Deloitte &
Touche, LLP. He has been instrumental in organizing the Company's financial
structure and is responsible for maintaining all financial records and reports
for both internal and external use.

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

DIRECTORS' COMPENSATION

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

AUDIT COMMITTEE

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders"), to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, directors and 10% Stockholders of the Company are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
forms so filed.

     Some of the Company's present Section 16 reporting persons failed to file a
Form 3 upon becoming reporting persons and all failed to file a Form 4 with
respect to all or nearly all their respective transactions in the Company's
securities since becoming reporting persons.

     The Company has advised each of the Company's present Section 16 reporting
persons of their obligations to file Forms 3, 4 and 5 with respect to their
initial beneficial ownership of securities of the Company and with respect to
transactions in such securities since becoming Section 16 reporting persons.

                                                                              30
<PAGE>

However, the Company is unable to predict whether such persons will comply with
their obligations under Section 16(a) of the Exchange Act and cannot give any
assurance that such persons will so comply or, if any of such persons does so
comply, that such persons will thereafter fail to remain in compliance with
Section 16(a) of the Exchange Act.

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, 1999 and December 31, 1998. 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            1999      $180,084     $0       $9,124           $0      5,464,051       $0
  President and           1998      $163,713     $0      $10,046      $10,000      2,343,769       $0
  Chief Executive Officer
</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 15, 2000, Mr. Daniels has been granted
          options to acquire an aggregate of approximately 11,982,230 shares
          pursuant to his employment agreement and related stock issuance
          agreement (approximately 9,852,230 of these options remain
          unexercised).


                                                                              31
<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, 1999 ("Fiscal 1999"), the value realized therefor, the
number of unexercised options at December 31, 1999 and the value of unexercised
in-the-money options at December 31, 1999 for the Company's President and Chief
Executive Officer in the Summary Compensation Table above. The Company's
President and Chief Executive Officer did not hold any stock appreciation rights
("SARs") during Fiscal 1999.

<TABLE>
<CAPTION>

                                                             NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                            SHARES                          UNDERLYING UNEXERCISED               IN-THE-MONEY
                         ACQUIRED ON                          OPTIONS AT FISCAL               OPTIONS AT FISCAL
                         EXERCISE (#)        VALUE               YEAR-END (#)                    YEAR-END ($)
       NAME                                 REALIZED      EXERCISABLE/UNEXERCISABLE       EXERCISABLE/UNEXERCISABLE
--------------------     -------------     -----------    ---------------------------     ---------------------------
<S>                                 <C>            <C>                   <C>                             <C>
E. Ted Daniels                      0              $0                    9,852,230/0                     $369,459/$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.

     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 key employees.


                                                                              32
<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, 1999, none of
the options available for grant under the 1993 Plan had been exercised,
approximately 494,600 shares of Common Stock were reserved for issuance upon
exercise of outstanding options and approximately 135,400 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 did not grant any options to its executive officers under the
1993 Plan during the fiscal year ended December 31, 1999 nor during the fiscal
year ended December 31, 1998.

     1996 STOCK OPTION PLAN

     In May 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
"1996 Plan"). The 1993 Plan authorizes the granting of options to purchase up to
a maximum 600,000 shares of Common Stock to qualified officers, key employees,
directors and employees of companies that do business with the Company. As of
December 31, 1999, none of the options available for grant under the 1996 Plan
had been exercised, approximately 400,000 shares of Common Stock were reserved
for issuance upon exercise of outstanding options and approximately 200,000
shares of Common Stock remained available for grant thereunder. The 1996 Plan
will terminate at midnight on February 1, 2003 unless sooner terminated by the
Board of Directors.

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

                                                                              33
<PAGE>

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

     The Company did not grant any options to its executive officers under the
1996 Plan during the fiscal year ended December 31, 1999 nor during the fiscal
year ended December 31, 1998.

     FINANCING-RELATED OPTIONS

     In 1994, three stockholders of the Company transferred shares of Common
Stock to third parties in connection with certain financing transactions. Two of
these stockholders were Arthur Wilkes (a co-founder and former President and
Chief Executive Officer) and Allard Villere (a co-founder and current Secretary
and Director). In turn, these three stockholders were issued non-qualified
options (the "Financing Options") to purchase new shares of Common Stock. As of
December 31, 1999, none of the Financing Options had been exercised and
approximately 197,093 shares of Common Stock were reserved for issuance upon
exercise of outstanding options. As of December 31, 1999, the exercise price was
$2.00 per share. The Financing Options will terminate on January 19, 2004.

     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."


WARRANTS

     From September 1994 to March 1996, the Company issued warrants to purchase
up to 6,242,671 shares of Common Stock. As of December 31, 1999, warrants to
purchase approximately 3,972,500 shares had been exercised, warrants to purchase
approximately 529,671 shares had expired and approximately 1,740,500 shares of
Common Stock were reserved for issuance upon exercise of outstanding warrants.
As of December 31, 1999, the exercise price of the outstanding warrants ranged
from $0.04 to $0.55 per share. The outstanding warrants expire at various dates
from September 2000 to May 2001.

                                                                              34
<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 15, 2000, 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) the
Named Executive Officers identified in the Summary Compensation Table; and (iv)
all directors and Named 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 (2)(3)
c/o Prism Software Corp.
23696 Birtcher
Lake Forest, CA  92630                    12,708,356 (4)                9.3%

Allard Villere (2)(3)
369 Justina Drive
Oceanside, CA  92057                         474,531 (5)                  *

James Martin
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA  30326                        27,184,008 (6)              21.5%

Third Century II
1711 Chateau Court
Fallston, MD  21047                       25,405,416 (7)              20.0%

Threshold Technology Partners
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA  30326                         6,800,000                   5.4%

Conrad and Carl von Bibra
1810 Fair Oaks
Suite 209
South Pasadena, CA  91030                  47,007,877 (8)             36.1%

All Directors and Named
Executive Officers of the
Company as a Group (2 persons)             13,182,887 (9)              9.7%
</TABLE>


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

     *    Less than 1%.
     (1)  Beneficial ownership is determined in accordance with the rules of the
          Securities and Exchange Commission and generally includes voting or
          investment power with respect to securities. Except as indicated by
          footnote, and subject to community property laws where applicable, the
          persons named in the table above have sole voting and investment power

                                                                              35
<PAGE>
          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 15, 2000, 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. In addition, the Company is in the process of issuing
          shares of Common Stock upon the conversion of certain Convertible
          Promissory Notes, and these shares are deemed to be issued and
          outstanding as of March 15, 2000 for the purpose of determining
          beneficial ownership. Based on 60,123,272 shares of Common Stock
          issued and outstanding as of March 15, 2000.
     (2)  Named Executive Officer of the Company.
     (3)  Director of the Company.
     (4)  Includes 10,268,356 shares of Common Stock issuable upon the exercise
          of options that are either vested as of March 15, 2000 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").
     (5)  Includes 65,697 shares of Common Stock issuable upon the exercise of
          options, all of which are exercisable within 60 days after March 15,
          2000.
     (6)  Includes 24,437,383 shares issuable upon the conversion of certain
          Convertible Promissory Notes and 99,125 shares issuable upon the
          conversion of warrants that are either vested as of March 15, 2000 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
          375,000 shares of Common Stock, 10,956,197 shares of which are
          issuable upon the conversion of certain outstanding Convertible
          Promissory Notes and 30,000 shares which are issuable upon the
          exercise of outstanding warrants. Northstar Capital Partners
          beneficially owns 1,085,000 shares of Common Stock and 13,481,186
          shares of which are issuable upon the conversion of certain
          outstanding Convertible Promissory Notes. Huntington Partners
          beneficially owns 312,500 shares of Common Stock and 69,125 shares of
          Common Stock which are issuable upon the exercise of outstanding
          warrants. 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.
     (7)  Includes 16,669,041 shares 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 15, 2000 or
          could vest within 60 days after such date which are beneficially owned
          by Third Century II and Eric Nickerson, its managing partner. Third
          Century II's ownership includes 8,295,000 shares of Common Stock,
          15,535,708 shares which are issuable upon the conversion of certain
          Convertible Promissory Notes and 441,375 shares which are issuable
          upon the exercise of outstanding warrants. Mr. Nickerson beneficially
          owns 1,133,333 shares of Common Stock which are issuable upon the
          conversion of certain Convertible Promissory Notes.

                                                                              36
<PAGE>

     (8)  Includes 27,642,877 shares issuable upon the conversion of certain
          Convertible Promissory Notes that are either vested as of March 15,
          2000 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 10,419,000 shares of Common Stock
          and 20,931,378 shares which are issuable upon the conversion of
          certain Convertible Promissory Notes. Conrad von Bibra's ownership
          does not include shares of Common Stock managed by Kennedy Capital
          Management, Inc., which claims beneficial ownership of the shares.
          Carl von Bibra beneficially owns 8,946,000 shares of Common Stock and
          6,711,499 shares which are issuable upon the conversion of certain
          Convertible Promissory Notes. Carl von Bibra's ownership includes the
          securities previously held by the Edith von Bibra Trust.
     (9)  Includes shares of Common Stock issuable upon the exercise of options
          described in notes (4) and (5) above.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     ISSUANCE OF COMMON STOCK AND WARRANTS

     In February 1998, E. Ted Daniels, the Company's President, Chief Executive
Officer, Chairman of the Board and interim Chief Financial Officer, exercised
options to purchase 1,000,000 shares of the Company's Common Stock at no cost
pursuant to the terms of an Employment Agreement between Mr. Daniels and the
Company (see "Executive Compensation-Employment Agreements").

     From December 1997 to March 1998, the Company sold 8,600,000 shares of
Common Stock to nine accredited investors for an aggregate purchase price of
$344,000, or $0.04 per share. Such investors included Chartwell Investment
Partnership ("Chartwell"), Irving and Hilda Lassoff ("Lassoff"), James Martin,
Northstar Capital Partners ("Northstar"), Loyd Tarr, Conrad von Bibra, the Edith
von Bibra Trust, Robert Weiner and Marty and Sara Williams ("Williams"). Conrad
von Bibra maintains his shares purchased under this offering in an account with
Kennedy Capital Management ("Kennedy Capital"), which claims beneficial
ownership of these shares. In April 1999, the securities held by the Edith von
Bibra Trust were distributed to Carl von Bibra, the son of Conrad von Bibra.
None of Chartwell, Lassoff, Loyd Tarr, Robert Weiner nor Williams is either an
affiliate or a principal stockholder of the Company. Neither Kennedy Capital,
nor any of its directors, officers or affiliates, is an affiliate (other than as
a principal stockholder) of the Company. James Martin is the owner of Martin
Management, the general partner of Northstar. Neither James Martin nor the von
Bibra family is an affiliate (other than as a principal stockholder) of the
Company. No commissions were paid in connection with these transactions.

     CERTAIN NOTES AND NOTE CONVERSIONS

     From May to October 1998, the Company issued Convertible Promissory Notes
in the aggregate principal amount of $353,000 to seven investors (the "1998
Notes"). The notes bear interest at the rate of 10% per annum (with payments of
accrued interest due every 3 months) and matured at various dates from May 1999
to October 1999. All or any portion of unpaid principal and accrued interest is
convertible into shares of Common Stock at the initial rate of $0.05 per share
(for an initial total of 7,060,000 shares) at any time at the option of the
holders. All or any portion of defaulted principal or interest payments is
convertible into Common Stock at an adjusted rate of $0.01 per share. The notes
were issued to Capital Investment Partners ($35,000 in the aggregate), Northstar
($55,000 in the aggregate), Jean Tarr ($15,000), Eric Nickerson ($10,000), Third
Century ($90,000 in the aggregate), Conrad von Bibra ($98,000 in the aggregate),
and the Edith von Bibra Trust ($50,000). Holders of $120,000 of such notes have

                                                                              37
<PAGE>

piggyback registration rights with respect to shares of Common Stock into which
such notes are convertible, which 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. Mr. Nickerson is the
managing partner of Third Century. In April 1999, the securities held by the
Edith von Bibra Trust were distributed to Carl von Bibra, the son of Conrad von
Bibra. Jean Tarr is neither an affiliate nor a principal stockholder of the
Company. Neither Third Century, nor any of its directors, officers or
affiliates, is an affiliate (other than as a principal stockholder) of the
Company. Neither James Martin nor the von Bibra family is an affiliate (other
than as a principal stockholder) of the Company. No commissions were paid in
connection with these transactions.

     In May and June 1998, the principal and unpaid accrued interest on
Convertible Promissory notes issued in 1997 (the "1997 Notes") to Capital
Investment Partners (principal of $48,000 and accrued interest of $3,773),
Northstar (principal of $50,000 and accrued interest of $4,911), and Third
Century (principal of $39,500 and accrued interest of $2,583) were rolled over
into their respective initial 1998 Notes. The 1997 Notes were thereby cancelled
and superseded in their entirety by the aforementioned 1998 Notes.

     In October 1998, the following occurred pursuant to a Note Conversion
Agreement:

     o    Threshold Technology Partners ("Threshold") converted all outstanding
          amounts under a 1995 Convertible Promissory Note (principal of
          $250,000 and accrued interest of $64,265) into 5,000,000 shares of
          Common Stock, reflecting an effective conversion rate of approximately
          $0.06 per share. Neither Threshold, nor any of its directors, officers
          or affiliates, is an affiliate (other than as a principal stockholder)
          of the Company. No commissions were paid in connection with this
          conversion.
     o    Threshold transferred all of its remaining notes in the Company to the
          von Bibra family. This consisted of a 1996 Secured Note (principal of
          $750,000 and accrued interest of $164,831 ) and two 1997 Notes (total
          principal of $118,250 and accrued interest of $13,792). The von Bibras
          converted all amounts outstanding under such notes into 17,365,000
          shares of Common Stock (10,419,000 shares to Conrad von Bibra,
          5,209,500 shares to the Edith von Bibra Trust and 1,736,500 shares to
          Carl von Bibra, the son of Conrad von Bibra), reflecting an effective
          conversion rate of approximately $0.06 per share. In April 1999, the
          securities held by the Edith von Bibra Trust were distributed to Carl
          von Bibra. The von Bibra family is not an affiliate (other than as a
          principal stockholder) of the Company. No commissions were paid in
          connection with these conversions.

     From October 1998 to March 1999, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $314,000 to two investors (the
"1998/1999 Notes"). The notes bear interest at the rate of 10% per annum (with
payments of accrued interest due every three months) and matured at various
dates from October 1999 to March 12, 2000. All or any portion of unpaid
principal and accrued interest is convertible into shares of Common Stock at the
rate of $0.05 per share (for an initial total of 6,280,000 shares) at any time
at the option of the holders. The notes were issued to Conrad von Bibra
($264,000 in the aggregate) and the Edith von Bibra Trust ($50,000 in the
aggregate). In April 1999, the securities held by the Edith von Bibra Trust were
distributed to Carl von Bibra, the son of Conrad von Bibra. The von Bibra family
is not an affiliate (other than as a principal stockholder) of the Company. No
commissions were paid in connection with these transactions.

                                                                              38

<PAGE>

     From March 1999 to March 14, 2000, the Company issued Convertible
Promissory Notes in the aggregate principal amount of $1,130,000 (the "1999/2000
Notes") 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 31, 2000 to March 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 ($5,000), Jean Tarr ($10,000), Third Century ($30,000 in the
aggregate), Carl von Bibra ($136,000 in the aggregate) and Conrad von Bibra
($944,000 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 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. Jean Tarr is neither an affiliate nor
a principal stockholder of the Company. Neither Third Century, nor any of its
directors, officers or affiliates, is an affiliate (other than as a principal
stockholder) of the Company. Neither James Martin nor the von Bibra family is an
affiliate (other than as a principal stockholder) of the Company. No commissions
were paid in connection with these transactions.

     As of March 15, 2000, the Company is in the process of converting
approximately $1,064,000 of Convertible Promissory Notes and related accrued
interest into approximately 66,008,000 shares of Common Stock. Such conversions
relate to the 1998 Notes and 1998/1999 Notes held by Capital Investment
Partners, Eric Nickerson, Northstar, Jean Tarr, Third Century, Carl von Bibra
and Conrad von Bibra, as well as 1995 Convertible Promissory Notes held by
Capital Investment Partners and Northstar. These notes also include the 1997
Notes for Capital Investment Partners, Northstar and Third Century, which were
rolled into the terms of certain 1998 Notes. James Martin is the owner of Martin
Management, which is the general partner of both Capital Investment Partners and
Northstar. Mr. Nickerson is the managing partner of Third Century. 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, nor any of its
directors, officers or affiliates, is an affiliate (other than as a principal
stockholder) of the Company. Neither James Martin nor the von Bibra family is an
affiliate (other than as a principal stockholder) of the Company. No commissions
are being paid in connection with these transactions.



                                                                              39

<PAGE>
                           PRISM SOFTWARE CORPORATION
                         INDEX TO FINANCIAL STATEMENTS


Report of Independent Certified Public Accountants                          F-2

Balance Sheet as of December 31, 1999                                       F-3

Statements of Operations for the Years Ended
   December 31, 1999 and 1998                                               F-4

Statements of Stockholders' Deficit for the Years Ended
   December 31, 1999 and 1998                                               F-5

Statements of Cash Flows for the Years Ended
   December 31, 1999 and 1998                                               F-7

Notes to Financial Statements                                               F-8



<PAGE>







                           PRISM SOFTWARE CORPORATION

                              FINANCIAL STATEMENTS

                                DECEMBER 31, 1999




<PAGE>

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



The Board of Directors
Prism Software Corporation


We have audited the accompanying balance sheet of Prism Software Corporation as
of December 31, 1999, and the related statements of operations, stockholders'
deficit and cash flows for each of the two years ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, 1999 and the results of its operations and cash flows for each
of the two years ended December 31, 1999 in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 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 10. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


/s/ Cacciamatta Accountancy Corporation

CACCIAMATTA ACCOUNTANCY CORPORATION


Irvine, California
March 20, 2000

                                      F-2
<PAGE>
<TABLE>

                           PRISM SOFTWARE CORPORATION
                                  BALANCE SHEET
                                DECEMBER 31, 1999
<CAPTION>
<S>                                                                              <C>
ASSETS
Current assets:
Cash                                                                             $       18,129
Trade accounts receivable, net of allowance for doubtful
   accounts of $4,609                                                                    46,188
Inventories                                                                               7,791
Other                                                                                     8,212
                                                                                 ---------------

Total current assets                                                                     80,320

Equipment, net of accumulated depreciation of $202,084                                   62,419
Other                                                                                     7,925
                                                                                 ---------------
                                                                                 $      150,664
                                                                                 ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt                                                $    1,968,794
Accounts payable                                                                        205,307
Accrued expenses                                                                        605,253
Deferred revenue                                                                        137,182
                                                                                 ---------------
Total current liabilities                                                             2,916,536
                                                                                 ---------------

Long term liabilities:
Deferred revenue                                                                         11,690
Notes payable                                                                            23,659
                                                                                 ---------------
Total long term liabilities                                                              35,349
                                                                                 ---------------

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 - 200,000,000 shares authorized, $.01 par
value; 60,123,272 shares issued and outstanding                                         601,233
Additional paid-in capital                                                            6,260,235
Accumulated deficit                                                                  (9,663,957)
                                                                                 ---------------

Total stockholders' deficit                                                          (2,801,221)
                                                                                 ---------------
                                                                                 $      150,664
                                                                                 ===============
</TABLE>

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

                                      F-3
<PAGE>
<TABLE>

                                     PRISM SOFTWARE CORPORATION
                                      STATEMENTS OF OPERATIONS
<CAPTION>


                                                                        YEAR ENDED DECEMBER 31,
                                                                  ------------------------------------
                                                                       1999                 1998
                                                                  ---------------      ---------------
<S>                                                               <C>                  <C>
Revenue                                                           $      650,252       $      602,461

Cost of sales                                                             42,902               35,792
                                                                  ---------------      ---------------
     Gross profit                                                        607,350              566,669

Operating expenses:
  Selling, general and administrative                                  1,660,662            1,322,789
  Research and development                                               133,951               58,993
                                                                  ---------------      ---------------
Total operating expenses                                               1,794,613            1,381,782
                                                                  ---------------      ---------------
     Loss from operations                                             (1,187,263)            (815,113)

Interest expense                                                         142,540              133,908
                                                                  ---------------      ---------------
     Loss before extraordinary item                                   (1,329,803)            (949,021)

Extraordinary item:
  Gain on accounts payable settlements                                         -              184,127
                                                                  ---------------      ---------------
Net loss                                                          $   (1,329,803)      $     (764,894)
                                                                  ===============      ===============
Basic and diluted net loss per common share:
     Loss before extraordinary item                               $        (0.02)      $        (0.02)
     Extraordinary item                                                        -                    -
                                                                  ---------------      ---------------
     Net loss per common share                                    $        (0.02)      $        (0.02)
                                                                  ===============      ===============
Basic and diluted weighted average number
  of common shares outstanding                                        60,123,272           41,968,094
                                                                  ===============      ===============
</TABLE>


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

                                      F-4
<PAGE>
<TABLE>
                                                                   PRISM SOFTWARE CORPORATION
                                                               STATEMENTS OF STOCKHOLDERS' DEFICIT
                                                             YEARS ENDED DECEMBER 31, 1999 AND 1998
<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 AT DECEMBER 31, 1997              99,000      $ 990          27,777      $ 278       29,183,272     $ 291,833

Common stock issued in a
     private placement                    -          -              -           -             7,575,000        75,750

Common stock issued upon
     exercise of options                  -          -              -           -             1,000,000        10,000

Common stock issued upon
     conversion of debt                   -          -              -           -            22,365,000       223,650

Issuance of stock options                 -          -              -           -              -              -

Net loss                                  -          -              -           -              -              -
                                     -----------------------  -------------------------  -----------------------------
BALANCE AT DECEMBER 31, 1998              99,000        990          27,777        278       60,123,272       601,233

Issuance of stock options                 -          -              -           -              -              -

Net loss                                  -          -              -           -              -              -
                                     -----------------------  -------------------------  -----------------------------
BALANCE AT DECEMBER 31, 1999              99,000      $ 990          27,777      $ 278       60,123,272     $ 601,233
                                     =======================  =========================  =============================
</TABLE>
The accompanying notes are an integral part of these financial statements.

Statements of Stockholders' Deficit - continued on next page

                                      F-5
<PAGE>

Statements of Stockholders' Deficit - continued
<TABLE>

<CAPTION>

                                      Additional                            Total
                                       Paid-in         Accumulated      Stockholders'
                                       Capital           Deficit           Deficit
                                    ---------------  ----------------  ----------------
<S>                                    <C>              <C>               <C>
BALANCE AT DECEMBER 31, 1997           $ 4,623,199      $ (7,569,260)     $ (2,652,960)

Common stock issued in a
     private placement                     223,845          -                  299,595

Common stock issued upon
     exercise of options                   (10,000)         -                        0

Common stock issued upon
     conversion of debt                  1,137,488          -                1,361,138

Issuance of stock options                   80,801          -                   80,801

Net loss                                  -                 (764,894)         (764,894)
                                   ----------------  ----------------  ----------------
BALANCE AT 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 AT DECEMBER 31, 1999           $ 6,260,235      $ (9,663,957)     $ (2,801,221)
                                    ===============  ================  ================
</TABLE>


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


                                      F-6
<PAGE>

<TABLE>

                                     PRISM SOFTWARE CORPORATION
                                      STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                                   ------------------------------------
                                                                       1999                  1998
                                                                   ---------------      ---------------
<S>                                                                <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                         $  (1,329,803)       $     (764,894)
  Adjustments to reconcile net income to net cash
     used by operating activities:
     Depreciation                                                         37,419                72,947
     Issuance of stock options                                           204,902                80,801
     Extraordinary gain on accounts payable settlements                        -              (184,127)
     (Increase) decrease in assets:
          Accounts receivable                                             96,606                25,282
          Inventories                                                     (4,637)                4,017
          Other assets                                                    (1,417)                1,791
     Increase (decrease) in liabilities:
          Accounts payable                                                 9,356              (114,855)
          Deferred revenue                                               (34,417)               (3,404)
          Accrued expenses                                               159,112                45,918
                                                                  ---------------       ---------------
             Net cash used by operating activities                      (862,879)             (836,524)
                                                                  ---------------       ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of fixed assets                                               (30,874)               (9,269)
                                                                  ---------------       ---------------
             Net cash used by investing activities                       (30,874)               (9,269)
                                                                  ---------------       ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of notes payable                                910,000               559,000
  Payments on notes payable                                               (5,609)              (13,396)
  Proceeds from issuance of common stock                                       -               299,595
                                                                  ---------------       ---------------
             Net cash provided by financing activities                   904,391               845,199
                                                                  ---------------       ---------------
Net increase (decrease) in cash                                           10,638                  (594)

Cash, beginning of year                                                    7,491                 8,085
                                                                  ---------------       ---------------
Cash, end of year                                                 $       18,129        $        7,491
                                                                  ===============       ===============
Cash paid during the year for interest                            $        2,461        $        1,843
                                                                  ===============       ===============
Supplemental disclosure of non-cash investing and
  financing activities:
  Fixed assets purchased on capital lease                         $       35,423        $            -
  Notes payable and accrued interest converted to stock           $            -        $    1,361,138
                                                                  ===============       ===============
</TABLE>


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

                                      F-7
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999

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

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

Prism Software Corporation (the "Company") is a Delaware Corporation
incorporated in 1992. The Company develops and markets print stream translation
and document management solutions that enable documents generated on PCs or
mainframes to be electronically distributed or printed to other locations or
printers. The Company's Print Manager products lower the printing cost per page
by printing documents at higher speeds and higher volumes on Xerox production
printers. The Company's PRINTEXEC products help desktop users accommodate the
growth in information processing by allowing legacy (host) data to be printed on
LAN/WAN-attached printers or formatted for distribution to the Internet. The
Company's customer base covers participants in a broad range of industries
worldwide.

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

In 1999 and 1998 the three largest customers accounted for 21% and 19%,
respectively, of sales. At December 31, 1999 and 1998, the three largest
accounts receivable totaled 81% and 60%, 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.

Inventories
-----------

Inventories are reported at the lower of cost (determined on the
first-in-first-out method) or market and consist principally of finished goods.

Equipment
---------

Equipment is recorded at cost. Depreciation is provided over the estimated
useful lives of the related assets 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." Because the Company believes the establishment of
technological feasibility occurs concurrently with the completion of software
development, no costs have been capitalized as of December 31, 1999.

                                      F-8
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


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

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

Revenues from the licensing of computer software products are recognized upon
receipts of authorized customer purchase orders and subsequent delivery of the
products to customers, as there are no significant obligations remaining and
collection of the related receivable is probable. The Company accounts for
significant vendor obligations and post-contract support at the time of product
delivery by accruing such costs and recognizing them ratably over the contract
period. The Company records returns at the time of product delivery based on
historical experience. Revenues related to service agreements are deferred and
amortized over the terms of the related agreements, generally 12 months.

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

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the asset and liability method of SFAS 109, 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 accounts for compensation costs related to employee stock options
and other forms of employee stock-based compensation plans in accordance with
the requirements of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). APB 25 requires compensation costs for
stock based compensation plans to be recognized based on the difference, if any,
between the fair market value of the stock on the date of the grant and the
option exercise price. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair value-based
method of accounting for compensation costs related to stock options and other
forms of stock-based compensation plans. However, SFAS 123 allows an entity to
continue to measure compensation costs using the principles of APB 25 if certain
pro forma disclosures are made. The Company has adopted the provisions of pro
forma disclosure requirements of SFAS 123. Options granted to non-employees are
recognized at their estimated fair value at the date of grant.


                                      F-9
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


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

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

Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
superseded Accounting Principles Board Opinion 15 ("APB 15"). Net loss per share
for all periods presented has been stated to reflect the adoption of SFAS 128.
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.

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

The fair value of financial instruments, consisting principally of notes
payable, are based on interest rates available to the Company and comparison to
quoted prices. The fair value of these financial instruments approximates
carrying value.

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

Costs and expenses that can be clearly identified as research and development
are charged to expense as incurred in accordance with Statement of Financial
Accounting Standards No. 2, "Accounting for Research and Development Costs."

Segment reporting
-----------------

The Company has only one operating segment.

                                      F-10
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 2 - NOTES PAYABLE
----------------------
<TABLE>
<CAPTION>

                                                                                       DECEMBER 31,
                                                                      --------------------------------------------
                                                                           1999                          1998
                                                                      ---------------              ---------------
<S>                                                                   <C>                          <C>
Unsecured notes payable, bearing interest at 10%
  per annum, principal and interest past due.                         $       38,700               $       38,700

Unsecured notes payable, bearing interest at 10%
  per annum, principal and interest payments of
  $1,009 due monthly through March 1999.                                           -                        2,977

Unsecured notes payable to shareholders, bearing
  interest at 7% to 10% per annum, principal and
  interest past due.                                                         203,195                      203,195

Unsecured notes payable to shareholders,
  bearing interest at 8% per annum, principal and
  interest convertible at lenders' option into shares
  of common stock at the rate of $0.10, principal
  and interest due December 1999, principal and
  interest past due.                                                         100,000                      100,000

Unsecured notes payable to shareholders,
  bearing interest at 10% per annum, interest due
  quarterly, principal and interest convertible at
  lenders' option into shares of common stock at
  an initial rate of $0.05 (adjusted to $0.01 on all
  defaulted payments), principal and unpaid
  accrued interest due at various dates from May
  to October 1999, principal and interest past due.                          501,767                      501,767

Unsecured notes payable to shareholders,
  bearing interest at 10% per annum, interest due
  quarterly, principal and interest convertible at
  lenders' option into shares of common stock at
  the rate of $0.05, principal and unpaid accrued
  interest due at various dates from October to
  December 1999, principal and interest past due.                            206,000                      206,000

</TABLE>
                                      F-11
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 2 - NOTES PAYABLE (continued)
----------------------------------
<TABLE>
<CAPTION>

                                                                                       DECEMBER 31,
                                                                      --------------------------------------------
                                                                           1999                          1998
                                                                      ---------------              ---------------
<S>                                                                   <C>                          <C>

Unsecured notes payable to shareholders,
  bearing interest at 10% per annum, interest due
  quarterly, principal and interest convertible at
  lenders' option into shares of common stock at
  the rate of $0.05, principal and unpaid accrued
  interest due at various dates from January to
  March 2000.                                                                108,000                            -

Unsecured notes payable to shareholders,
  bearing interest at 8% per annum, interest due at
  maturity, principal and interest convertible at
  lenders' option upon maturity into shares of
  common stock at the rate of $0.05, principal and
  interest due at various dates from March to
  December 2000.                                                             802,000                            -

Other                                                                         32,791                            -
                                                                      ---------------              ---------------

                                                                           1,992,453                    1,052,639
Less current portion of notes payable                                     (1,968,794)                  (1,052,639)
                                                                      ---------------              ---------------
Long-term debt                                                        $       23,659               $            -
                                                                      ===============              ===============

Long-term debt at December 31, 1999 matures as follows:
  2001                                                                $       11,335
  2002                                                                        12,324
                                                                      ---------------
                                                                      $       23,659
                                                                      ===============
</TABLE>


From January 1 to March 14, 2000, the Company issued unsecured convertible
promissory notes in the aggregate of $328,000 to existing shareholders. These
notes are due at various dates from January to March 2001, but otherwise have
the same terms as the $802,000 of 8% notes issued during 1999.

                                      F-12
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


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

                                                   DECEMBER 31,
                                       -----------------------------------------
                                            1999                       1998
                                       ---------------           ---------------

Wages and benefits                     $      145,176            $      150,863
Interest to shareholders                      285,175                   148,790
Sales commissions                              48,590                    42,366
Other                                         126,312                   104,122
                                       ---------------           ---------------
                                       $      605,253            $      446,141
                                       ===============           ===============


NOTE 4 - 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).

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, 1999 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.


                                      F-13
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 4 - PREFERRED STOCK (continued)
------------------------------------

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, 1999 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.


NOTE 5 - CAPITAL TRANSACTIONS
-----------------------------

In February 1998, the Company's President and Chief Executive Officer exercised
options to purchase 1,000,000 shares of the Company's common stock at no cost
pursuant to the terms of an employment agreement.

In March 1998, the Company completed a private placement of common stock at
$0.04 per share. From January to March 1998, the Company issued 7,575,000 shares
of common stock and raised gross proceeds of $303,000.

In October 1998, the Company issued 22,365,000 shares of common stock in
connection with the conversion of $1,118,250 in notes payable and approximately
$242,000 of related accrued interest.

In April 1999, the Company's Board of Directors and stockholders voted to
increase the number of authorized shares of common stock from 100,000,000 to
200,000,000.

                                      F-14
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 6 - STOCK OPTIONS AND WARRANTS
-----------------------------------

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

In 1994, the Company issued options to acquire up to 325,093 shares of the
Company's common stock to certain lenders in connection with loans made to the
Company. At December 31, 1999, such options to purchase 197,093 shares of the
Company's common stock were outstanding and exercisable at a price of $2.00 per
share. These options expire January 19, 2004.

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

The Company's 1993 Stock Option Plan provides for the issuance of options to
acquire up to 630,000 shares of the Company's common stock to employees,
directors, officers, agents and advisors of the Company. At December 31, 1999,
options to purchase 494,600 shares of the Company's common stock at prices
between $0.03 and $2.25 per share were outstanding under the plan, of which
options to purchase 356,225 shares were exercisable. 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, in many cases, up to 90
days after termination of employment.

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

The Company's 1996 Stock option plan provides for the issuance of options to
acquire up to 600,000 shares of the Company's common stock to employees,
directors, officers, agents and advisors of the Company. At December 31, 1999,
options to purchase 400,000 shares of the Company's common stock at were
outstanding and exercisable under the plan at an exercise price of $0.03 per
share. The options were granted at an estimated market value, and expire within
three years from the date of grant or in many cases, up to 90 days after
termination of employment.

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

In connection with the employment terms of the Company's President and Chief
Executive Officer, all equity issuances result in additional options awarded to
the President and Chief Executive Officer to maintain an 8% interest in the
Company's fully-diluted and vested common stock. These options are exercisable
at no cost. The Company has recorded and will record any required compensation
expense related to issuances of these options.

Warrants
--------

Certain warrants were issued to various lenders and shareholders from 1994 to
1996. At December 31, 1999, 1,740,500 shares can be purchased at exercise prices
ranging from $0.04 to $0.55 per share. No expense was charged in connection with
the issuance of these warrants due to the exercise price being greater than the
market price at the time of issuance.


                                      F-15
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 6 - STOCK OPTIONS AND WARRANTS (continued)
-----------------------------------------------

All outstanding options and warrants at December 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>

            TYPE OF OPTION                       NUMBER               EXERCISE              AGGREGATE
              OR WARRANT                       OF SHARES               PRICE             EXERCISE PRICE
---------------------------------------    -------------------    -----------------    --------------------
<S>                                               <C>                  <C>                     <C>
Financing-related options                             197,093          $      2.00             $   394,186
1993 stock option plan                                494,600          $0.03-$2.25                 379,050
1996 stock option plan                                400,000          $      0.03                  12,000
Other management options                            9,852,230          $         -                       -
Warrants                                            1,740,500          $0.04-$0.55                 636,920
                                           -------------------                         --------------------

                                                   12,684,423                                  $ 1,422,156
                                           ===================                         ====================
</TABLE>


Stock option and warrant activity for the years ended December 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>

                                    FINANCING            1993               1996              OTHER
                                     OPTIONS             PLAN               PLAN             OPTIONS            WARRANTS
                                 -----------------  ----------------   ----------------  -----------------   ----------------
<S>                                      <C>                <C>               <C>              <C>                 <C>
December 31, 1997                         325,093           492,600                  -          3,044,410          2,094,500
Granted                                         -                 -            600,000          2,343,769                  -
Expired                                  (128,000)                -                  -                  -           (354,000)
Exercised                                       -                 -                  -         (1,000,000)                 -
                                 -----------------  ----------------   ----------------  -----------------   ----------------
December 31, 1998                         197,093           492,600            600,000          4,388,179          1,740,500
Granted                                         -            80,000                  -          5,464,051                  -
Expired                                         -           (78,000)          (200,000)                 -
Exercised                                       -                 -                  -                  -                  -
                                 -----------------  ----------------   ----------------  -----------------   ----------------
December 31, 1999                         197,093           494,600            400,000          9,852,230          1,740,500
                                 =================  ================   ================  =================   ================
</TABLE>


                                      F-16
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 6 - STOCK OPTIONS AND WARRANTS (continued)
-----------------------------------------------

The following information applies to employee options outstanding at December
31, 1999:
<TABLE>
<CAPTION>

                                                 Average         Weighted                            Weighted
                                                remaining         average                             average
                               Number          contractual       exercise            Number          exercise
                            Outstanding       life ( years)        price          Exercisable          price
                          -----------------  ---------------- ----------------  ----------------- ----------------
<S>                             <C>                        <C>         <C>            <C>                  <C>
1993 Plan                          494,600                 3           $ 0.77            356,225           $ 1.06
1996 Plan                          400,000                 1           $ 0.03            400,000           $ 0.03
President's options              9,852,230                 5           $    -          9,852,230           $    -
                          -----------------                                     -----------------
                                10,746,830                                            10,608,455
                          =================                                     =================
</TABLE>



Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), encourages, but does not require, companies to
record compensation cost for stock-based compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock.

Had compensation cost been determined based on the fair value of the options at
the grant dates consistent with the method of SFAS 123, the Company's net loss
and loss per share would have been:

                                                    1999               1998
                                               ---------------   ---------------
Net loss
   As reported                                 $   (1,329,803)   $     (764,894)
   Pro forma                                   $   (1,606,803)   $     (910,349)

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

                                      F-17
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 6 - STOCK OPTIONS AND WARRANTS (continued)
-----------------------------------------------

These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1996. In addition, potential deferred tax benefits of approximately
$110,000 in 1999 and $58,000 in 1998 have not been reflected in the pro forma
amounts due to the uncertainty of realizing any benefit. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for 1999
and 1998:

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

The weighted fair value of options granted during the years ended December 31,
1999 and 1998 for which the exercise price approximated the market price on the
grant date was $0.05.


NOTE 7 - BASIC AND DILUTED NET LOSS PER SHARE
---------------------------------------------
<TABLE>
<CAPTION>

                                                                                1999                     1998
                                                                           ---------------        ---------------
<S>                                                                        <C>                    <C>
NUMERATOR
   Loss before extraordinary item                                          $   (1,329,803)        $     (949,021)
   Preferred dividends                                                            (69,500)               (69,500)
   Extraordinary item                                                                   -                184,127
                                                                           ---------------        ---------------
   Net loss                                                                $   (1,399,303)        $     (834,394)
                                                                           ===============        ===============

DENOMINATOR
   Basic and diluted weighted average number of
   common shares outstanding during the period                                 60,123,272             41,968,094
                                                                           ---------------        ---------------

Basic and diluted net loss per share
   Loss before extraordinary item                                          $        (0.02)        $        (0.02)
   Extraordinary item                                                                   -                      -
                                                                           ---------------        ---------------
   Net loss per common share                                               $        (0.02)        $        (0.02)
                                                                           ===============        ===============

   Incremental common shares (not included in denominator
   of diluted earnings per share calculation due to their
   antidilutive nature) attributable to exercise of:
     Outstanding options and warrants                                          12,684,423              7,418,372
     Convertible debt and other liabilities                                    82,744,126             17,808,574
     Preferred stock                                                           14,899,860             14,899,860
</TABLE>


                                      F-18
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 8 - INCOME TAXES
---------------------

A reconciliation between the actual income tax benefit and the statutory rate
follows:
<TABLE>
<CAPTION>

                                                          1999                              1998
                                                 -----------------------           -----------------------
                                                   AMOUNT            %               AMOUNT            %
                                                 -----------------------           -----------------------
<S>                                                 <C>                               <C>
Computed income tax
  benefit at statutory rate                         $ 452,000       34%               $ 323,000       42%
Extraordinary item                                          -         -                 (63,000)      -8%
Operating loss with no
  current tax benefit                                (452,000)     -34%                (260,000)     -34%
                                                 -----------------------           -----------------------

Income tax benefit                               $          -                      $          -
                                                 =======================           =======================
</TABLE>


At December 31, 1999, the Company had a net operating loss carryforward for
federal tax purposes of approximately $8,746,000 which, if unused to offset
future taxable income, will expire between 2004 and 2019, and approximately
$3,098,000 for California purposes which will expire, if unused, between 2000
and 2004. The Company's net operating losses expire as follows:

                                        Federal              California
                                        -------              ----------


          2000                                 -              844,531
          2001                                 -              680,112
          2002                                 -              569,620
          2003                                 -              339,017
          2004                            34,398              664,901
          2005                            58,611                    -
          2006                           144,681                    -
          2007                           152,491                    -
          2008                         1,357,053                    -
          2009                           799,619                    -
          2010                         1,689,061                    -
          2011                         1,361,024                    -
          2012                         1,140,040                    -
          2018                           678,834                    -
          2019                         1,329,803                    -


                                      F-19
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 8 - INCOME TAXES (continued)
---------------------------------

A valuation allowance has been recognized for 1999 and 1998 to offset the
related deferred tax assets due to the uncertainty of realizing any benefit
therefrom. During 1999, no changes occurred in the conclusions regarding the
need for a 100% valuation allowance in all tax jurisdictions.

Significant components of the Company's deferred tax assets are as follows:

                                                         DECEMBER 31,
                                              ----------------------------------
                                                   1999                1998
                                              ---------------    ---------------

Net operating loss carryforwards              $    3,493,700     $    2,966,400

Valuation allowance                               (3,493,700)        (2,966,400)
                                              ---------------    ---------------

Net deferred tax assets                       $            -     $            -
                                              ===============    ===============


The valuation account increased by $527,300 in 1999 and $272,000 in 1998.


NOTE 9 - LITIGATION
-------------------

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 in the Company. 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 his claims and has filed
a counter-demand. The former officer has denied the allegations of the
counter-demand. 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.


NOTE 10 - 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-20
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 11 - COMMITMENTS
---------------------

Leases
------

The office lease expires March 31, 2004 and provides for a basic rent of $7,613
per month. Rent expense was $90,345 and $85,695 in 1999 and 1998, respectively.

The Company is subject to minimum annual lease payments as follows:

          2000                     $ 91,356
          2001                       94,389
          2002                       95,400
          2003                       98,433
          2004                       24,861


NOTE 12 - EXTRAORDINARY ITEM
----------------------------

During 1998, the Company recognized an extraordinary gain of $184,127 on the
settlement of trade payables whereby certain vendors accepted cash payments of
$46,000 for extinguishment of accounts payable balances totaling $230,127.


NOTE 13 - PREFERRED DIVIDENDS
-----------------------------

At December 31, 1999, the amounts of dividends in arrears on the Series A 10%
and the Series B 8% cumulative preferred stock were $373,000 ($3.77 per share)
and $129,996 ($4.68 per share), respectively.

At December 31, 1998, the amounts of dividends in arrears on the Series A 10%
and the Series B 8% cumulative preferred stock were $323,500 ($3.27 per share)
and $109,997 ($3.96 per share), respectively.



                                      F-21
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)

<TABLE>

NOTE 14 - UNAUDITED QUARTERLY INFORMATION
-----------------------------------------
<CAPTION>

                                                 SEPT. 30, 1999         JUNE 30, 1999         MARCH 31, 1999
                                                ---------------        ---------------        ---------------
<S>                                             <C>                    <C>                    <C>
ASSETS
Current assets:
   Cash                                         $       16,494         $       47,812         $       18,383
   Accounts receivable, net                              8,627                 36,837                 59,859
   Inventory                                             7,653                  5,847                  4,247
   Other                                                14,964                  3,857                  8,151
                                                ---------------        ---------------        ---------------

        Total current assets                            47,738                 94,353                 90,640

Equipment and furniture, net                            68,570                 17,918                 22,771
Other                                                    8,592                  9,258                  3,000
                                                ---------------        ---------------        ---------------

                                                $      124,900         $      121,529         $      116,411
                                                ===============        ===============        ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Current portion of long-term debt            $    1,640,314         $    1,422,661         $    1,197,661
   Accounts payable                                    266,050                231,641                218,213
   Deferred revenue                                    150,324                176,386                148,455
   Accrued expenses                                    563,845                514,535                510,459
                                                ---------------        ---------------        ---------------

        Total current liabilities                    2,620,533              2,345,223              2,074,788

Long-term liabilities:
   Deferred revenue                                     14,583                 17,167                 17,292
   Notes payable                                        26,130                      -                      -
                                                ---------------        ---------------        ---------------

        Total long-term liabilities                     40,713                 17,167                 17,292

Stockholders' deficit:
   Preferred stock - Series A                              990                    990                    990
   Preferred stock - Series B                              278                    278                    278
   Common stock                                        601,233                601,233                601,233
   Additional paid-in capital                        6,234,656              6,211,282              6,116,151
   Accumulated deficit                              (9,373,503)            (9,054,644)            (8,694,321)
                                                ---------------        ---------------        ---------------

        Total stockholders' deficit                 (2,536,346)            (2,240,861)            (1,975,669)
                                                ---------------        ---------------        ---------------

                                                $      124,900         $      121,529         $      116,411
                                                ===============        ===============        ===============
</TABLE>

                                      F-22
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)

<TABLE>

NOTE 14 - UNAUDITED QUARTERLY INFORMATION (continued)
-----------------------------------------------------
<CAPTION>

                                                               THREE MONTHS ENDED
                                          -----------------------------------------------------------
                                           SEPT. 30, 1999        JUNE 30, 1999         MARCH 31, 1999
                                          ---------------       ---------------       ---------------
<S>                                       <C>                   <C>                   <C>
Revenue                                   $      162,564        $      175,165        $      157,063

Cost of sales                                      3,739                 9,608                23,463
                                          ---------------       ---------------       ---------------

Gross profit                                     158,825               165,557               133,600
                                          ---------------       ---------------       ---------------

Expenses:
  Operating expenses                             437,449               496,177               466,146
  Interest expense                                40,235                29,703                27,621
                                          ---------------       ---------------       ---------------

Total expenses                                   477,684               525,880               493,767
                                          ---------------       ---------------       ---------------

Net loss                                  $     (318,859)       $     (360,323)       $     (360,167)
                                          ===============       ===============       ===============
</TABLE>


                                      F-23
<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 14 - UNAUDITED QUARTERLY INFORMATION (continued)
-----------------------------------------------------
<TABLE>
<CAPTION>

                                                        SEPT. 30, 1998        JUNE 30, 1998        MARCH 31, 1998
                                                       ---------------       ---------------       ---------------
<S>                                                    <C>                   <C>                   <C>
ASSETS
Current assets:
  Cash                                                 $       22,633        $       29,516        $       83,356
  Accounts receivable, net                                     35,652                69,943                95,514
  Inventory                                                     7,579                 7,800                 8,484
  Other                                                         8,846                12,317                13,016
                                                       ---------------       ---------------       ---------------

        Total current assets                                   74,710               119,576               200,370

Equipment and furniture, net                                   79,159                85,023                93,283
Other                                                           5,800                 6,200                 6,600
                                                       ---------------       ---------------       ---------------

                                                       $      159,669        $      210,799        $      300,253
                                                       ===============       ===============       ===============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Current portion of long-term debt                    $      535,776        $      408,992        $      261,060
  Accounts payable                                            406,869               410,784               453,398
  Deferred revenue                                            163,315               168,258               152,903
  Accrued expenses                                            705,633               652,017               633,477
                                                       ---------------       ---------------       ---------------

        Total current liabilities                           1,811,593             1,640,051             1,500,838

Long-term liabilities:
  Deferred revenue                                             25,920                31,261                33,070
  Notes payable                                             1,355,750             1,355,750             1,355,750
                                                       ---------------       ---------------       ---------------

        Total long-term liabilities                         1,381,670             1,387,011             1,388,820

Stockholders' deficit:
  Preferred stock - Series A                                      990                   990                   990
  Preferred stock - Series B                                      278                   278                   278
  Common stock                                                377,583               377,583               377,583
  Additional paid-in capital                                4,879,127             4,865,406             4,856,687
  Accumulated deficit                                      (8,291,572)           (8,060,520)           (7,824,943)
                                                       ---------------       ---------------       ---------------


        Total stockholders' deficit                        (3,033,594)           (2,816,263)           (2,589,405)
                                                       ---------------       ---------------       ---------------

                                                       $      159,669        $      210,799         $     300,253
                                                       ===============       ===============        ==============
</TABLE>

                                      F-24

<PAGE>
                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 (CONTINUED)


NOTE 14 - UNAUDITED QUARTERLY INFORMATION (continued)
-----------------------------------------------------
<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED
                                      -----------------------------------------------------------
                                       SEPT. 30, 1998        JUNE 30, 1998         MARCH 31, 1998
                                      ---------------       ---------------       ---------------
<S>                                   <C>                   <C>                   <C>
Revenue                               $       93,587        $      118,119        $      164,873

Cost of sales                                  9,352                 3,513                 5,116
                                      ---------------       ---------------       ---------------


Gross profit                                  84,235               114,606               159,757
                                      ---------------       ---------------       ---------------

Expenses:
  Operating expenses                         276,096               320,229               396,725
  Miscellaneous income                             -                (5,750)              (15,504)
  Interest expense                            39,191                35,704                34,219
                                      ---------------       ---------------       ---------------

Total expenses                               315,287               350,183               415,440
                                      ---------------       ---------------       ---------------

Net loss                              $     (231,052)       $     (235,577)       $     (255,683)
                                      ===============       ===============       ===============

</TABLE>

                                      F-25


<PAGE>

                                 EXHIBIT INDEX


Exhibit No.                       Description
-----------                       -----------


3.1      Certificate of Incorporation of Prism Software Corporation ("the
         Company") (Incorporated by reference to Exhibit 3.1 to the Registration
         Statement on Form SB-2 of the Company (SEC File No. 333-5450-LA))

3.2      Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the
         Registration Statement on Form SB-2 of the Company (SEC File No.
         333-5450-LA))

3.3      Amendments dated February 24, 1998 and May 5, 1999 to Certificate of
         Incorporation (1)

4.1      Specimen common stock certificate of the Company (Incorporated by
         reference to Exhibit 4.1 to the Registration Statement on Form SB-2 of
         the Company (SEC File No. 333-5450- LA))

4.2      Form of Warrant of the Company (Incorporated by reference to Exhibit
         4.2 to the Registration Statement on Form SB-2 of the Company (SEC File
         No. 333-5450-LA)) (1)

4.3      Certificate of Designation of $5.00, 10% Class A Cumulative Convertible
         Preferred Stock, as amended to date (1)

4.4      Certificate of Designation of $9.00, 8% Class B Cumulative Convertible
         Preferred Stock, as amended to date (1)

10.1     Prism Software Corporation Amended and Restated 1993 Stock Option Plan
         ("1993 Plan") (Incorporated by reference to Exhibit 10.1 to the
         Registration Statement on Form SB-2 of the Company (SEC File No.
         333-5450-LA))

10.2     Form of Employee Installment Incentive Stock Option and Nonstatutory
         Stock Option Agreement pertaining to the 1993 Plan (Incorporated by
         reference to Exhibit 10.2 to the Registration Statement on Form SB-2 of
         the Company (SEC File No. 333-5450-LA))

10.3     Prism Software Corporation 1996 Stock Option Plan ("1996 Plan")
         (Incorporated by reference to Exhibit 10.3 to the Registration
         Statement on Form SB-2 of the Company (SEC File No. 333-5450-LA))

10.4     Form of Nonqualified Stock Option Agreement pertaining to the 1996 Plan
         (Incorporated by reference to Exhibit 10.4 to the Registration
         Statement on Form SB-2 of the Company (SEC File No. 333-5450-LA))

10.5     Form of Incentive Stock Option Agreement pertaining to the 1996 Plan
         (Incorporated by reference to Exhibit 10.5 to the Registration
         Statement on Form SB-2 of the Company (SEC File No. 333-5450-LA))

<PAGE>

Exhibit No.                        Description
-----------                        -----------


10.6     Lease dated April 21, 1994 made between the Company and the Mort
         Herrmann Family Trust (Incorporated by reference to Exhibit 10.6 to the
         Registration Statement on Form SB-2 of the Company (SEC File No.
         333-5450-LA))

10.7     Amendments dated April 15, 1999 to the lease made between the Company
         and the Mort Herrmann Family Trust (1)

10.8     Amended and Restated Employment Agreement dated as of April 21, 1995,
         by and between the Company and E. Ted Daniels (Incorporated by
         reference to Exhibit 10.7 to the Registration Statement on Form SB-2 of
         the Company (SEC File No. 333-5450-LA))

10.9     Non-Qualified Stock Option Agreement dated as of April 21, 1995, by and
         between the Company and E. Ted Daniels (Incorporated by reference to
         Exhibit 10.8 to the Registration Statement on Form SB-2 of the Company
         (SEC File No. 333-5450-LA))

10.10    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 (1)

10.11    Promissory Note dated August 9, 1991 made to the order of George E.
         Williams in the principal amount of $22,000 (1)

10.12    Promissory Note dated December 9, 1991 made to the order of Personal
         Computer Products, Inc. in the principal amount of $40,000 (1)

10.13    Promissory Note dated April 15, 1993 made to the order of James or
         Judith Bone in the principal amount of $63,031 (1)

10.14    Promissory Note dated February 17, 1994 made to the order of Shirley
         McGarvey in the principal amount of $35,000 (1)

10.15    Promissory Note dated December 31, 1994 made to the order of James Bone
         in the principal amount of $70,168 (1)

10.16    Promissory Note dated December 31, 1994 made to the order of Allard
         Villere in the principal amount of $15,996 (1)

10.17    Convertible Promissory Note dated July 29, 1995 made to the order of
         Northstar Capital Partners, LP ("Northstar") in the principal amount of
         $40,000 (Incorporated by reference to Exhibit 10.15 to the Registration
         Statement on Form SB-2 of the Company (SEC File No. 333-5450-LA))

<PAGE>

Exhibit No.                        Description
-----------                        -----------


10.18    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) (1)

10.19    Convertible Promissory Note dated July 29, 1995 made to the order of
         Peachtree Capital Partners, LP ("Peachtree") in the principal amount of
         $60,000 (Incorporated by reference to Exhibit 10.14 to the Registration
         Statement on Form SB-2 of the Company (SEC File No. 333-5450-LA))

10.20    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) (1)

10.21    Convertible Promissory Note dated December 31, 1997 made to the order
         of Capital Investment Partners in the principal amount of $48,000 (1)

10.22    Convertible Promissory Note dated December 31, 1997 made to the order
         of Northstar in the principal amount of $50,000 (1)

10.23    Convertible Promissory Note dated December 31, 1997 made to the order
         of Third Century II in the principal amount of $39,500 (1)

10.24    Form of Convertible Promissory Notes dated June 12 to October 14, 1998
         in the aggregate principal amount of $233,000 (1)

10.25    Form of Convertible Promissory Notes dated May 1 to September 1, 1998
         in the aggregate principal amount of $120,000 (1)

10.26    Form of Convertible Promissory Notes dated October 30, 1998 to March
         12, 1999 in the aggregate principal amount of $314,000 (1)

10.27    Form of Convertible Promissory Notes dated March 31, 1999 to March 14,
         2000 in the aggregate principal amount of $1,125,000 (1)

10.28    Convertible Promissory Note dated April 8, 1999 made to the order of
         Northstar in the principal amount of $5,000 (1)

10.29    Original Equipment Manufacturer ("OEM") Agreement dated May 13, 1997 by
         and between the Company and Artifex Software, Inc., as amended to date
         (1)


____________________

(1) Incorporated by reference to the Annual Report on Form 10-KSB for the fiscal
    year ended December 31, 1998.

<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: March 22, 2000             By:  /s/ E. Ted Daniels
                                      -------------------
                                      President, Chief Executive Officer, Chief
                                      Financial Officer and Director (Principal
                                      Executive Officer and Principal Financial
                                      and Principal Accounting Officer)


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

      Name                               Title                                   Date
      ----                               -----                                   ----
<S>                              <C>                                         <C>
/s/ E. Ted Daniels               President, Chief Executive Officer,         March 22, 2000
------------------               Chief Financial Officer and Director
E. Ted Daniels                   (Principal Executive Officer and
                                 Principal Financial and Principal
                                 Accounting Officer)

/s/ Allard C. Villere            Director                                    March 22, 2000
---------------------
Allard C. Villere
</TABLE>