<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, 2002

[ ]      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, 2002 were
$543,496.

         The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 2003 was approximately $676,000.

         The number of shares outstanding of the registrant's only class of
Common Stock, par value $.01 per share, was 139,591,534 on March 31, 2003.


<PAGE>

                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

COMPANY OVERVIEW

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

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

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


THE MARKET

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

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

                                       2
<PAGE>

CURRENT PRODUCTS

         PRINTCONSOLE

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

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

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

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

         PRINTCONSOLE CONVERSION MODULES

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

         PRINTCONSOLE'S INTEGRATION WITH THIRD PARTY PRODUCTS

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


                                       3
<PAGE>

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

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

         DOCFORM PRODUCT LINE

         These products represent the most recent addition to the Company's
product line and noticeably extend its functionality. The DocForm products
provide the ability to integrate data, dynamically design documents including
adding business logic, and intelligently deliver the documents to a variety of
destinations such as printers, faxes, folders on a network, or other software
applications. The Prism engineering team developed the DocForm product family.
Designed to be easy to use, message, and sell, the DocForm product family has
multiple offerings:

         o        DOCFORM is made up of two primary components, DocForm Designer
                  and DocForm Server. DocForm Designer is the user interface to
                  map data and design business documents. Business logic and
                  conditional processing parameters are specified using this
                  module as well. DocForm Server is the run-time environment for
                  the documents created in DocForm Designer. DocForm Server
                  features multi-threaded processing to maximize performance and
                  improve business processes.

         o        METAFORMCONVERT is the DocForm module that converts Metacode
                  forms (FSL files) into native DocForm overlay templates. This
                  facilitates the modernization of legacy Xerox print
                  environments for Xerox customers that have not yet updated
                  their printing systems.

INTELLECTUAL PROPERTY

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


                                       4
<PAGE>

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

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

EMPLOYEES

         As of March 31, 2003, the Company had 15 employees. The Company's
employees are not represented by any collective bargaining organization and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.


ITEM 2.  DESCRIPTION OF PROPERTY

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


ITEM 3.  LEGAL PROCEEDINGS

         The Company was the defendant in an action filed in October 2001 by a
customer, arising out of a warranty claim on software sold by the Company in
January 2000. The action was filed in Pierce County Superior Court in the State
of Washington (Case No. 01-2-12488-5). Under local court rules, the plaintiff
elected to arbitrate the matter, which limited potential damages (exclusive of
attorneys' fees and costs) to a maximum of $35,000. An arbitration hearing was
held in October 2002, which resulted in no damages being awarded against the
Company. In December 2002, the Company agreed to pay $4,000 of the plaintiff's
legal expenses to settle the case.


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

         None.


                                       5
<PAGE>


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Common Stock of the Company is quoted on the National Association
of Securities Dealers, Inc. ("NASD") OTC Bulletin Board ("OTCBB") under the
symbol "PSOF." The OTCBB is a quotation service for subscribing members and is
regulated by the Securities and Exchange Commission ("SEC") and the NASD. OTCBB
securities are traded by a community of market makers that enter quotes and
trade reports through a closed computer network. Set forth below are the high
ask and low bid prices of the Company's Common Stock during each quarter of the
fiscal years ended December 31, 2001 and December 31, 2002, as reported by a
member firm of the NASD that effects transactions in stocks quoted on the OTCBB
and acts as one of the market makers for the Company's Common Stock. The
quotations listed below reflect interdealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent actual transactions.

                                                  High/Ask     Low/Bid
                                                  --------     -------
Quarter ended March 31, 2001                      0.045        0.03
Quarter ended June 30, 2001                       0.045        0.017
Quarter ended September 30, 2001                  0.04         0.015
Quarter ended December 31, 2001                   0.0425       0.012
Quarter ended March 31, 2002                      0.021        0.013
Quarter ended June 30, 2002                       0.017        0.0051
Quarter ended September 30, 2002                  0.010        0.0055
Quarter ended December 31, 2002                   0.017        0.003

         As of March 31, 2003, there were approximately 716 stockholders of
record of the Company's Common Stock.

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

         The following is a summary of transactions by the Company during the
fiscal year ended December 31, 2002 involving the Company's securities that were
not registered under the Securities Act of 1933, as amended (the "Securities
Act").

         ISSUANCES OF COMMON STOCK AND WARRANTS

         None.

         CERTAIN NOTES AND NOTE CONVERSIONS

         During 2002, the Company borrowed an aggregate of $1,524,900 from two
investors under Open-Ended Convertible Promissory Notes. The borrowings bear
interest at the rate of 8% per annum (with payment of accrued interest due at
maturity) and mature at various dates during 2003. The borrowings are
convertible upon default into shares of Common Stock at the rate of $0.05 per
share (subject to certain anti-dilution adjustments) at the option of the
holder. Upon the conversion of all or any portion of these borrowings into
Common Stock, the Company will also issue to the holder a warrant to purchase
additional shares of Common Stock (equal to the number of shares issued upon
such conversion) at an exercise price of $0.12 per share (subject to certain
anti-dilution adjustments). The borrowings were from the Conrad von Bibra
Revocable Trust (an aggregate of $792,900 borrowed from June to December 2002)
and Mr. von Bibra's son, Carl von Bibra (an aggregate of $732,000 borrowed from
January to May 2002). The von Bibra family is not an affiliate of the Company
(other than as a principal stockholder). No commissions were paid in connection
with this transaction.

                                       6
<PAGE>

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


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

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

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

         For the fiscal year ended December 31, 2002, the Company reported a
loss of approximately $2,307,000, or $0.02 per common share. This compares with
a loss of approximately $2,346,000, or $0.02 per share, for the fiscal year
ended December 31, 2001. The loss decreased approximately $39,000 due primarily
to the following:

         o        Operating revenue increased approximately $123,000 due
                  primarily to an increase in sales through resellers.
         o        The cost of sales increased approximately $23,000 from
                  approximately $48,000, or about 11% of revenue, to
                  approximately $71,000, or about 13% of revenue.
         o        Total operating expenses increased approximately $107,000 due
                  primarily to the following that occurred in the quarter ended
                  June 30, 2002:
                  1.       The Company incurred a one-time loss of approximately
                           $104,000 in writing down assets from a licensing
                           agreement.
                  2.       The Company accrued a one-time expense of
                           approximately $72,000 for minimum royalties under the
                           aforementioned licensing agreement.

         o        In 2001, the Company recognized gains of approximately
                  $125,000 from legal settlements.
         o        Interest expense decreased approximately $171,000 due
                  primarily to a decrease of about $318,000 in the expense
                  recognized from amortizing a beneficial conversion feature on
                  certain convertible notes. (See "Liquidity and Capital
                  Resources.") This was partially offset by an increase of
                  approximately $147,000 in aggregate face value interest due to
                  an increase in the Company's indebtedness.


                                       7
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         On December 31, 2002, the Company had cash and cash equivalents of
approximately $8,000. The principal source of liquidity in the fiscal year ended
December 31, 2002 was approximately $1,524,900 of additional borrowings.

         Through December 31, 2001, the Company had issued an aggregate of
approximately $1,023,000 in debt that was convertible at the lenders' option
into Common Stock at a conversion rate that was below the market price of the
Common Stock at the time the loans were made. (Approximately $1,003,000 of this
debt was outstanding as of December 31, 2002.) The value of the beneficial
conversion feature (discount) on each such loan was equal to or lesser than the
face value of the loan and was amortized from the date the lender gained the
right to convert the loan through to the loan's earliest possible conversion
date. The amortization period was one year for most of these such loans. As of
December 31, 2002, the aggregate unamortized discount on such loans was $0 and
the Company had recorded approximately $940,000 as additional paid-in capital
for the accumulated amortization of the discount. The amortization expense is
included as part of the caption "Interest expense - stockholders" in the
accompanying statements of operations. For the fiscal years ended December 31,
2002 and December 31, 2001, this amortization expense was $0 and approximately
$318,000, respectively.

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

EFFECT OF INFLATION

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

FORWARD-LOOKING STATEMENTS; CAUTIONARY STATEMENT

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


                                       8
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

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

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

         None.


                                     PART II


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


DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

         The following table sets forth certain information with respect to each
director, officer and significant employee of the Company.

         NAME                       AGE              POSITION(S)
         ----                       ---              -----------

         DIRECTORS AND EXECUTIVE OFFICERS:

         E. Ted Daniels             62           Chairman of the Board, Chief
                                                 Executive Officer, President
                                                 and interim Chief Financial
                                                 Officer

         David Ayres                48           Vice President of Sales and
                                                 Marketing


         SIGNIFICANT EMPLOYEES:

         Richard Nicolai            47           Technical Services Manager

         Michael Cheever            34           Controller

         Michael Daniels            33           Engineering Manager


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

         David Ayres joined the Company in May 2002. He has over thirteen years
of experience in the printer industry, and over twenty years in senior
management positions. Prior to joining the Company he was CEO of an
industry-leading supplier to the OEM printer market. He was also Sr. Product
Group Manager for Canon in their Canon Computers Systems division.

                                       9
<PAGE>

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

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

         Michael Daniels joined the Company in September 2000. He has over
twelve years of software development experience and has managed a number of
successful software projects. Prior to joining the Company, he designed hardware
and software for college physics laboratories.


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 Company does not have an Audit Committee.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

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



                                       10
<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth certain compensation awarded or paid by
the Company to its executive officers during the fiscal years ended December 31,
2002, December 31, 2001 and December 31, 2000. No other executive officer's
total annual salary and bonus for services to the Company exceeded $100,000.
<TABLE>
<CAPTION>

                                                                                       Long-Term Compensation
                                                                                ------------------------------------
                                                  Annual Compensation                  Awards              Payouts
                                           ----------------------------------   ----------------------   -----------
                                                                    Other                                    All
                                                                    Annual                  Securities      Other
                                                                    Compen-       Stock     Underlying     Compen-
             Name and            Fiscal    Salary (1)    Bonus     sation (2)     Awards    Options (#)    sation
        Principal Position        Year        ($)         ($)          ($)         ($)          (3)          ($)
------------------------------  ---------  ----------  ---------  ------------  ---------   -----------   ----------
<S>                               <C>       <C>        <C>            <C>           <C>     <C>                <C>
E. Ted Daniels (4)                2002      $239,692         $0       $14,607       $0              0          $0
President and                     2001      $217,902         $0       $12,246       $0      1,688,456          $0
Chief Executive Officer           2000      $198,093         $0       $10,494       $0      2,318,812          $0

David Ayres                       2002       $89,640         $0            $0       $0              0          $0
Vice President of Sales
and Marketing

Barry Lathan (4)                  2002       $39,074         $0        $1,474       $0              0          $0
President and                     2001      $198,737    $15,000        $4,687       $0      1,000,000          $0
Chief Operating Officer

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

         (1)      The salary amounts shown for Mr. Daniels include additional
                  amounts for salary accrued but not yet paid pursuant to Mr.
                  Daniels' employment agreement described under "Employment
                  Agreements" below.
         (2)      Includes auto allowances, insurance and other fringe benefits.
         (3)      Includes shares of Common Stock issuable upon exercise of
                  options granted to Mr. Daniels pursuant to his employment
                  agreement and related stock issuance agreement described under
                  "Employment Agreements" below. As of March 31, 2003, Mr.
                  Daniels had been granted options to acquire an aggregate of
                  approximately 4,450,000 shares pursuant to his employment
                  agreement and related stock issuance agreement (approximately
                  2,000,000 of these options remain outstanding as of this
                  date).
         (4)      As of December 31, 2002, Mr. Lathan was no longer employed by
                  the Company and Mr. Daniels had reassumed the title of
                  President.


                                       11
<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, 2002, the value realized therefor, the number of
unexercised options at December 31, 2002 and the value of unexercised
in-the-money options at December 31, 2002 for the Company's executive officers
in the Summary Compensation Table above. The Company's executive officers did
not hold any stock appreciation rights ("SARs") during the fiscal year ended
December 31, 2002.

<TABLE>
<CAPTION>
                                                             NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                                                            UNDERLYING UNEXERCISED               IN-THE-MONEY
                            SHARES                            OPTIONS AT FISCAL               OPTIONS AT FISCAL
                         ACQUIRED ON         VALUE               YEAR-END (#)                    YEAR-END ($)
       NAME              EXERCISE (#)       REALIZED      EXERCISABLE/UNEXERCISABLE       EXERCISABLE/UNEXERCISABLE
--------------------     -------------     -----------    ---------------------------     ---------------------------
<S>                                 <C>            <C>                   <C>                              <C>
E. Ted Daniels                      0              $0                    2,000,000/0                      $26,000/$0
</TABLE>


EMPLOYMENT AGREEMENTS

         E. TED DANIELS

         The Company and Mr. Daniels have entered into an employment agreement
which, among other things, provides that during the term of the agreement, Mr.
Daniels shall be the President and Chief Executive Officer of the Company and
shall receive an annual base salary of $120,000 (subject to annual review and
increases), an annual bonus equal to 10% of the Company's consolidated operating
income before interest, taxes, bonus payments and certain other fringe benefits,
320,000 shares of Common Stock at no cost and a non-qualified stock option to
acquire a number of shares of Common Stock equal to the greater of (i) 640,000
or (ii) the difference between 8% of the diluted Common shares outstanding from
time to time and the 320,000 Common shares previously issued to Mr. Daniels
(subject to certain anti-dilution adjustments) at an exercise price of $0.25 per
share.

         In December 1995, the Board of Directors approved the acceleration of
the vesting of such options to become fully vested and immediately exercisable,
provided that as of such date (i) the Company has not terminated Mr. Daniels for
cause pursuant to the Employment Agreement and (ii) Mr. Daniels has not
voluntarily resigned from the Company. Also in December 1995, the Company
approved that all options granted under this Agreement are issued pursuant to
Rule 701 of the Securities Act. In May 1996, the Board of Directors waived the
payment by Mr. Daniels of the exercise price with respect to 1,150,430 shares
issuable upon exercise of such options. In May 1997, the Board of Directors
approved that the exercise price of all options granted to Mr. Daniels under
this agreement be reduced to $0.04 per share.

         In December 1997, the Board of Directors amended the agreement to
provide for the annual salary increase to be set at 10% retroactive to the date
of Mr. Daniels' original contract (September 1994). The Company has not paid Mr.
Daniels the full amount of salary due under this formula and has accrued the
unpaid balance. Also in December 1997, the Board approved that all options
issuable to Mr. Daniels under this agreement be exercisable at no cost and that
the agreement be extended to September 30, 2000. In October 1998, the Board
extended the agreement to September 14, 2002. In August 2000, the Board extended
the agreement to September 14, 2004. In December 2002, Mr. Daniels voluntarily
cancelled all existing options except for an amount sufficient to acquire up to
2,000,000 shares of common stock.


                                       12
<PAGE>

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


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,
2002, options for 62,500 shares of Common Stock available for grant under the
1993 Plan had been exercised, approximately 253,600 shares of Common Stock were
reserved for issuance upon exercise of outstanding options and approximately
313,900 shares of Common Stock remained available for grant thereunder. The 1993
Plan will terminate at midnight on February 1, 2003 unless sooner terminated by
the Board of Directors.

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

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

         The Company did not grant any options to its executive officers under
the 1993 Plan during the fiscal year ended December 31, 2002 nor during the
fiscal year ended December 31, 2001.


         1996 STOCK OPTION PLAN

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


                                       13
<PAGE>

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

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

         The Company did not grant any options to its executive officers under
the 1996 Plan during the fiscal year ended December 31, 2002 nor during the
fiscal year ended December 31, 2001.

         2000 NONSTATUTORY STOCK OPTION PLAN

         In May 2000 the Board of Directors adopted the Prism Software
Corporation 2000 Nonstatutory Stock Option Plan (the "2000 Plan"). The 2000 Plan
authorizes the granting of options to purchase up to a maximum of 3,000,000
shares of Common Stock to qualified employees and directors of the Company. As
of December 31, 2002, none of the options available for grant under the 2000
Plan had been exercised, approximately 915,000 shares of Common Stock were
reserved for issuance upon exercise of outstanding options and approximately
2,085,000 shares of Common Stock remained available for grant thereunder. The
2000 Plan will terminate on May 4, 2010, unless sooner terminated by the Board
of Directors.

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

         The Company did not grant any options to its executive officers under
the 2000 Plan during the fiscal year ended December 31, 2002. The Company
granted options to purchase 1,000,000 shares of common stock to its executive
officers under the 2000 Plan during the fiscal year ended December 31, 2001.


         MANAGEMENT OPTIONS

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



                                       14
<PAGE>


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

         The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 2003, by (i) each
person known by the Company to beneficially own 5% or more of the outstanding
Common Stock of the Company; (ii) each of the Company's directors; (iii) each of
the Company's Executive Officers; and (iv) all directors and Executive Officers
of the Company as a group.
<TABLE>
<CAPTION>

        NAME AND ADDRESS             NUMBER OF SHARES      PERCENTAGE OF OUTSTANDING
      OF BENEFICIAL OWNER          BENEFICIALLY OWNED (1)            SHARES (1)
---------------------------------  ----------------------  -------------------------
<S>                                         <C>                         <C>
E. Ted Daniels
c/o Prism Software Corporation
23696 Birtcher
Lake Forest, CA  92630                      4,440,000 (2)               3.1%

David Ayres
c/o Prism Software Corporation
23696 Birtcher
Lake Forest, CA  92630                        615,000                     *

James Martin
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA  30326                         28,785,912 (3)              20.3%

Third Century II
1711 Chateau Court
Fallston, MD  21047                        18,471,854                  13.2%

The Conrad von Bibra Revocable Trust
and Carl von Bibra
1415 Milan Ave.
South Pasadena, CA  91030                 179,478,234 (4)              65.9%

All Directors and
Executive Officers of the
Company as a Group (2 persons)              5,055,000 (5)               3.6%

___________________
</TABLE>

         *        Less than 1%.

         (1)      Beneficial ownership is determined in accordance with the
                  rules of the Securities and Exchange Commission and generally
                  includes voting or investment power with respect to
                  securities. Except as indicated by footnote, and subject to
                  community property laws where applicable, the persons named in
                  the table above have sole voting and investment power with
                  respect to all shares of Common Stock shown as beneficially
                  owned by them. Shares of Common Stock subject to securities
                  currently convertible, or convertible within 60 days after
                  March 31, 2003, 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.

                                       15
<PAGE>

         (2)      Includes 2,000,000 shares of Common Stock issuable upon the
                  exercise of options that are either vested as of March 31,
                  2003 or could potentially vest within 60 days after such date.
                  These options originally entitled 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.
                  In December 2002, Mr. Daniels voluntarily cancelled all
                  existing options except for an amount sufficient to acquire up
                  to 2,000,000 shares of common stock. (See "Executive
                  Compensation-Employment Agreements.")

         (3)      Includes 2,371,901 shares issuable upon the conversion of
                  certain Convertible Promissory Notes that are either vested as
                  of March 31, 2003 or could vest within 60 days after such date
                  which are beneficially owned by James Martin, his family or
                  certain entities that James Martin represents (Capital
                  Investment Partners Holdings LLC, Huntington Partners, MARCO
                  II Partners and MV Ventures). James Martin beneficially owns
                  512,500 shares of Common Stock. His son Cameron Martin
                  beneficially owns 62,500 shares of Common Stock. Capital
                  Investment Partners Holdings LLC beneficially owns 25,226,511
                  shares of Common Stock and an additional 2,371,901 shares
                  issuable upon the conversion of certain Convertible Promissory
                  Notes that are either vested as of March 31, 2003 or could
                  potentially vest within 60 days after such date. Huntington
                  Partners beneficially owns 312,500 shares of Common Stock,
                  MARCO II Partners beneficially owns 100,000 shares of Common
                  Stock, and MV Ventures beneficially owns 200,000 shares of
                  Common Stock.

         (4)      (5) Includes 132,863,889 shares of Common Stock issuable upon
                  the conversion of certain Convertible Promissory Notes that
                  are either vested as of March 31, 2003 or could vest within 60
                  days after such date which are beneficially owned by the
                  Conrad von Bibra Revocable Trust or Mr. von Bibra's son, Carl
                  von Bibra. The Conrad von Bibra Revocable Trust beneficially
                  owns 31,206,845 shares of Common Stock and an additional
                  76,734,891 shares issuable upon the conversion of certain
                  Convertible Promissory Notes that are either vested as of
                  March 31, 2003 or could vest within 60 days after such date.
                  Carl von Bibra beneficially owns 15,407,500 shares of Common
                  Stock and 56,128,998 shares issuable upon the conversion of
                  certain Convertible Promissory Notes that are either vested as
                  of March 31, 2003 or could vest within 60 days after such
                  date.

         (5)      Includes shares of Common Stock issuable upon the exercise of
                  options described in note (2) above.



                                       16
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         ISSUANCE OF COMMON STOCK AND WARRANTS

         None.


         REPURCHASE OF COMMON STOCK

         In December 2002, the Company repurchased 500,000 shares of its Common
Stock from Carl von Bibra for $2,500, or $0.005 per share. Mr. von Bibra is not
an affiliate of the Company (other than as a principal stockholder).


         CERTAIN NOTES AND NOTE CONVERSIONS

         From January to August 2001, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $1,167,000 to two investors. The
notes bear interest at the rate of 8% per annum (with payment of accrued
interest due at maturity) and mature at various dates from November 2001 to
August 2002. The notes are convertible upon default into shares of Common Stock
at the rate of $0.05 per share at the option of the holder. The notes were
issued to the Conrad von Bibra Revocable Trust ($300,000 in the aggregate) and
Mr. von Bibra's son, Carl von Bibra ($652,000 in the aggregate). The von Bibra
family is not an affiliate of the Company (other than as a principal
stockholder). No commissions were paid in connection with this transaction.

         From August 2001 to December 2002, the Company borrowed an aggregate of
$2,378,900 from two investors under Open-Ended Convertible Promissory Notes. The
borrowings bear interest at the rate of 8% per annum (with payment of accrued
interest due at maturity) and mature at various dates from August 2002 to
December 2003. The borrowings are convertible upon default into shares of Common
Stock at the rate of $0.05 per share (subject to certain anti-dilution
adjustments) at the option of the holder. Upon the conversion of all or any
portion of these borrowings into Common Stock, the Company will also issue to
the holder a warrant to purchase additional shares of Common Stock (equal to the
number of shares issued upon such conversion) at an exercise price of $0.12 per
share (subject to certain anti-dilution adjustments). The borrowings were from
the Conrad von Bibra Revocable Trust (an aggregate of $792,900 borrowed from
June to December 2002) and Mr. von Bibra's son, Carl von Bibra (an aggregate of
$1,586,000 borrowed from August 2001 to May 2002). The von Bibra family is not
an affiliate of the Company (other than as a principal stockholder). No
commissions were paid in connection with this transaction.

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



                                       17
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

             3.1    Certificate of Incorporation of Prism Software Corporation
                    ("the Company") (1) (Exhibit 3.1)
             3.2    Bylaws of the Company (1) (Exhibit 3.2)
             3.3    Amendments dated February 24, 1998 and May 5, 1999 to the
                    Company's Certificate of Incorporation (2) (Exhibit 3.3)
             3.4    Amendment dated September 18, 2000 to the Company's
                    Certificate of Incorporation (4) (Exhibit 10.1)
             4.1    Specimen Common Stock certificate of the Company (1)
                    (Exhibit 4.1)
             4.2    Certificate of Designation of $5.00, 10% Class A Cumulative
                    Convertible Preferred Stock, as amended to date (2) (Exhibit
                    4.3)
             4.3    Form of Warrant for Common Stock, issued 2000-2001 (5)
                    (Exhibit 4.5)
             10.1   Prism Software Corporation Amended and Restated 1993 Stock
                    Option Plan ("1993 Plan") (1) (Exhibit 10.1)
             10.2   Form of Employee Installment Incentive Stock Option and
                    Nonstatutory Stock Option Agreement pertaining to the 1993
                    Plan (1) (Exhibit 10.2)
             10.3   Prism Software Corporation 1996 Stock Option Plan ("1996
                    Plan") (1) (Exhibit 10.3)
             10.4   Form of Nonqualified Stock Option Agreement pertaining to
                    the 1996 Plan (1) (Exhibit 10.4)
             10.5   Form of Incentive Stock Option Agreement pertaining to the
                    1996 Plan (1) (Exhibit 10.5)
             10.6   Prism Software Corporation 2000 Nonstatutory Stock Option
                    Plan ("2000 Plan") (3) (Exhibit 10.1)
             10.7   Form of Stock Option Agreement pertaining to the 2000 Plan
                    (3) (Exhibit 10.2)
             10.8   Lease dated April 21, 1994, by and between the Company and
                    the Mort Herrmann Family Trust (1) (Exhibit 10.6)
             10.9   Amendments dated April 15, 1999 to the April 21, 1994 lease
                    by and between the Company and the Mort Herrmann Family
                    Trust (2) (Exhibit 10.7)
             10.10  Amended and Restated Employment Agreement dated as of April
                    21, 1995, by and between the Company and E. Ted Daniels (1)
                    (Exhibit 10.7)
             10.11  Non-Qualified Stock Option Agreement dated as of April 21,
                    1995, by and between the Company and E. Ted Daniels (1)
                    (Exhibit 10.8)
             10.12  Summary of Resolutions and Amendments through October 15,
                    1998 to Employment Agreement and Non-Qualified Stock Option
                    Agreement by and between the Company and E. Ted Daniels (2)
                    (Exhibit 10.10)
             10.13  Promissory Note dated August 9, 1991, made to the order of
                    George E. Williams in the principal amount of $22,000 (2)
                    (Exhibit 10.11)
             10.14  Promissory Note dated December 9, 1991, made to the order of
                    Personal Computer Products, Inc. in the principal amount of
                    $40,000 (2) (Exhibit 10.12)
             10.15  Promissory Note dated April 15, 1993, made to the order of
                    James or Judith Bone in the principal amount of $63,031 (2)
                    (Exhibit 10.13)
             10.16  Promissory Note dated February 17, 1994, made to the order
                    of Shirley McGarvey in the principal amount of $35,000 (2)
                    (Exhibit 10.14)
             10.17  Promissory Note dated December 31, 1994, made to the order
                    of James Bone in the principal amount of $70,168 (2)
                    (Exhibit 10.15)
             10.18  Promissory Note dated December 31, 1994, made to the order
                    of Allard Villere in the principal amount of $15,996 (2)
                    (Exhibit 10.16)


                                       18
<PAGE>

             10.19  Convertible Promissory Note dated July 29, 1995, made to the
                    order of Northstar Capital Partners, LP ( now owned by
                    Capital Investment Partners Holdings LLC) in the principal
                    amount of $40,000 (1) (Exhibit 10.15)
             10.20  Amendment dated October 20, 1997 to the July 29, 1995
                    Convertible Promissory Note made to the order of Northstar
                    Capital Partners, LP (now held by Capital Investment
                    Partners Holdings LLC) in the principal amount of $40,000
                    (2) (Exhibit 10.18)
             10.21  Convertible Promissory Note dated July 29, 1995, made to the
                    order of Peachtree Capital Partners, LP (now held by Capital
                    Investment Partners Holdings LLC) in the principal amount of
                    $60,000 (1) (Exhibit 10.14)
             10.22  Amendment dated October 20, 1997 to the July 29, 1995
                    Convertible Promissory Note made to the order of Peachtree
                    Capital Partners, LP (now held by Capital Investment
                    Partners Holdings LLC) in the principal amount of $60,000
                    (2) (Exhibit 10.20)
             10.23  Form of Convertible Promissory Notes dated March 31, 1999 to
                    July 3, 2000, aggregate principal amount of $1,630,000 (2)
                    (Exhibit 10.27)
             10.24  Form of Convertible Promissory Notes dated September 25,
                    2000 and September 29, 2000, aggregate principal amount of
                    $40,206 (5) (Exhibit 10.24)
             10.25  Form of Convertible Promissory Notes dated October 4, 2000,
                    aggregate principal amount of $19,330 (5) (Exhibit 10.25)
             10.26  Form of Convertible Promissory Notes dated November 14, 2000
                    to August 23, 2001, aggregate principal amount of $1,167,000
                    (6) (Exhibit 10.26)
             10.27  Open-Ended Convertible Promissory Note dated August 29,
                    2001, made to the order of Carl von Bibra (6) (Exhibit
                    10.27)
             10.28  Open-Ended Convertible Promissory Note dated June 14, 2002,
                    made to the order of the Conrad von Bibra Revocable Trust
                    (7) (Exhibit 10.1)
             10.29  Form of Warrant for Common Stock, issuable upon the
                    conversion of any or all of the amounts borrowed under
                    certain Open-Ended Convertible Promissory Notes (Carl von
                    Bibra's August 29, 2001 note and Conrad von Bibra's June 14,
                    2002 note) (7) (Exhibit 10.2)
             10.30  Letter Agreement dated December 31, 2002 with E. Ted Daniels
                    to cancel all but 2,000,000 of the options under his April
                    21, 1995 Non-Qualified Stock Option Agreement, as amended
                    (8)
             99.1   Certification Pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                    (8)

___________________

                    (1) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's
                        Registration Statement on Form SB-2 (SEC File No.
                        333-5450-LA).

                    (2) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's Annual
                        Report on Form 10-KSB for the fiscal year ended December
                        31, 1998.

                    (3) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's
                        Quarterly Report on Form 10-QSB for the quarter ended
                        June 30, 2000.


                                       19
<PAGE>

                    (4) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's
                        Quarterly Report on Form 10-QSB for the quarter ended
                        September 30, 2000.

                    (5) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's Annual
                        Report on Form 10-KSB for the fiscal year ended December
                        31, 2000.

                    (6) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's Annual
                        Report on Form 10-KSB for the fiscal year ended December
                        31, 2001.

                    (7) Incorporated by reference to the Exhibit identified in
                        parentheses, filed as an exhibit in the Company's
                        Quarterly Report on Form 10-QSB for the quarter ended
                        June 30, 2002.

                    (8) Filed herewith.


         (b) Reports on Form 8-K

                  None.


ITEM 14.  CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive and
Financial Officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-14(c) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days
of the filing date of this report. Based on this evaluation, our Chief Executive
and Financial Officer concluded that the Company's disclosure controls and
procedures are effective. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in reports under the Exchange
Act are processed and reported within the time periods specified by law. The
design of any such system of controls is based in part on assumptions about the
likelihood of future events, and there can be no assurance that any such system
of controls will succeed in all circumstances.

Since the date of the evaluation described above, there have been no significant
changes in our internal controls or in other factors that could significantly
affect these controls.




                                       20

<PAGE>


                           PRISM SOFTWARE CORPORATION
                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Certified Public Accountants                           F-2

Balance Sheet as of December 31, 2002                                        F-3

Statements of Operations for the Years Ended
     December 31, 2002 and 2001                                              F-4

Statements of Stockholders' Deficit for the Years Ended
     December 31, 2002 and 2001                                              F-5

Statements of Cash Flows for the Years Ended
     December 31, 2002 and 2001                                              F-6

Notes to Financial Statements                                                F-7



                                      F-1

<PAGE>




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



The Board of Directors and Stockholders
Prism Software Corporation


We have audited the accompanying balance sheet of Prism Software Corporation
(the "Company") as of December 31, 2002, and the related statements of
operations, stockholders' deficit and cash flows for each of the years in the
two-year period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prism Software Corporation as
of December 31, 2002 and the results of its operations and cash flows for each
of the years in the two-year period ended December 31, 2002 in conformity with
generally accepted accounting principles in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company's continued operating losses, limited capital
and stockholders' deficit raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to this matter are also
described in Note 12. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/S/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California
May 19, 2003


                                      F-2
<PAGE>
                           PRISM SOFTWARE CORPORATION
                                 Balance Sheet

                                                                    DECEMBER 31,
                                                                       2002
                                                                   -------------

                                     ASSETS

Current assets
  Cash                                                             $      7,778
  Accounts receivable, net of allowance
    for doubtful accounts of $4,369                                      34,316
  Inventory                                                                 492
                                                                   -------------
     Total current assets                                                42,586

  Equipment                                                              30,086
  Other                                                                  11,633
                                                                   -------------
                                                                   $     84,305
                                                                   =============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
  Notes payable - stockholders                                     $  5,270,330
  Accrued interest - stockholders                                       884,191
  Accrued expenses - stockholders                                        30,203
  Notes payable                                                          38,700
  Accounts payable                                                      351,172
  Accrued expenses                                                      313,141
  Deferred revenue                                                      112,758
                                                                   -------------
     Total current liabilities                                        7,000,495
                                                                   -------------

Commitments and contingencies                                                --

Stockholders' deficit
  Preferred stock - 5,000,000 shares authorized, $.01 par value
     Series A - 78,800 shares issued and outstanding                        788
  Common stock - 300,000,000 shares authorized, $.01 par value
     139,591,534 shares issued and outstanding                        1,395,915
  Additional paid-in capital                                          8,242,193
  Accumulated deficit                                               (16,555,086)
                                                                   -------------
     Total stockholders' deficit                                     (6,916,190)
                                                                   -------------
                                                                   $     84,305
                                                                   =============


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

                                      F-3
<PAGE>
                           PRISM SOFTWARE CORPORATION
                            Statements of Operations


                                                     YEAR ENDED DECEMBER 31,
                                                 -------------------------------
                                                      2002              2001
                                                 --------------   --------------

Net sales
  Products                                       $     254,837    $     171,695
  Services                                             288,659          248,640
                                                 --------------   --------------
                                                       543,496          420,335
                                                 --------------   --------------

Cost of sales
  Products                                              50,566           38,837
  Services                                              20,653            9,286
                                                 --------------   --------------
                                                        71,219           48,123
                                                 --------------   --------------
     Gross profit                                      472,277          372,212
                                                 --------------   --------------

Operating expenses
  Selling and administrative                         2,086,774        2,044,955
  Research and development                             306,241          240,581
                                                 --------------   --------------
                                                     2,393,015        2,285,536
                                                 --------------   --------------
     Loss from operations                           (1,920,738)      (1,913,324)

Gains from legal settlements                                --          125,347
Interest expense - stockholders                       (381,762)        (550,433)
Interest expense                                        (4,871)          (7,487)
                                                 --------------   --------------
Net loss                                         $  (2,307,371)   $  (2,345,897)
                                                 ==============   ==============

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

Basic and diluted weighted average
  number of common shares outstanding              140,089,000      135,960,000
                                                 ==============   ==============


   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, 2002 and 2001
<CAPTION>

                                              SERIES A                        SERIES B
                                           PREFERRED STOCK                PREFERRED STOCK                    COMMON STOCK
                                    -----------------------------   -----------------------------   -----------------------------
                                       SHARES          AMOUNT          SHARES          AMOUNT          SHARES           AMOUNT
                                    -------------   -------------   -------------   -------------   -------------   -------------
<S>                                       <C>       <C>             <C>             <C>              <C>            <C>
Balance, December 31, 2000                99,000             990          27,777             278     134,151,354       1,341,514

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

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

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

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

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

Issuance of stock options                     --              --              --              --              --              --

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

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

Repurchase of common stock
  for cash                                    --              --              --              --        (500,000)         (5,000)

Issuance of stock options                     --              --              --              --              --              --

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

                                    -------------   -------------   -------------   -------------   -------------   -------------
Balance, December 31, 2002                78,800    $        788              --    $         --     139,591,534    $  1,395,915
                                    =============   =============   =============   =============   =============   =============

continued below

                                                    UNAMORTIZED
                                                    DISCOUNT OF
                                     ADDITIONAL      BENEFICIAL                         TOTAL
                                       PAID-IN       CONVERSION      ACCUMULATED    STOCKHOLDERS'
                                       CAPITAL         FEATURE         DEFICIT         DEFICIT
                                    -------------   -------------   -------------   -------------
Balance, December 31, 2000             7,956,117        (230,333)    (11,901,818)     (2,833,252)

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

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

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

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

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

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

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

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

Repurchase of common stock
  for cash                                 2,500              --              --          (2,500)

Issuance of stock options                 34,563              --              --          34,563

Net loss                                      --              --      (2,307,371)     (2,307,371)

                                    -------------   -------------   -------------   -------------
Balance, December 31, 2002          $  8,242,193    $         --    $(16,555,086)   $ (6,916,190)
                                    =============   =============   =============   =============



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

                                      F-5
<PAGE>
<TABLE>

                              PRISM SOFTWARE CORPORATION
                               Statements of Cash Flows
<CAPTION>

                                                             YEAR ENDED DECEMBER 31,
                                                           ---------------------------
                                                               2002           2001
                                                           ------------   ------------
<S>                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                 $(2,307,371)   $(2,345,897)
  Adjustments to reconcile net loss to net cash
     used by operating activities:
   Loss on disposal of assets                                  106,366             --
   Depreciation                                                 48,013         43,926
   Gains from legal settlements                                     --        (92,958)
   Issuance of stock options                                    34,563         65,347
   Amortization of beneficial conversion feature                    --        318,333
   (Increase) decrease in assets
     Accounts receivable                                        12,327         (9,294)
     Inventory                                                     432         24,683
     Licenses and other assets                                   2,834       (122,448)
   Increase (decrease) in liabilities
     Accounts payable                                          111,346         62,540
     Accrued expenses                                          461,681        240,654
     Deferred revenue                                          (10,387)       (48,485)
                                                           ------------   ------------
          Net cash used by operating activities             (1,540,196)    (1,863,599)

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of equipment                                         (4,615)       (47,020)
                                                           ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of notes payable - stockholders     1,524,900      1,806,000
  Payments on notes                                            (12,324)       (12,835)
  Proceeds from issuance of common stock                            --        123,043
  Repurchase of common stock                                    (2,500)            --
  Exercise of stock options                                         --          1,500
                                                           ------------   ------------
        Net cash provided by financing activities            1,510,076      1,917,708
                                                           ------------   ------------
Net increase (decrease) in cash                                (34,735)         7,089

Cash, beginning of period                                       42,513         35,424
                                                           ------------   ------------
Cash, end of period                                        $     7,778    $    42,513
                                                           ============   ============

Supplemental disclosures:
  Cash paid for interest                                   $        --    $        --
  Cash paid for income tax                                 $        --    $        --

  Non-cash investing and financing activities:
    Conversion of notes payable to common stock            $        --    $    30,044


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

</TABLE>
                                      F-6

<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

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

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

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

      In 2002 and 2001 the three largest customers accounted for 34% and 28%,
      respectively, of sales. At December 31, 2002 and 2001, the three largest
      accounts receivable totaled 80% and 86%, respectively.

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

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

      Inventory
      ---------

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

      Equipment
      ---------

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

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

      Development costs related to new software products and enhancements to
      existing software products are expensed as incurred until technological
      feasibility has been established. After technological feasibility is
      established, any additional costs are capitalized in accordance with
      Statement of Financial Accounting Standards No. 86, "Accounting for the
      Costs of Computer Software to be Sold, Leased or Otherwise Marketed." The
      Company believes the establishment of technological feasibility occurs
      concurrently with the completion of software development. Accordingly, no
      costs have been capitalized as of December 31, 2002.


                                      F-7
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

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

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

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

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

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

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

      Stock options issued under stock-based compensation plans are accounted
      for under the recognition and measurement principles of APB Opinion No.
      25, Accounting for Stock Issued to Employees, and related Interpretations.

      The Company has elected to continue to account for stock based
      compensation using the intrinsic value method. Accordingly, compensation
      is measured as the excess, if any, of the quoted market price of the
      Company's common stock at the date of grant over the amount an employee is
      required to pay to acquire the stock. Compensation costs incurred in 2002
      and 2001 were $34,563 and $65,347, respectively. Had compensation cost
      been determined as prescribed under SFAS 148, the Company's net losses and
      loss per share would have been increased to the pro forma amounts
      indicated below which were estimated using the Black-Scholes option
      pricing model with the following assumptions.

                                                  2002            2001
                                                  ----            ----
                  Expected life (years)           10 years        3-10 years
                  Risk-free interest rate         6.0%            4.4%
                  Volatility                      50%             100%

                                      F-8
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

      Stock-based compensation (continued)
      ------------------------------------

      In accordance with Financial Accounting Standards Board ("FASB") No. 148,
      Accounting for Stock-Based Compensation-Transition and Disclosure, an
      Amendment of FASB No. 123, the following table illustrates the effect on
      net loss and loss per share if we had applied the fair value recognition
      provisions of FASB Statement No. 123, Accounting for Stock-Based
      Compensation, to stock-based employee compensation.


                                                 2002                2001
                                            --------------      --------------
      Net loss
        As reported                         $  (2,307,371)      $  (2,345,897)
        Pro forma                           $  (2,325,520)      $  (2,384,032)

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



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

      The Company considers all liquid investments with a maturity of three
      months or less from the date of purchase that are readily convertible into
      cash to be cash equivalents. Balances in bank accounts may, from time to
      time, exceed federally insured limits. The Company believes that its loss
      exposure is limited.

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

      Advertising costs are expensed as incurred. During 2002 and 2001
      advertising costs totaled $47,486 and $52,575, respectively.

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

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


                                      F-9
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

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

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

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

      Research and development costs are charged to expense as incurred.

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

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

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


                                      F-10
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

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

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

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

      In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
      Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
      Technical Corrections." SFAS No. 145 requires most gains and losses on
      extinguishment of debt to be classified as income or loss from continuing
      operations rather than as extraordinary items as previously required. SFAS
      No. 145 also amends SFAS No. 13 "Accounting for leases", to require
      certain lease modifications to be treated as sale-leaseback transactions.
      Certain provisions of SFAS No. 145 are effective for transactions
      occurring after May 15, 2002, while other provisions are effective for
      fiscal years beginning after May 15, 2002. We do not expect a material
      impact on our results of operations or financial condition as a result of
      the adoption of SFAS No. 145.

      In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
      with Exit or Disposal Activities" FAS 146 addresses financial accounting
      and reporting for costs associated with exit or disposal activities and
      nullifies the Emerging Issues Task Force Issue No. 94-3, LIABILITY
      RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO
      EXIT AN ACTIVITY INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING. FAS
      146 requires that a liability for a cost associated with an exit or
      disposal activity be recognized when the liability is incurred, whereas
      EITF 94-3 had recognized the liability at the commitment date to an exit
      plan. The Company is required to adopt the provisions of FAS 146 effective
      for exit or disposal activities initiated after December 31, 2002 and
      therefore the adoption has no impact on the Company's financial position
      or results of operations or results of operations as of December 31, 2002.


                                      F-11
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

      Furniture and equipment                                      $ 29,063
      Computer equipment and software                               213,972
                                                                   ---------

                                                                    243,035

      Accumulated depreciation and amortization                    (212,949)
                                                                   ---------

                                                                   $ 30,086
                                                                   =========


Depreciation expense charged to operations was $48,013 and $43,926 in 2002 and
2001, respectively.


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

      Wages and benefits                                           $ 138,411
      Interest other                                                  37,287
      Sales commissions                                               67,176
      Other                                                           70,267
                                                                   ----------

                                                                   $ 313,141
                                                                   ==========


                                      F-12
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

<TABLE>
<CAPTION>

4.    NOTES PAYABLE
-------------------

      All notes are unsecured.

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

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

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

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

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

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

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

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

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

8%, convertible into common stock at $.05 per share at holders' option only upon
default, due on various dates between January and December 2003; upon the
conversion of all or any portion, warrants to purchase an equal number of
additional shares of common stock at $.12 per share will also be issued                       1,524,900
                                                                                            ------------

                                                                                            $ 5,270,330
                                                                                            ============

Other                                                                                       $    38,700
                                                                                            ============
</TABLE>

                                      F-13
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


4.       NOTES PAYABLE (CONTINUED)
----------------------------------

      In March 2003, the Company refinanced $3,456,000 of the above past due
      notes, $1,524,900 of the above current notes, and approximately $647,000
      of related accrued interest into new current demand notes. Such notes have
      an interest rate, convertibility provisions and warrant provisions that
      are identical to the original $1,524,900 notes.

      The $813,000, $19,330 and certain of the $255,205 notes above contain a
      beneficial conversion feature equal to or lesser than the face value of
      each applicable note, which is reflected in additional paid-in capital in
      the accompanying financial statements. During 2002 and 2001, $0 and
      $318,333, respectively, of the beneficial conversion feature was amortized
      and included as part of the caption "Interest expense - stockholders" in
      the accompanying statements of operations.

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

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

      Series A
      --------

      The holders of Series A are entitled to receive, when and as declared by
      the Company's Board of Directors (the Board), cumulative annual dividends
      of $0.50 per share commencing upon issuance and payable semi-annually.
      Series A has a liquidation preference of $5.00 per share plus any accrued
      but unpaid dividends. Series A is redeemable at the Company's election
      upon 30 days' notice at a price per share of $5.50 plus accrued but unpaid
      dividends thereon. The 78,800 shares of Series A outstanding at December
      31, 2002 are currently convertible at the election of the holders into
      3,413,616 shares of common stock. The conversion rate is subject to the
      adjustments set forth in the certificate of designation for Series A based
      on the current market price of the Company's common stock. The holders of
      the Series A are entitled to cast one noncumulative vote per share of
      Series A in all matters presented to the shareholders, and the majority of
      holders of Series A, voting as a class, have certain protective rights
      relating to their dividends and preference rights. No amounts have been
      accreted in relation to the Series A redemption as the likelihood of the
      Company electing to repurchase is remote.

      At December 31, 2002, the amount of dividends in arrears on the remaining
      78,880 shares of Series A 10% cumulative preferred stock was $415,450
      ($5.27 per share).


                                      F-14
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

      In December 2002, the Company repurchased and cancelled 500,000 shares of
      its common stock for $2,500, or $0.005 per share.

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

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

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

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

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

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

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

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

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


                                      F-15
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

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

      In connection with the employment terms of the Company's Chief Executive
      Officer, options are awarded to maintain an 8% interest in the Company's
      fully-diluted common stock (subject to certain anti-dilution adjustments).
      These options are exercisable at no cost, vest on the date of grant and
      expire in September 2012. In December 2002, the Chief Executive Officer
      voluntarily cancelled all existing options except for an amount sufficient
      to acquire up to 2,000,000 shares of common stock.

      Stock option activity for the years ended December 31, 2002 and 2001
      follows:

<TABLE>
<CAPTION>
                                WEIGHTED           WEIGHTED           WEIGHTED                 WEIGHTED                 WEIGHTED
                                 AVERAGE           AVERAGE             AVERAGE                 AVERAGE         OTHER    AVERAGE
                      FINANCING  OPTION     1993    OPTION    1996     OPTION         2000      OPTION       MANAGEMENT  OPTION
                       OPTIONS    PRICE     PLAN    PRICE     PLAN      PRICE         PLAN      PRICE         OPTIONS    PRICE
                      ------------------ ------------------  -------------------  ----------------------- ----------------------
<S>                   <C>          <C>    <C>         <C>    <C>         <C>       <C>            <C>       <C>               <C>
December 31,  2000    197,093      2.00   291,100     1.27   200,000     0.03      1,040,000      0.05      12,171,042        -
                      ------------------ ------------------  -------------------  ----------------------- ----------------------
Granted                     -         -         -        -         -        -      1,075,000      0.03       1,688,456        -
Expired or Cancelled        -         -   (12,500)   (0.03) (200,000)   (0.03)      (250,000)    (0.05)              -        -
Exercised                   -         -   (50,000)   (0.03)        -        -              -         -               -        -
                      ------------------ ------------------  -------------------  ----------------------- ----------------------
December 31, 2001     197,093      2.00   228,600     1.60         -        -      1,865,000      0.04      13,859,498        -
                      ================== ==================  ===================  ======================= ======================
Granted                     -         -    25,000     0.05         -        -         75,000      0.05       2,694,341        -
Expired or Cancelled        -         -         -        -         -        -     (1,025,000)     0.03     (14,553,839)       -
Exercised                   -         -         -        -         -        -              -         -               -        -
                      ------------------ ------------------  -------------------  ----------------------- ----------------------
December 31, 2002     197,093      2.00   253,600     1.45         -        -        915,000      0.05       2,000,000        -
                      ================== ==================  ===================  ======================= ======================
</TABLE>

      The following information applies to options outstanding at December 31,
      2002:

<TABLE>
<CAPTION>
                                                        WEIGHTED
                                                         Average             Weighted                               Weighted
                                                        Remaining             Average                                Average
                                    Number          Contractual Life         Exercise             Number            Exercise
                                 Outstanding             (Years)               Price           Exercisable            Price
                               -----------------  ----------------------  ----------------   -----------------   ----------------
<S>                                   <C>                  <C>                     <C>              <C>                   <C>
Financing options                       197,093             1                      $ 2.00             197,093             $ 2.00
1993 stock option plan                  253,600             1                      $ 1.45             253,600             $ 1.45
2000 stock option plan                  915,000             8                      $ 0.05             898,334             $ 0.05
Other management options              2,000,000            10                      $    -           2,000,000             $    -

                               -----------------                                             -----------------
                                      3,365,693                                                     3,349,027
                               =================                                             =================
</TABLE>


                                      F-16
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

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

      The Company issued warrants in conjunction with the private placement
      described in Note 6 and in the year 2000. No value has been ascribed to
      the warrants as (1) the warrants were issued at exercise prices equal to
      or greater than the fair value of the Company's common stock on the date
      of issuance and (2) there is no market for the warrants. At December 31,
      2002 all warrants are outstanding and expire as follows:

         NUMBER         DATE          EXERCISE     EXPIRATION
         ISSUED        ISSUED           PRICE        DATE
      ---------------------------------------------------------------
         250,000    June 2000          $ 0.12     June 2003
       2,400,000    July 2000          $ 0.12     July 2003
         500,000    August 2000        $ 0.12     August 2003
         290,000    October 2000       $ 0.12     October 2003
       2,500,000    August 2001        $ 0.12     August 2004
      ------------

       5,940,000
      ============


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

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

                                                   2002             2001
                                              --------------  --------------

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

Denominator
-----------
  Basic and diluted weighted average number of
  common shares outstanding during the period   140,089,000     135,960,000
                                              --------------  --------------

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



                                      F-17
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

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

      The Company has deferred tax assets of $5,867,000 at December 31, 2002
      relating to its net operating losses. The Company provided a 100%
      valuation allowance for these deferred tax assets. Accordingly, the
      Company recorded no benefit for income taxes during the periods presented.
      During, 2002 and 2001 the Company's valuation allowance increased
      approximately $916,000 and $811,000, respectively.

      At December 31, 2002, the Company has net operating loss carryforwards for
      federal tax purposes of $15,160,000 which, if unused to offset future
      taxable income, will expire beginning in 2004 through 2022.

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

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

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

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

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



                                      F-18
<PAGE>

                           PRISM SOFTWARE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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

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

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

      The Company was the defendant in an action filed in October 2001 by a
      customer, arising out of a warranty claim on software sold by the Company
      in January 2000. The action was filed in Pierce County Superior Court in
      the State of Washington (Case No. 01-2-12488-5). Under local court rules,
      the plaintiff elected to arbitrate the matter, which limited potential
      damages (exclusive of attorneys' fees and costs) to a maximum of $35,000.
      An arbitration hearing was held in October 2002, which resulted in no
      damages being awarded against the Company. In December 2002, the Company
      agreed to pay $4,000 of the plaintiff's legal expenses to settle the case.

      Leases
      ------

      The office lease expires March 31, 2004 and provides for a basic rent of
      $7,950 per month. Rent expense was $95,400 and $94,389 in 2002 and 2001,
      respectively.

      Minimum annual lease payments at December 31, 2002 are as follows:

      2003                                                98,433
      2004                                                24,861
                                                       ----------

                                                       $ 123,294
                                                       ==========


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

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


                                      F-19

<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: May 19, 2003                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.

     Name                             Title                            Date
     ----                             -----                            ----

/s/ E. Ted Daniels        President, Chief Executive Officer,       May 19, 2003
---------------------     Chief Financial Officer and Director
E. Ted Daniels            (Principal Executive Officer and
                          Principal Financial and Principal
                          Accounting Officer)


<PAGE>

                                  CERTIFICATION

I, E. Ted Daniels, principal executive officer, certify that:

        1. I have reviewed this annual report on Form 10-KSB of Prism Software
Corporation;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

        b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

        c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the date of the Evaluation Date;

        5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

        a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

        b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

        6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 19, 2003

                                      By: /s/ E. Ted Daniels
                                          --------------------------------
                                          E. Ted Daniels, President

<PAGE>

                                  CERTIFICATION

      I, E. Ted Daniels, principal accounting officer, certify that:

        1. I have reviewed this annual report on Form 10-KSB of Prism Software
Corporation;

        2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

        4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

        a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

        b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

        c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the date of the Evaluation Date;

        5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

        a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

        b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

        6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 19, 2003

                              By: /s/ E. Ted Daniels
                                  ----------------------------------------------
                                  E. Ted Daniels, Acting Chief Financial Officer