U.S. Securities and Exchange Commission
                             Washington, D.C. 20549
                            ------------------------

                                   Form 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2001

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

     For the transition period from ________________ to __________________.

Commission file number: 001-155769

                         California Software Corporation
                  --------------------------------------------
                 (Name of small business issuer in its charter)

            Nevada                                                88-0408446
            ------                                                ----------
(State or other jurisdiction of                                 (IRS Employer
 incorporation or organization)                              Identification No.)

    2485 McCabe Way, Irvine, CA                                      92614
    ---------------------------                                      -----
(Address of principal executive offices)                           (Zip Code)

                    Issuer's telephone number: (949) 553-8900
                                                -------------

       Securities registered under Section 12(b) of the Exchange Act: None
                                                                      ----

         Securities registered under Section 12(g) of the Exchange Act:
                     Common Stock, $.001 par value per share
                     ---------------------------------------

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 the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X ] No [ ]

Check if 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 or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]

State issuer's revenues for its most recent fiscal year: $5,739,503.
                                                         ----------

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $1,091,949 as of the closing price on
March 28, 2002. For purposes of this calculation, shares owned by officers,
directors and ten percent shareholders known to the registrant have been deemed
to be owned by affiliates. This determination of affiliate status is not a
determination for other purposes.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 14,174,863 as of April 12, 2002.

                       DOCUMENTS INCORPORATED BY REFERENCE
None

Transitional Small Business Disclosure Format (check one):    Yes [  ] No [X]



<PAGE>




                                TABLE OF CONTENTS

PART I
     Item 1.    Description of Business .....................................  1
     Item 2.    Description of Property ..................................... 10
     Item 3.    Legal Proceedings ........................................... 10
     Item 4.    Submission of Matters to a Vote of Security Holders ......... 11

PART II
     Item 5.    Market for Common Equity and Related Stockholder Matters .... 12
     Item 6.    Management's Discussion and Analysis or Plan of Operation ... 14
     Item 7.    Financial Statements ........................................ 17
     Item 8.    Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure ......................... 37

PART III
     Item 9.    Directors, Executive Officers, Promoters and
                Control Persons; Compliance with Section 16(a)
                of the Exchange Act ......................................... 38
     Item 10.   Executive Compensation ...................................... 39
     Item 11.   Security Ownership of Certain Beneficial
                Owners and Management ....................................... 43
     Item 12.   Certain Relationships and Related Transactions .............. 44
     Item 13.   Exhibits and Reports on Form 8-K ............................ 44

SIGNATURES .................................................................. 45



<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

OVERVIEW AND HISTORY


California Software Corporation, hereinafter referred to as the "Company" or
"CSC", was incorporated in the State of Nevada on October 28, 1998 and markets
several families of software products that are targeted to users of the
International Business Machines ("IBM*") iSeries, formerly known as the AS/400*
and mainframe computers. These products include software marketed under the
brand names BABY, Unibol, MLPS, DLCS, ALPS and CLPS.

The Company's predecessor, California Software Products, Inc. ("CSPI"), was
founded in 1975 for the purpose of writing software programs. In 1980, CSPI was
approached by the PC Division of IBM to write a program that would compile
System/32 software to run on a personal computer. Development of these programs
continued throughout the 1980s adding new features and updating current programs
as IBM introduced newer computer systems. When IBM disbanded the PC Division and
the AS/400 Division chose not to continue the relationship, CSPI continued to
improve its products on its own.

In the early 1980s, CSPI's founders pioneered the first personal computer
("PC")-based Report Generation Language ("RPG") compilers, which are a core
functionality of the BABY product line. As the development environment expanded,
the products evolved to allow a user to execute Midrange applications on a PC
network without the need for complete redevelopment of the application's source
code.

On January 12, 1999, the Company acquired the net assets of CSPI with a
historical cost of $700,840 in exchange for shares of the Company's Common Stock
that were to be issued at a later date. On January 27, 2000, the Company issued
2,000,000 shares of its Common Stock in exchange for such assets.

On October 20, 2000, the Company acquired the stock of Software Connections,
Inc, dba ALE Systems ("ALE"), a software developer of loan processing software,
in exchange for cash of $750,000, an earn-out payable over 60 months, bearing no
interest, valued between $625,000 and $2,500,000 depending on ALE's operating
results during that period, and a note payable, bearing no interest, in the
amount of $292,500 payable in monthly installments over 36 months. In
conjunction with this acquisition, the Company was amortizing goodwill in the
amount of $3,933,101 over a five year period. As of December 31, 2001, the
Company has recorded an impairment loss for all of the remaining and unamortized
goodwill associated with this acquisition.

On November 8, 2000, the Company signed a letter of intent to merge with
Unicomp, Inc. ("Unicomp"), a Georgia corporation. On that same date, and two
days thereafter, the Company entered into various agreements with Unicomp
through which the Company acquired Unibol, Ltd., a United Kingdom corporation,
and through which the Company contends it also acquired Unibol, Inc., a Georgia
corporation ("Unibol U.S."). In the Stock Purchase Agreement, the Amendment to
the Stock Purchase Agreement and related documents, the Company agreed to pay
cash of $1,000,000, an additional $500,000 due in four monthly installments
commencing on the first of the month beginning with the second month after the
Closing Date, and $1,500,000 of the Company's Common Stock due and valued on the
six month anniversary of the Closing Date. On November 13, 2000, the Company
paid the $1,000,000 in cash due under the agreements. Subsequent to the cash
payment, a dispute arose between the Company and Unicomp about Unicomp's
providing of financial information, the identity of the companies included under
the acquisition documents, as well as the intent of certain provisions contained
in the Amendment to the Stock Purchase Agreement purporting to grant sole
operational and voting control over the Unibol entities to the Chief Executive
Officer of Unicomp for a six month period. As a result, the Company did not make
any of the installment payments due under the Stock Purchase Agreement and
merger discussions were terminated. The Company thereafter filed a lawsuit in
California against Unicomp, several of its officers and directors, and a third
party, alleging fraudulent misrepresentation and various other charges in
connection with the acquisition of Unibol, Ltd. and Unibol, Inc. Unicomp also
filed a lawsuit in Georgia against the Company seeking to preserve Unicomp's
interest in one of the Unibol companies, Unibol, Inc., as well as to uphold the
original terms and conditions of the Stock Purchase Agreement and Amendment to
the Stock Purchase Agreement, although that lawsuit subsequently was dismissed
by the Georgia court.



                                       1
* A trademark of International Business Machines Corporation

<PAGE>


The Company asserted its physical and operational control over Unibol UK on or
about January 29, 2001. As a result, the Company has reversed the valuation
reserve it established as of December 31, 2000 against its $1,000,000 cash
investment in Unibol. This reversal of the valuation reserve is presented as an
extraordinary item in the Company's Consolidated Statement of Operations for the
year ended December 31, 2001. Further, the Company has included the operations
of Unibol UK for the period of January 29, 2001 through December 31, 2001 in its
Consolidated Statement of Operations for the year ended December 31, 2001.
Subsequent to year end, all pending claims and court issues regarding Unibol
were settled and then dismissed.

INDUSTRY BACKGROUND

Rehosting / Graphical
---------------------
The IBM iSeries* and its predecessors, System/32*, System/34*, System/36*,
System/38*, and AS/400* - collectively called IBM Midrange systems - are a class
of machines substantially different from widely familiar PCs. The System/36,
superceded by the AS/400 (later renamed the iSeries), served as a popular
computing solution for business applications for many years after IBM's
introduction of these two systems in 1983 and 1988, respectively. Midrange
systems were popular because, at the time of their introduction, they were far
more powerful than individual PCs and were capable of supporting environments
with hundreds of users. According to IBM, it has shipped over 750,000 AS/400
systems worldwide since the AS/400's introduction.

The wide acceptance of IBM Midrange systems fed off a large number of available
software applications, both custom and pre-packaged, that ran on them. Thus, in
adopting IBM's Midrange computing platforms, businesses and the independent
software vendors ("ISVs") that supported them invested substantial resources
developing application software that could perform a wide variety of
manufacturing, accounting, and other information-management functions. Industry
sources estimate that over 28,000 business programs were written for those
systems - more than for any other platform. Today, industry sources estimate
that approximately 8,000 ISVs assist in the development of applications software
intended for use on IBM's Midrange computing platforms.

Despite the platform's multiple advantages, IBM Midrange and Mainframe users and
developers have historically been constrained by the non-graphical and
proprietary nature of IBM's operating systems. Software applications written for
the System/36 and AS/400 platforms would not run on other computing platforms,
including those using open operating systems such as Windows NT/2000TM or Unix.
This factor has become increasingly important in recent years as the cost of PCs
decreased and PC networks became far more powerful and widespread. Today, the
limitations of Midrange systems can make them appear old-fashioned to many
information management professionals, and many companies are looking for ways to
migrate their Midrange systems to alternative systems such as Windows NT/2000TM
and Unix. However, many of these companies have made significant investments in
their software applications, and are looking for ways to extend the life of
their software without having to convert or rewrite their software to a new
operating system. As a result, companies wanting to migrate their System/36 and
AS/400-based applications to a PC or Unix network environment must choose one of
the following approaches:

     o    Re-engineering - Re-engineering requires rewriting existing
          applications software to enable it to operate on a new computing
          platform. Since this entails completely rewriting applications
          software to meet customer requirements, it often results in increased
          cost, risk of failure, disruption and delay.

     o    Packaged Solutions - Migrating to a new computing platform can
          sometimes be accomplished by installing an applications software
          package that has been independently developed to run on open or
          portable platforms. While a substantial number of packaged software
          applications are available, businesses implementing this approach will
          often have to abandon their investment in existing databases and
          software and may incur substantial retraining costs.

     o    Rehosting - Rehosting involves migration of applications software to a
          new computing platform with minimal change to the source code.
          Rehosting is achieved by rebuilding applications software to run
          efficiently on the new computing platform. This solution often enables
          businesses to enjoy the continued use of their existing programs and
          databases, reduces retraining costs and takes full advantage of a new
          computing platform.

                                       2
* A trademark of International Business Machines Corporation
<PAGE>


     o    Refacing - Refacing involves replacing the "green-screen" interface
          with a graphical user interface ("GUI"). The source code must still be
          run on the original computing platform or in a replicated environment.
          This is frequently the next step after rehosting an application to
          provide appearance and operation virtually identical to other
          WindowsTM applications running in the environment.

Re-engineering custom applications or moving to a new packaged solution poses
significant financial and operational risks to a business. Rewriting an
application is not a line-for-line process because programming languages have
different characteristics. As a result, businesses that elect to reengineer
their software may expect new applications to have errors that must be
corrected. A packaged solution usually requires extensive modifications in order
to meet particular business requirements. During the implementation period,
users may need retraining and the incidence of user errors may increase.
Businesses may have to deal with the risk of loss of customer, sales, financial,
and/or operations data during the conversion.

The Company's expertise is in rehosting and refacing - the two approaches that
require minimal retraining costs and offer continued use of existing programs
and databases. The Company's products replicate the IBM Midrange operating
environments under WindowsTM whereby an applications developer can take older
IBM Midrange programs that meet current business requirements and run them on a
Windows NT/2000TM network. Moreover, the developer can utilize another of the
Company's products to add a GUI that does for Midrange applications what Windows
3.xTM and Windows 95/98TM did for DOS applications. The Company also provided a
Year-2000 compliant platform for System/3x programs, which in turn extended the
life of the Midrange applications at a relatively low cost to the developer.

ISVs that have developed successful AS/400 applications software are faced with
the challenge of migrating their products to new platforms while maintaining
their existing customer base for applications software running on the AS/400
platform. The Company's products may be used by these ISVs because BABY
development tools do not modify the RPG source code. Moreover, screens developed
with BABY/GUI can be used for both the AS/400 and Windows NT/2000TM offerings.
As a result, one set of code and screens can be maintained for a developer's
Midrange and PC platforms.

Mortgage Loan Processing
------------------------

The Company's MLPS product was originally developed in the early 1980's to serve
the mortgage lending industry. Since then, the product has evolved to include
all aspects of loan processing including first and second mortgages, credit
cards, lines of credit, consumer, home equity, mortgage, and student loans. The
Company targets MLPS primarily towards lenders and mortgage brokers in the
finance industry. The software's scalability and flexibility allows the Company
to offer MLPS to customers with loan processing volumes of less than 100 to over
5,000 per month.

COMPETITION

Competition in the rehosting end of the Company's business, including its
BABY/iSeries and BABY/36 products, is not extensive, as the Company believes
that, with the exception of Unibol, there are no other significant rehosting
products available in the marketplace. The Company's graphical and internet
products, including its BABY/GUI and baby.com products, compete primarily with
established market leaders Seagull Software and Jacada Ltd. Competition in the
mortgage loan industry is intense, with a mix of both large and small companies
competing for customers.

PRINCIPAL PRODUCTS

The Company markets a family of software products under the brand name BABY. The
products provide (a) software solutions that allow business customers to migrate
IBM Midrange applications to the PC environment and to execute such applications
on a PC network without a complete rewrite of the application's source code; (b)
GUI software that allows a developer of an AS/400 or Mainframe text-based
application to present screens with WindowsTM point-and-click functionality; and
(c) software that internet-enables AS/400 and Mainframe applications. Once the
application runs on a BABY system, the developer deploys his application by

                                       3

<PAGE>


purchasing a BABY runtime license for every user of the software. In addition,
the Company markets a software product under the brand name MLPS that supports
the processing of mortgage loans in the banking and financial industries.

The Company currently offers the following applications:

     o    BABY/iSeries - BABY/iSeries is a PC-based application that allows
          developers to migrate IBM AS/400 and iSeries 400 applications and data
          files to the Windows NT/2000TM environment. The existing source code
          residing on an AS/400 or iSeries 400 is downloaded to a PC,
          recompiled, and executed without the need for redevelopment.
          BABY/iSeries also allows new programs to be developed, compiled, and
          debugged on a PC platform and allows subsequent program execution on
          either a PC or AS/400 and iSeries 400 computers.

     o    BABY/36 - BABY/36 is a PC-based RPG II development, execution and
          operating environment that allows the migration of IBM System/36
          applications to the Windows NT/2000TM environment. Similar in
          operation to BABY/iSeries, existing source code residing on a
          System/36 is downloaded to a PC, recompiled, and executed without the
          need for redevelopment.

     o    BABY/GUI - BABY/GUI is a PC-based program that allows a software
          developer to transform System/36, AS/400 and iSeries 400 text-based
          applications into icon-driven WindowsTM screens with point-and-click
          functionality. Residing on a Windows NT/2000TM server, BABY/GUI
          intercepts the instructions that the application sends to the screen
          and reinterprets it into a graphical presentation. This requires no
          redevelopment of the application's source code.

     o    baby.com - baby.com allows developers to Internet-enable AS/400-based
          and rehosted software applications. Baby.com renders screens that have
          been reinterpreted by BABY/GUI into a web deployable DHTML format for
          presentation to a remote Internet client. The developer can elect to
          use a sophisticated scripting capability to integrate legacy
          applications with PC-based programs.

     o    MLPS - MLPS is an IBM AS/400-based software product for companies that
          do loan processing. The program can be adapted to various lending
          markets including retail and wholesale mortgages, automobile and
          consumer loans.

Services and Support

The Company currently supports its products with a team of technical experts and
implementation consultants that can assist clients in migrating their
applications to the PC environment. The Company also offers services such as:

o    Pre-Migration Analysis - Analysis and preparation of a customer's software
     and hardware environment for migration to the Company's products.

o    Client-Server Consulting - Assistance in planning for and converting legacy
     application environments to client/server environments.

o    Migration Services - Migration of RPG applications to the Company's
     PC-based operating environment.

o    Implementation Service - On-site installation of migrated applications,
     technical training and configuration of the PC environment for program
     execution.

o    Installation and Setup Services - Assistance in planning the installation
     of hardware and MLPS software at a customer site.

o    Business Consulting Services - Consulting services designed to maximize
     loan processing efficiencies in utilizing MLPS to automate processing and
     collections.

DISTRIBUTION, MARKETING AND CUSTOMER RELATIONS

The Company sells its BABY and Unibol products and services throughout the world
directly to end-users and through a network of business partners, who bundle
their own applications with the BABY and Unibol products into a single
multi-host offering for Windows and Unix. The Company also markets its products
overseas through an international distributor network of IBM Business Partners
and software houses. MLPS is sold directly to end-user banks and financial

                                       4

<PAGE>


institutions throughout the United States. No single customer accounts for a
material portion of the Company's revenues.

The Company is currently marketing and distributing its services and products
through a direct sales force. The Company has also established and will continue
to establish marketing and distribution relationships through a broad range of
channels including business partners, distributors and manufacturers
representatives, as well as direct sales representatives. In addition, the
Company employs direct mail, advertising, seminars, trade shows, telemarketing,
and on-going customer and third-party communications programs.

The Company has organized its information technology services business such that
each service technician maintains a direct relationship with certain of the
Company's service customers. Specific marketing programs will vary by target
customer. The Company believes that its direct sales approach, including having
Company service technicians serve as client-relationship managers, has led to
better account penetration and management, better communication and long-term
relationships with its clients and greater opportunities for follow-on sales of
products and services to its client base.

PROPRIETARY RIGHTS

The Company has registered United States trademarks for its product families. In
addition to its existing rights under law, management is currently planning to
register additional copyrights and/or trademarks to fully protect its software.
In addition, the Company is protecting new proprietary technological
advancements as trade secrets until appropriate measures can be taken for
further protection.

RESEARCH AND DEVELOPMENT ACTIVITIES

The market for business computing products has been historically characterized
by frequent technological advances, evolving industry standards and escalating
customer expectations. As a result, management believes that the Company's
future growth and success will be largely dependent on its ability to develop or
acquire products to meet the evolving needs of its prospective clients. The
Company anticipates that the long-term success of its product offering will
require further product development. The Company expects to continually evaluate
its products to determine what additional products or enhancements are required
by the marketplace. The Company plans to develop and enhance its products
internally to meet clients' needs, but if the Company can purchase or license
proven products at reasonable costs it will do so in order to avoid the time and
expense involved in developing products.

The Company introduced two new BABY products in 2001. A new version of
BABY/iSeries incorporating new functionality such as the usage of WindowsTM ,
Oracle support for added scalability, Active X support for faster multidatabase
connectivity, complete web-to-host support via DHTML and the ability to deploy
under Unix and Linux. BABY/GUI and baby.com are now bundled with BABY/iSeries.
In the third quarter of 2001, a Mainframe version of BABY/GUI and baby.com was
released making web-to-host products and a complete GUI available for the 3270
mainframe environment.

During the years ended December 31, 2001 and 2000, the Company incurred research
and development expenses of $1,400,306 and 577,729, respectively, with respect
to its current and future products. The cost of such activities were not borne
by the Company's customers.

EMPLOYEES

As of December 31, 2001, the Company had thirty-eight (38) full-time employees.
The Company's employees are currently not represented by a collective bargaining
agreement, and the Company believes that its relations with its employees are
good.

                                       5
<PAGE>


RISK FACTORS

The Company does not provide forecasts of its future financial performance.
However, from time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information that involves
risks and uncertainties. In particular, statements contained in this Report on
Form 10-KSB that are not historical facts (including, but not limited to
statements contained in "Item 6 - Management's Discussion and Analysis or Plan
of Operations" of this Report on Form 10-KSB relating to liquidity and capital
resources) may constitute forward-looking statements and are made under the safe
harbor provisions of The Private Securities Litigation Reform Act of 1995. The
Company's actual results of operations and financial condition have varied and
may in the future vary significantly from those stated in any forward looking
statements. Factors that may cause such differences include, without limitation,
the risks, uncertainties and other information discussed below and within this
Annual Report on Form 10-KSB, as well as the accuracy of the Company's internal
estimates of revenue and operating expense levels. The following discussion of
the Company's risk factors should be read in conjunction with the financial
statements contained herein and related notes thereto. Such factors, among
others, may have a material adverse effect upon the Company's business, results
of operations and financial condition.

Financial Condition and Going Concern Qualification. In early 2001, the Company
implemented a new operating plan designed to accelerate the Company's ability to
achieve positive operating cash flow. As part of the new operating plan, the
Company reduced the size of its workforce and made further expense reductions in
the areas of technical support, product development and general and
administrative expenses. To successfully execute this plan, the Company must
adhere to its expense reductions and work to achieve the revenue targets
incorporated as underlying assumptions to its operating plan. If the Company is
unable to manage its operating expenses and increase revenues, the Company may
be unable to achieve and maintain positive operating cash flow. The Company's
ability to achieve its annual and quarterly revenue goals could also be
negatively impacted by the softening consumer demand for technology products, as
well as the weakening general economic conditions and decreasing consumer
confidence.

The Company's operating plan reflects management's expectations as of the date
of this annual report, and is based on currently available information as well
as significant assumptions made by management regarding various revenue and
operating expense items. The Company cannot guarantee that the assumptions that
it relied upon in developing its operating plan will be accurate, or that future
events or results will conform to the Company's expectations or assumptions. The
Company's independent accountants have issued a "going concern" qualification to
their audit opinion for the year ended December 31, 2001 that calls into
question the Company's ability to continue operations through December 31, 2002.
Furthermore, due to potential concerns regarding the Company's going concern
qualification, financial condition and its perceived ability to fulfill its
financial and other obligations, the Company's customers, vendors, and other
corporate partners may decide not to conduct business with it, or may conduct
business with the Company on terms that are less favorable than those
customarily extended by them. As a result, if the Company's assumptions are
inaccurate, or its expectations prove to be erroneous in light of future events,
or if it is unable to maintain the support of its customers, vendors, and other
key corporate relationships regardless of the success of its operating plan, it
may need to raise additional working capital before it achieves positive
operating cash flow. In order to obtain this capital, the Company may seek to
sell additional equity securities, obtain a line of credit or seek other ways to
fund its operations in the event it requires additional working capital to
operate its business. If the Company decides to raise additional funds by
issuing equity or convertible debt securities, the percentage ownership of its
stockholders will be significantly diluted. Also, any new securities could have
rights, preferences and privileges senior to that of the Company's Common Stock.

The Company has not achieved profitability since its inception, and it incurred
net operating losses of $5,490,733 and $6,482,649 for the years ended December
31, 2001 and 2000, respectively, and may continue to incur losses for the
foreseeable future. Although the Company recently initiated a restructuring of
its business designed, in part, to significantly reduce costs in a number of
areas, the Company has not yet obtained profitability. The Company's ability to
become profitable and continue its operations depends on its ability to generate
and sustain higher revenue levels, and maintain reasonable operating expense
levels consistent with the assumptions underlying the Company's new operating
plan. If the Company is unable to increase its revenues or manage and reduce its
operating expenses and costs compared to the year ended December 31, 2001, it

                                       6

<PAGE>


may be unable to achieve positive operating cash flow. If the Company does not
achieve positive operating cash flow in a timely manner that is consistent with
its operating plan, the Company could fail.

Exposure to Damages as a Result of Litigation. Over the past few years, the
Company has been subject to various legal proceedings, many of which have been
resolved and dismissed. See a more detailed discussion of legal proceedings in
Item 3.

The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the outcome
of these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these other legal matters will have a material
adverse effect on the Company's results of operations or financial position.

Dependence on Principal Products. For the year ended December 31, 2001, the
Company's core of BABY and MLPS products accounted for substantially all of the
Company's net sales. The Company is wholly dependent on these products. As a
result, any factor adversely affecting sales of any of these products could have
a material adverse effect on the Company. The Company's future financial
performance will depend in part on the successful introduction of enhanced
versions of these products and development of new versions of these and other
products and subsequent acceptance of such new and enhanced products. There can
be no assurance that the Company's new and enhanced products will achieve
significant market acceptance or will generate significant revenue. In addition,
competitive pressures or other factors may result in significant price erosion
that could have a material adverse effect on the Company's business, financial
condition and results of operations.

                                       7

<PAGE>


Potential for Software Defects. Software products as complex as the BABY and
MLPS products offered by the Company may contain undetected errors or failures
when first introduced or as new versions are released. Despite testing by the
Company and by current and potential customers, any of the Company's products
may contain errors after their commercial shipment. Such errors may cause loss
of or delay in market acceptance of the Company's products, damage to the
Company's reputation, and increased service and warranty costs. The possibility
of the Company being unable to correct such errors in a timely manner could have
a material adverse effect on the Company's results of operations and its cash
flows. In addition, technical problems with the current release of the platforms
on which the Company's products operate could impact sales of these products,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

Uneven Patterns of Quarterly Operating Results. The Company's revenues in
general are relatively difficult to forecast and vary from quarter to quarter
due to various factors, including the (i) relatively long sales cycles for the
Company's products, (ii) size and timing of individual transactions, the closing
of which tend to be delayed by customers until the end of a fiscal quarter as a
negotiating tactic, (iii) introduction of new products or product enhancements
by the Company or its competitors, (iv) potential for delay or deferral of
customer implementations of the Company's software, (v) changes in customer
budgets, (vi) seasonality of technology purchases and other general economic
conditions, and (vii) changes in the pricing policies of the Company or its
competitors. Accordingly, the Company's quarterly results are difficult to
predict until the end of the quarter, and delays in product delivery or closing
of sales near the end of a quarter have historically caused and could, in the
future, cause quarterly revenues and net income to fall significantly short of
anticipated levels.

The Company's revenues in any quarter are substantially dependent on orders
booked and shipped in that quarter. Because the Company's operating expenses are
based on anticipated revenue levels and because a high percentage of the
Company's expenses are relatively fixed, a delay in the recognition of revenue
from even a limited number of sales transactions could cause significant
variations in operating results from quarter to quarter and could cause net
income to fall significantly short of anticipated levels.

Effects of Electronic Commerce. There can be no assurance that the Company will
be able to provide a product offering that will satisfy new customer demands in
the Internet, online services, e-business applications, and electronic commerce
areas. In addition, standards for web-enabled and e-business applications, as
well as other industry adopted and de facto standards for the Internet are
evolving rapidly. There can be no assurance that standards chosen by the Company
will position its products to compete effectively for business opportunities as
they arise on the Internet and other emerging areas. The success of the
Company's product offerings depends, in part, on its ability to continue
developing products which are compatible with the Internet. The increased
commercial use of the Internet may require substantial modification and
customization of the Company's products and the introduction of new products.
The Company may not be able to effectively compete in the Internet-related
products and services market.

Competition. The Company encounters intense competition in some aspects of its
business and competes directly with other software firms, many of which have
greater financial resources than the Company. There can be no assurance that the
Company will be able to compete successfully in the future or that competition
will not have a material adverse affect on the Company's business, financial
condition and results of operations.

                                       8

<PAGE>


Acquisition Strategy. The Company has addressed and may continue to address the
need to develop new products in part through the acquisition of other companies.
Acquisitions involve numerous risks including difficulties in the assimilation
of the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior experience
and where competitors in such markets have stronger market positions, and the
potential loss of key employees of the acquired company. Achieving and
maintaining the anticipated benefits of an acquisition will depend in part upon
whether the integration of a target company's business is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The successful combination of companies in the high technology industry
may be more difficult to accomplish than in other industries.

Hiring and Retention of Employees. The Company's continued growth and success
depend to a significant extent on the continued service of its senior management
and other key employees and the hiring of new qualified employees. Competition
for highly-skilled business, product development, technical and other personnel
is becoming more intense due to lower overall unemployment rates as well as the
boom in information technology spending. Accordingly, the Company expects to
experience increased compensation costs that may not be offset through either
improved productivity or higher prices. There can be no assurances that the
Company will be successful in continuously recruiting new personnel and in
retaining existing personnel. In general, the Company does not have long-term
employment or non-competition agreements with its employees. The loss of one or
more key employees, or the Company's inability to attract additional qualified
employees or retain other employees, could have a material adverse effect on the
continued growth of the Company.

Sales Force Restructuring. The Company historically has relied heavily on its
direct sales force. In the past, the Company has restructured or made other
periodic adjustments to its sales force. These changes have generally resulted
in a temporarily lack of focus and reduced productivity by the Company's sales
force that may have affected revenues in a quarter. There can be no assurances
that the Company will not continue to restructure its sales force or that the
related transition issues associated with restructuring the sales force will not
recur.

Possible Necessity for Additional Capital. The Company may require additional
capital to fund its capital expenditures, product development and working
capital requirements through 2002. In addition, any significant change in the
Company's product development plans or marketing and distribution methods might
require additional capital. The sale of equity interests would significantly
dilute the ownership of current shareholders. Enforcement of the Company's

Intellectual Property Rights. The Company relies on a combination of copyright,
patent, trademark, trade secrets, confidentiality procedures and contractual
procedures to protect its intellectual property rights. Despite the Company's
efforts to protect its intellectual property rights, it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
to reverse engineer or obtain and use technology or other information that the
Company regards as proprietary. There can also be no assurances that the
Company's intellectual property rights would survive a legal challenge to their
validity or provide significant protection for the Company. In addition, the
laws of certain countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary technology
against unauthorized third party copying or use, which could adversely affect
the Company's competitive position.

Possibility of Infringement Claims. The Company may, in the future, receive
notices from third parties claiming infringement by the Company's products of
third party patent and other intellectual property rights. The Company expects
that software products will increasingly be subject to such claims as the number
of products and competitors in the Company's industry segment grow and the
functionality of products overlap. Regardless of its merit, responding to any
such claim could be time-consuming, result in costly litigation and require the
Company to enter into royalty and licensing agreements which may not be offered
or available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company's business, results of operations and financial
condition could be materially adversely affected.

Possible Volatility of Stock Price. The market price of the Company's Common
Stock has experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Common Stock may be significantly

                                       9

<PAGE>


affected by factors such as the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by the
Company or its competitors, quarterly variations in the Company's or its
competitors' results of operations, changes in prices of the Company's or its
competitors' products and services, changes in revenue and revenue growth rates
for the Company as a whole or for specific geographic areas, business units,
products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to particular industries. The stock
prices for many companies in the technology sector have experienced wide
fluctuations which often have been unrelated to their operating performance.
Such fluctuations may adversely affect the market price of the Company's Common
Stock.

Limited Market for Common Stock; Absence of Dividends. The Common Stock of the
Company is currently quoted on the Over-the-Counter Bulletin Board ("OTCBB")
under the symbol "CAWC". As a result, the market for the Company's stock is
limited. There can be no assurance that a meaningful trading market will
develop.


ITEM 2.  PROPERTIES.

As of December 31, 2001, the Company's corporate headquarters were located in
approximately 10,668 square feet of office space leased from McCabe Way Irvine,
LLC, located at 2485 McCabe Way, Irvine, CA 92614. The lease is for a five year
term, with one five-year option, with monthly lease payments ranging from
$23,047 to $24,776. In addition, in June of 2001, the Company entered into a
non-cancelable operating lease for its operations in Belfast, and in August of
2001, the Company entered into a non-cancelable operating lease agreement for
its operations in Richmond, VA. Both leases are for initial terms of five years.
The lease payments for the Belfast property are paid quarterly and are
approximately $5,300 per quarter. The monthly lease payments for the Richmond
facility range from $9,425 to $10,605 over the lease term. The Company also
leases offices in Paris and Belgium on a month to month basis.


ITEM 3.  LEGAL PROCEEDINGS.

On August 17, 2000, a shareholder class action was commenced in the United
States District Court for the Central District of California against the Company
as well as two of its officers and directors, Bruce Acacio and Carol Conway
DeWees. The class action was brought on behalf of purchasers of the stock of the
Company during the period February 9, 2000 through August 6, 2000. In October
2000, the shareholder class action was consolidated with three other nearly
identical lawsuits filed in the same court against the Company, Mr. Acacio, and
Ms. DeWees. The consolidated suit has been settled. The stipulation of
settlement provides for a release fo all claims in exchange for (1) the issuance
of 2,000,000 shares of California Software common stock to the Open Market
Purchasers; (2) the issuance of 650,000 shares to the subscribers; (3) the
issuance of 1.8 million warrants to the Open Market Purchasers; (4) the issuance
of 650,000 warrants to the subscribers; and (5) payment of the costs of
administration, not to exceed $12,000. The court approved the settlement on,
March 11, 2002, and the case will be dismissed upon full performance by the
parties of their respective obligations under the terms of the settlement.

On December 4, 2000, an action was commenced in the United States District Court
for the District of Nevada against the Company and two of its officers and
directors, Bruce Acacio and Carol Conway DeWees, by three shareholders of the
Company who acquired their stock through a private placement of its common stock
conducted by the Company. In December 2001, the federal district court for the
District of Nevada dismissed the action after plaintiff's counsel withdrew and
after plaintiffs failed, after notice from the court, to engage new counsel.

Following the Company's August 7, 2000 announcement of its intent to restate its
financials for the Restatement Period some of the subscribers began to assert,
either directly or through counsel, that financial information contained in the
Private Placement Memorandum was inaccurate. The Company engaged in
communications with, and ultimately entered into a settlement agreement with
some of the subscribers or their representatives. The collective settlement
agreements provide for payment by the Company of $821,211.68 in cash,
$530,517.28 in non-interest bearing promissory notes, and 1,453,472 warrants for
the stock of the Company. The promissory notes call for a balloon payment within
thirty-six (36) months of the date of the notes. The settlement agreements also
provide for the transfer of 930,667 shares of stock to the settling PPM
subscribers from certain individuals and/or entities. On or about March 30,
2001, the Company delivered initial cash payments totaling $792,961.68, the
promissory notes, the stock warrants, and the shares of stock to the settling
Subscribers. Subscribers who participated in this settlement were precluded from
participating in the Class Action Litigation settlement.

                                       10

<PAGE>


On December 5, 2000, the Company filed a lawsuit in Orange County, California
against Unicomp, Inc., and others, claiming fraudulent misrepresentation and
other causes of action. The complaint concerns the extent and scope of various
agreements entered into between the Company, on the one hand, and Unicomp, Inc.,
and other related entities, on the other hand, through which the Company
acquired Unibol, Ltd., a United Kingdom corporation, and through which the
Company contends it also acquired Unibol, Inc., a Georgia corporation ("Unibol
U.S."). In response to the above-described complaint, on or about January 3,
2001, the defendants filed an answer to complaint and a cross-complaint for
declaratory relief, breach of contract, and interference with contract against
the Company.

Subsequent to December 31, 2001, the parties agreed to binding mediation, which
resulted in a settlement that includes release of all claims between parties.
Pursuant to the terms of the mediated settlement, no monetary consideration was
exchanged. The settlement recognizes the Company as the sole owners of the
intellectual property that was the subject of the litigation, and pursuant to
the settlement, Unicomp, Inc. was granted nonexclusive rights to sublicense the
intellectual property in the Western Hemisphere.

In January of 2001 a suit was filed against the Company in the United States
District Court for the Western District of Pennsylvania by a former vendor of
ALE. The suit alleged violations of the Copyright Act and claims for breach of
contract. In November of 2001, the case was settled and dismissed. Under the
terms of the settlement, the settlement amount of $360,000 is being paid over a
period of fifty-two months.

On or about April 12, 2001, a lawsuit was filed against the Company and its
officers and directors in the Circuit Court of the City of Richmond, Virginia.
The lawsuit, filed by the Chief Executive Officer of Software Connections (the
former parent company of ALE Systems ("ALE"), which was acquired by the Company
in October, 2000) and his wife, the sole shareholder of Software Connections,
alleges breach of contract, fraud, and tortuous interference against the Company
and its officers and directors in connection with actions taken by the Company
subsequent to its acquisition of ALE. The Company responded by filing a fraud
action against Software Connection's previous sole shareholder, Gayle Goodrich
and her husband, the former President of Software Connections C. Wesley Lucas in
Superior Court in Orange County, California. Both suits were settled pursuant to
the settlement agreement in October of 2001. Under the terms of the settlement,
the initial purchase price was adjusted downward by $966,555 and is evidenced by
a non-interest bearing note in the amount of $535,000 payable over 36 months. In
addition, the Company granted 400,000 options with an exercise price of $0.18
and no expiration date.

The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these other legal matters will have a
material adverse effect on the Company's results of operations or financial
position.


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

In October 2001, the Company completed a definitive information statement
pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended,
which by vote of the holders of the majority of the outstanding shares of Common
Stock approved the election of two members of the Board of Directors and
ratification of Stark, Winter, Schenkein & Co., LLP as the Company's independent
accountants for the year ended December 31, 2001.



                                       11
<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET FOR COMMON STOCK

The Common Stock of the Company, par value $0.001 per share (the "Common
Stock"), is traded on the Over the Counter Bulletin Board ("OTCBB") under the
symbol "CAWC". There was no active trading market for the Common Stock prior to
November 29, 1999, the commencement of the Company's trading on the OTCBB.

The table below reflects the high and low closing prices of the Common Stock, as
reported by the OTCBB, from January 1, 2000 through December 31, 2001. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.



2001                                         HIGH                  LOW
                                             ----                  ---

First Quarter                               $0.938                $0.25
Second Quarter                              $0.45                 $0.20
Third Quarter                               $0.33                 $0.17
Fourth Quarter                              $0.31                 $0.15

2000

First Quarter                               $14.38                $0.67
Second Quarter                              $12.00                $4.44
Third Quarter                               $4.50                 $0.56
Fourth Quarter                              $1.44                 $0.25

HOLDERS

As of December 31, 2001, there were 211 stockholders of record of the Company's
Common Stock.

DIVIDEND POLICY

The Company has not paid cash dividends on its Common Stock and does not intend
to pay any cash dividends in the foreseeable future.

SALES OF UNREGISTERED SECURITIES

During the twelve months ended December 31, 2001, the company issued an
aggregate of 1,092,054 restricted shares to two of its officers (Bruce Acacio
and Carol Conway Dewees) in lieu of cash compensation due the officers during
the year ended December 31, 2001. In February of 2001, the Company issued 8,000
shares to a non-employee for consulting services performed for the Company.
These shares were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended.

                                       12

<PAGE>


During the period January 19, 2001 through February 15, 2001, the company
repurchased 20,000 shares of its common stock from the open market. The shares
were purchased at prices ranging from $.625 - .75 per share. These shares are
recorded as treasury stock on the accompanying Consolidated Balance Sheet.

AUTHORIZED SHARES

The Company intends to file an information statement under section 14(c) to
increase the number of authorized shares from 20,000,000 to 40,000,000. It is
intended that the information statement will be completed and filed within
thirty days from the date of this report.



                                       13
<PAGE>


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

FORWARD LOOKING STATEMENTS

The statements contained in this report that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements are made based upon
management's current expectations and beliefs concerning future developments and
their potential effects upon the Company. There can be no assurance that future
developments affecting the Company will be those anticipated by management.
Actual results may differ materially from those included in the forward-looking
statements.

PLAN OF OPERATION

Over the next twelve months, the Company plans on continuing its research and
development activities to develop enhancements to existing products as well as
working to develop new products. In connection with these activities, the
Company plans on launching the following new products during 2002:

     o    The Company plans to release a new version of its BABY/GUI software
          that will feature enhancements to add new functionality and reduce
          implementation time.

     o    The Company plans to release a new version of baby.com that
          incorporates Microsoft.net technology. The product will be called
          baby.net and will create a very scalable environment that will allow
          tens of thousands of concurrent users web-to-host access for iseries
          and mainframes. This new product will also create a IDE (Integrated
          Development Environment) for legacy systems using Microsoft Visual
          Studio.

     o    The Company plans to introduce its first release of DLCS for Windows,
          which will broaden the market for our loan collection system to
          include Microsoft-based networks.

     o    The Company plans to introduce a new version of both Unibol 36 and
          Unibol 400 which integrates our latest GUI and .net technology.


RESULTS OF OPERATIONS

Twelve Months Ended December 31, 2001 Compared to Twelve Months Ended December
31, 2000

Software Sales. Software sales consist of sales of the Company's BABY, Unibol,
MLPS, CLPS, ALPS and DLCS software products. Software sales for the year ended
December 31, 2001 and 2000 were $2,117,078 and $1,026,195, respectively, a
106.3% increase. The increase in software sales during the year ended December
31, 2001 was primarily due to the inclusion of revenues derived from California
Software Applications ("CSA" or "ALE") and California Software Belgium ("CSB" or
"Unibol"), which are subsidiaries of the Company.

Hardware Sales. Hardware sales consist of sales of computer equipment made by
the Company's CSA subsidiary in connection with sales of its MLPS software.
Hardware sales for the years ended December 31, 2001 and 2000 were $466,146 and
$199,228, respectively, a 133.9% increase. The increase in hardware sales for
the year ended December 31, 2001 is a result of having a full year of operating
results for CSA.

Maintenance and Other Revenue. Maintenance and other revenue consists of annual
maintenance contracts sold to the Company's customers for technical support of
its products, business partner agreements which entitle the Company's customers
to unlimited annual technical support, as well as discounts on software
purchases, and shipping revenue billed to customers. Revenue from annual
maintenance contracts and business partner agreements are deferred and
recognized over the term of the related contract or agreement. Maintenance and
other revenue for the years ended December 31, 2001 and 2000 was $3,156,279 and
$547,057, respectively, a 476.9% increase primarily due to the Company's
acquisitions of ALE and Unibol and accompanying maintenance revenue stream.

                                       14

<PAGE>


Cost of Sales. Cost of sales is primarily comprised of the cost of hardware
sales of IBM computer equipment made by the Company's ALE subsidiary in
connection with sales of its MLPS software, as well as other miscellaneous
revenue-related costs. Cost of sales for the years ended December 31, 2001 and
2000 were $465,865 and $227,825, respectively. The increase in the cost of sales
for the year ended December 31, 2001 is primarily attributable to the increase
in hardware sales as discussed above.

Research and Development Costs. The Company has adopted the provisions of
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed", which requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Since the Company does not incur any costs between the
completion of the working model and the point at which the product is ready for
general release, all research and development costs are charged to expense as
incurred. For the years ended December 31, 2001 and 2000, the Company incurred
research and development costs of $1,400,306 and $577,729, respectively, a
142.4% increase that was primarily the result of the Company's acquisitions of
ALE and Unibol as well as from the Company's investment in its baby.com product.
As a percentage of revenue, research and development costs for the years ended
December 31, 2001 and 2000 were 24.4% and 32.6%, respectively. The Company
believes that research and development expenditures are essential to maintaining
a competitive position due to rapid changes in technology and customer demands
and expects that these costs will continue to increase in the future.

Selling, General and Administrative Expense. Selling, general and administrative
expenses include sales and marketing expenses, employee compensation, corporate
overhead, legal and accounting expenses, and bad debt expenses. For the years
ended December 31, 2001 and 2000, selling, general and administrative expenses
were $4,772,369 and $7,197,109, respectively, a 33.7% decrease. As a percentage
of revenue, selling general and administrative expenses for the years ended
December 31, 2001 and 2000 were 83.1% and 406.1%, respectively. The decrease in
selling, general and administrative expenses was primarily a result of the
Company's new operating plan implemented in early 2001. The Company has taken
steps to reduce its general and administrative costs, including reduction in the
number of employees, and a reduction in professional fees related to legal,
advertising, and marketing services.

Depreciation and Amortization. Depreciation and amortization consists of
recurring depreciation charges recorded against the Company's property and
equipment. Depreciation and amortization for the years ended December 31, 2001
and 2000 was $1,201,771 and $252,466, respectively, a 376.0% increase. As a
percentage of revenue, depreciation and amortization for the years ended
December 31, 2001 and 2000 was 20.9% and 14.2%, respectively. The increase in
depreciation and amortization during 2001 was primarily the result of goodwill
amortization arising from the Company's acquisitions of ALE in October 2000 and
Unibol in January 2001. The Company anticipates that depreciation and
amortization will reduce in the future periods as the Company has recorded a
permanent impairment charge related to the Company's goodwill associated with
the acquisitions of ALE and Unibol, and thus amortization with respect to such
acquisitions will not be recorded in future periods.

Permanent Impairment Charge - Goodwill. During the year ended December 31, 2001,
the Company recorded a permanent impairment charge of $3,389,925 related to the
unamortized balance of goodwill remaining from the Company's acquisitions of ALE
and Unibol.

Other Income/Expense, Net. Other income/expense consists primarily of interest
expense related to the Company's long term liabilities, offset by interest
income received from investments of the Company's excess cash balances. Net
other expense for the year ended December 31, 2001 was ($8,738) while net other
income for the year ended December 31, 2000 was $190,288, a 104.6% decrease. The
decrease is attributable to the Company having much lower excess cash balances
available for investment in 2001 compared to those available in 2000.

Income Taxes. The Company did not record any tax benefits arising from losses
from operations for the years ended December 31, 2001 and 2000.

Extraordinary Charge. For the year ended December 31, 2001, the Company reversed
the valuation reserve it established related to its acquisition of Unibol. The
valuation reserve was recorded at the end of 2000 as the Company was involved in

                                       15

<PAGE>


litigation related to its acquisition of Unibol and was unable to ascertain the
details of Unibol's operations. When the Company assumed operational and voting
control of Unibol on January 29, 2001, it was deemed appropriate to reverse the
valuation reserve.

Net Income / Loss. For the year ended December 31, 2001, the Company recorded a
net loss of $4,268,983 or $0.33 per common share as compared to a net loss of
$7,292,361 or $0.65 per common share for the year ended December 31, 2000 as a
result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations have resulted in net losses of $4,268,983 and
$7,292,361 for the years ended December 31, 2001 and 2000 respectively. The
Company also has a working capital deficiency of $1,730,442 at December 31,
2001. Since the Company's inception in October 1998, the Company has financed
its operations primarily through the sale of its Common Stock. On or about
October 28, 1998, the Company completed an offering that was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The Company issued 5,400,000 shares of its Common Stock to its founders for an
aggregate amount of $7,175, consisting of $2,800 cash and the forgiveness of a
loan owed to the stockholders for corporate consulting and incorporation costs
that were paid for by the stockholders in the amount of $4,375. On or about
December 7, 1998, the Company completed an offering that was exempt from
registration pursuant to Regulation D, Rule 504, of the Securities Act of 1933,
as amended. The Company sold 1,141,800 shares of Common Stock at a price of
$0.025 per share, for proceeds of $25,545, net of offering costs of $3,000.
Finally, during the second quarter of 2000, the Company completed a private
placement of 2,654,971 shares of its Common Stock. The offering price per share
was $4.00 and the Company received an aggregate of $8,779,898 in proceeds from
the offering. The Company paid commissions and expenses in the aggregate amount
of $547,259 in connection with the offering. The offering was made by the
Company in reliance on the provisions of Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended, and the shares were offered solely
to accredited investors as that term is defined in Rule 501 of such regulation.

The Company's financial statements are presented on a going-concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company's ability to continue as a going concern
is contingent upon its ability to attain profitable operations. Management plans
to increase revenues by expanding its customer base, enhancing existing
products, and developing new and upgraded products.

Net cash used in operating activities for the years ended December 31, 2001 and
2000 was $1,418,280 and $4,568,481, respectively. The negative cash flows
generated from operations for the years ended December 31, 2001 and 2000 were
primarily the result of operating losses incurred by the Company.

Net cash used in investing activities for the year ended December 31, 2001 was
$71,794, while net cash used in investing activities for the year ended December
31, 2000 was $1,824,557. The cash flows used in investing activities for the
year ended December 31, 2001 primarily related to the Company's acquisition of
property and equipment. The cash flows used in investing activities for the year
ended December 31, 2000 was a direct result of the Company's acquisitions of ALE
Systems in October 2000, as well as the Company's $1,000,000 investment in
Unibol, Ltd.

Net cash used in financing activities for the year ended December 31, 2001 was
$607,796, while the net cash provided by financing activities for the year ended
December 31, 2000 was $8,424,835. The cash used in financing activities in 2001
was comprised of proceeds received from long-term borrowings, net of repayments
on those borrowings and net of proceeds paid to shareholders per a settlement
agreement. The cash provided by financing activities in 2000 was directly
related to the Company's completion of a private placement in June of 2000.

At December 31, 2001, cash and cash equivalents totaled $309,462, down
$2,125,117 from $2,434,579 at December 31, 2000. In addition, at December 31,
2001, the Company had a working capital deficiency of $1,730,442 and an
accumulated deficit of $11,998,407. The Company has commitments related to its
long-term debt totaling $2,024,641 over the next five years. Please see the
Notes to the consolidated financial statements for further discussion regarding
the Company's maturities of long-term debt. The Company's ability to continue as
a going concern is contingent upon its ability to attain profitable operations.
Management plans to increase revenues by expanding its customer base, enhancing
existing products, and developing new and upgraded products.

                                       16
<PAGE>



Item 7. Financial Statements.



                                TABLE OF CONTENTS

                                                                        PAGE

INDEPENDENT AUDITORS' REPORT                                            F-1

CONSOLIDATED BALANCE SHEET                                              F-2

CONSOLIDATED STATEMENTS OF OPERATIONS                                   F-3

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)                       F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS                                   F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-6



<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders
California Software Corporation


We have audited the accompanying consolidated balance sheet of California
Software Corporation as of December 31, 2001, and the related consolidated
statements of operations, stockholders' (deficit), and cash flows for the years
ended December 31, 2001 and 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of California Software
Corporation and subsidiaries as of December 31, 2001, and the results of its
operations, and its cash flows for the years ended December 31, 2001 and 2000,
in conformity with accounting principles generally accepted in the United
States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.



Stark Winter Schenkein & Co., LLP


Denver, Colorado
April 1, 2002

                                      F-1
<PAGE>

                         California Software Corporation
                           Consolidated Balance Sheet
                                December 31, 2001

ASSETS

Current assets:
     Cash and cash equivalents ................................    $    309,462
     Accounts receivable, net of allowance
     for doubtful accounts of $245,207 ........................         616,764
     Prepaids and other current assets ........................          56,303
                                                                   ------------
         Total current assets .................................         982,529

Property and equipment, net ...................................         254,259
Other assets ..................................................          25,215
                                                                   ------------

TOTAL ASSETS ..................................................    $  1,262,003
                                                                   ============

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Current liabilities:
     Accounts payable and accrued expenses ....................    $  1,003,794
     Accrued payroll and related expenses .....................         206,280
     Accrued payroll taxes and pension liabilities ............         487,558
     Current portion, long-term debt due to third parties .....         503,010
     Current portion, long-term debt due related party ........          47,005
     Deferred revenue .........................................         465,324
                                                                   ------------

         Total current liabilities ............................       2,712,971

Long-term liabilities, including amounts
 due related party of $81,012,net of
unamortized discount on notes payable of $276,752 .............       1,203,251
                                                                   ------------

         Total liabilities ....................................       3,916,222

Stockholders' (Deficit)
Preferred stock, $0.001 par value;
     5,000,000 shares authorized;
      no shares issued and outstanding ........................            --
Common stock, $0.001 par value;
     20,000,000 shares authorized;
     13,679,825 shares issued and outstanding .................          13,680
Treasury stock, 20,000 shares .................................         (14,595)
Cummulative effect of foreign currency translation ............         (27,067)
Additional paid-in capital ....................................       9,372,170
Accumulated (deficit) .........................................     (11,998,407)

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

Total stockholders' (deficit) .................................      (2,654,219)

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

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) .................    $  1,262,003
                                                                   ============


      See the accompanying notes to the consolidated financial statements.

                                      F-2


<PAGE>
<TABLE>
<CAPTION>

                                            California Software Corporation
                                         Consolidated Statements of Operations
                                    For the Years Ended December 31, 2001 and 2000

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

<S>                                                                               <C>                      <C>
Revenues:
     Software sales .....................................................        $  2,117,078            $  1,026,195
     Hardware sales .....................................................             466,146                 199,228
     Maintenance and other revenue ......................................           3,156,279                 547,057
                                                                                 ------------            ------------
         Total revenues .................................................           5,739,503               1,772,480
                                                                                 ------------            ------------


Costs and expenses:
     Cost of sales ......................................................             465,865                 227,825
     Research and development ...........................................           1,400,306                 577,729
     Selling, general, and administrative ...............................           4,772,369               7,197,109
     Depreciation and amortization ......................................           1,201,771                 252,466
        Permanent impairment charge - goodwil ...........................           3,389,925                    --
                                                                                 ------------            ------------
         Total costs and expenses .......................................          11,230,236               8,255,129
                                                                                 ------------            ------------

Loss from operations ....................................................          (5,490,733)             (6,482,649)

Other income (expense), net .............................................              (8,738)                190,288
                                                                                 ------------            ------------

Loss before provision for income taxes ..................................          (5,499,471)             (6,292,361)

Provision for income taxes (benefit) ....................................            (418,365)                   --
                                                                                 ------------            ------------

Loss before extraordinary item ..........................................          (5,081,106)             (6,292,361)

Extraordinary item, net of tax benefit of $418,365 ......................             812,123              (1,000,000)
                                                                                 ------------            ------------

Net loss ................................................................        $ (4,268,983)           $ (7,292,361)
                                                                                 ============            ============

Loss per common share, basic and fully diluted:

     Loss before extraordinary item .....................................        $      (0.40)           $      (0.56)
     Extraordinary item .................................................                0.07                    0.09
                                                                                 ------------            ------------
     Net loss ...........................................................        $      (0.33)           $      (0.65)
                                                                                 ============            ============

Weighted-average shares outstanding - basic and fully diluted ...........          12,832,205              11,180,857
                                                                                 ============            ============






                       See the accompanying notes to the consolidated financial statements.

                                                       F-3


<PAGE>


                                                  California Software Corporation
                                         Statement of Stockholders' Equity (Deficit)
                                       For the Years Ended December 31, 2001 and 2000

                                                                                                            Accumulated    Total
                                                                                                              Other        Stock-
                                                                    Additional    Common                  Comprehensive    holders'
                                                     Treasury        Paid-In      Stock        Accumulated   Income        Equity
                                 Common Stock         Stock          Capital    Subscribed       Deficit     (Loss)       (Deficit)
                           ----------------------  -----------   ------------   ----------     -----------   ------       --------

Balance at
January 1, 2000 ......     6,541,800    $   6,542    $   --      $     26,178    $ 700,840   $   (437,063)   $   --    $    296,498

Conversion of common
stock subscription ...     2,000,000        2,000        --           698,840     (700,840)          --          --            --

Issuances of common
stock ................     4,037,971        4,038        --         9,675,500         --             --          --       9,679,538

Reserve for settlement          --           --          --        (1,351,729)        --             --          --      (1,351,729)

Net loss .............          --           --          --              --           --       (7,292,361)       --      (7,292,361)
                        ------------    ---------   ---------    ------------    ---------   ------------    --------  ------------
Balance at
December 31,2000 .....  $ 12,579,771    $  12,580    $   --      $  9,048,789    $    --     $ (7,729,424)       --    $  1,331,946


Issuances of common
stock to officers, in
lieu of cash
compensation .........     1,092,054        1,092        --           185,240         --             --          --         186,332

Issuance of common
stock to non-employees
for services rendered          8,000            8        --             1,992         --             --          --           2,000

Adjustments to .......          --           --          --              --           --             --          --            --
long-term notes ......          --           --          --              --           --             --          --            --
payable to
shareholders .........          --           --          --           136,149         --             --          --         136,149

Currency Translation
Adjustments ..........          --           --          --              --           --             --       (27,067)      (27,067)

Purchase of
Treasury Stock .......       (20,000)        --       (14,595)           --           --             --          --         (14,595)
Net loss .............          --           --          --              --           --       (4,268,983)       --      (4,268,983)
                        ------------    ---------   ---------    ------------    ---------   ------------    --------  ------------
Balance at
December 31, 2001 ....    13,659,825    $  13,680   $ (14,595)   $  9,372,170    $    --     $(11,998,407)   $(27,067) $ (2,654,219)
                        ============    =========   =========    ============    =========   ============    ========  ============











                            See the accompanying notes to the consolidated financial statements.

                                                          F-4


<PAGE>

                                        California Software Corporation
                                     Consolidated Statements of Cash Flows
                                 For the Years Ended December 31, 2001 and 2000

                                                                                           2001                   2000
                                                                                       -----------            -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................................................       $(4,268,983)           $(7,292,361)
Adjustments to reconcile net loss to net cash
     (used in) operating activities:
Depreciation ...................................................................           198,478                 55,511
Amortization of goodwill .......................................................         1,003,294                196,955
Allowance for doubtful accounts ................................................           120,207                302,864
Gain on settlement of debt .....................................................          (230,487)                  --
Foreign currency transaction gain ..............................................            (1,757)                  --
Issuance of common stock for services ..........................................           188,332              1,182,881
Loss on disposal of assets .....................................................              --                    5,542
Permanent impairment charges - goodwill ........................................         3,389,925                   --
Provision for loss on investment ...............................................        (1,000,000)             1,000,000

Changes in operating assets and liabilities:
     Accounts receivable .......................................................           635,528                497,476
     Prepaids and other current assets .........................................           490,748               (485,375)
     Accounts payable and accrued expenses .....................................        (2,466,221)               (65,359)
     Accrued payroll and related expenses.......................................           418,788                 19,125
     Deferred revenue ..........................................................            43,868                 14,260
                                                                                       -----------            -----------
Net cash (used in) operating activities ........................................        (1,478,280)            (4,568,481)
                                                                                       -----------            -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of ALE, net of cash acquired ..........................................              --                 (713,903)
Investment in Unibol ...........................................................              --               (1,000,000)
Acquisition of property and equipment ..........................................           (45,005)              (105,115)
Other assets ...................................................................           (26,969)                (5,539)
                                                                                       -----------            -----------
Net cash (used in) investing activities ........................................           (71,974)            (1,824,557)
                                                                                       -----------            -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings..............................................           450,000                   --
Proceeds from note payable to officer ..........................................            60,000                   --
Repayments of long-term borrowings .............................................          (240,936)                  --
Proceeds paid to settle shareholder suit .......................................          (792,962)                  --
Purchase of treasury stock .....................................................           (14,595)                  --
Issuances of common stock ......................................................              --                8,432,639
Repayments under capital leases ................................................            (9,303)                (7,804)
                                                                                       -----------            -----------
Net cash (used in) provided by financing activities ............................          (547,796)             8,424,835
                                                                                       -----------            -----------

Effect of exchange rate changes on cash and cash equivalents ...................           (27,067)                  --
Net (decrease) increase in cash and cash equivalents ...........................        (2,125,117)             2,031,797
Cash and cash equivalents, beginning of year ...................................         2,434,579                402,782
                                                                                       -----------            -----------
Cash and cash equivalents, end of year .........................................       $   309,462            $ 2,434,579
                                                                                       ===========            ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
  Interest .....................................................................       $    31,403            $    31,922
                                                                                       ===========            ===========
  Income taxes .................................................................       $      --              $      --
                                                                                       ===========            ===========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
                                                                                       ===========            ===========
 Conversion of common stock subscription into common stock .....................       $      --              $   700,840
                                                                                       ===========            ===========
 Issuance of common stock in exchange for note receivable ......................       $      --              $    74,032
                                                                                       ===========            ===========
 Equipment acquired under capital leases .......................................       $      --              $    33,431
                                                                                       ===========            ===========
 Note payable issued in adjustment of original consideration given
    related to the acquisition of ALE ..........................................       $   535,000                   --
                                                                                       ===========            ===========
 Note issued to officer for consideration
    given in settlement of Company liability ...................................       $    51,012                   --
                                                                                       ===========            ===========
 Notes payable for PPM settlement ..............................................       $      --              $ 1,351,729
                                                                                       ===========            ===========

                       See the accompanying notes to the consolidated financial statements.

                                                      F-5
</TABLE>


<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

California Software Corporation (the "Company") was incorporated in the State of
Nevada on October 28, 1998. The Company markets a family of software products
under the brand name BABY, Unibol and MLPS that provide (a) software solutions
that allow business customers to migrate International Business Machines ("IBM")
Midrange applications to the Windows, Unix and Linux environments and to execute
such applications without a complete rewrite of the application's source code;
(b) GUI software that allows a developer of an AS/400 or Mainframe text-based
application to present screens with WindowsTM point-and-click functionality (c)
software that internet-enables AS/400 and Mainframe applications and (d) loan
processing software for mortgage and consumer lending.

Consolidated Financial Statements

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries California Software Applications and
California Software Belgium. California Software Belgium is a foreign
subsidiary. Intercompany transactions and balances have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. On an ongoing basis, management reviews those estimates, including
those related to allowances for doubtful accounts, loss contingencies for
litigation, income taxes, and projection of future cash flows used to assess the
recoverability of long-lived assets.

Cash and Cash Equivalents

For purposes of balance sheet classification and the statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2001. The
respective carrying value of certain on-balance sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, accounts payable,accrued expenses and long-term debt.. Fair
values were assumed to approximate carrying values for these financial
instruments because they are short-term in nature and their carrying amounts
approximate fair value or they are receivable or payable on demand. The
fair-value of long-term debt is based on the current rates at which the Company
could borrow funds with similar remaining maturities.

Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash investments and trade receivables. The
Company has cash investment policies that limit investments to investment grade
securities. The Company performs ongoing credit evaluations of its customers'
financial position and the risk with respect to trade receivables is further
mitigated by the fact that the Company's customer base is highly diversified.

At December 31, 2001, the Company had cash balances on deposit that exceeded the
balance insured by the FDIC by approximately $155,431 at a single financial
institution.

Foreign currency translation

Local currency is the functional currency for the Company's foreign subsidiary.
Assets and liabilities are translated using the exchange rates in effect on the
balance sheet date. Income and expenses are translated at the average exchange
rates for the year. Translation adjustments are reported as a separate component
of stockholders' equity.

                                      F-6

<PAGE>

                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001

Inventory

Inventories are stated at the lower of cost (based on the first-in, first-out
method) or market.

Property and Equipment

Property and equipment is stated at cost. Depreciation and amortization is
computed using the straight-line method based on estimated useful lives ranging
from three to five years. Amortization of assets under capital lease are
included in depreciation and amortization expense.

Long-Lived Assets

The carrying amount of long-lived assets is reviewed if facts and circumstances
suggest that it may not be recoverable. For purposes of evaluating the
recoverability of long-lived assets, the Company estimates the future
undiscounted cash flows of the businesses to which long-lived assets relate.
When such estimates of the future undiscounted cash flows are less than the
carrying amount of long-lived assets, the difference is charged to operations.
The Company estimates the future undiscounted cash flows using historical
results and current projections. If current projections of future cash flows are
not achieved, the Company may be required to record reductions in the carrying
values of long-lived assets in future periods.

Deferred Revenue

Deferred revenue primarily relates to end-user maintenance and business partner
agreements which have been paid for by customers prior to the performance of
those services. Revenue from these services is recognized ratably over the term
of the corresponding maintenance or partner agreement.

Revenue Recognition

In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition" which superseded SOP No. 91-1, "Software Revenue Recognigion". SOP
No. 97-2 was effective for fiscal years after December 15, 1997, as amended by
SOP No. 98-1, "Accounting for the Costs to Develop or Obtain Software" and SOP
No. 98-9,"Software Revenue Recognition With Respect to Certain Transactions",
and provides guidance on applying accounting principles generally accepted in
the United States of America for software revenue recognition transactions. The
Company has adopted the provisions of SOP No. 97-2 for the fiscal year ended
December 31, 1998. The Company recognizes revenue from sales of its products
upon shipment, provided fees are fixed and determinable and collection is
probable.

Comprehensive Income

The Company follows SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income, its
components and accumulated balances. The currency translation adjustment
represents the only item of other comprehensive income included in the
accompanying consolidated financial statements.

Research and Development Costs

The Company has adopted the provisions of SFAS No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed", which requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Since the Company does not incur any costs between the
completion of the working model and the point at which the product is ready for
general release, all research and development costs are charged to expense as
incurred.

                                       F-7

<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


Accounting for Stock-Based Compensation

The Company accounts for stock based compensation in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation." The provisions of SFAS No. 123
allow companies to either expense the estimated fair value of stock options or
to continue to follow the intrinsic value method set forth in Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25") but disclose the pro forma effects on net income (loss) had the fair value
of the options been expensed. The Company has elected to continue to apply APB
25 in accounting for its stock option incentive plans.

The Company has issued its common stock as compensation to non-employees. The
Company measures the amount of stock-based compensation as of the earlier of (1)
the date at which an agreement is reached with the non-employee as to the number
of shares to be issued for performance, or (2) the date at which the
non-employees performance is complete.

Income Taxes

The Company uses the liability method of accounting for income taxes.
Accordingly, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of assets and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period of the enactment date.
A valuation allowance is established against deferred tax assets when management
concludes that the "more likely than not" realization criteria has not been met.

Advertising Costs

The Company expenses all costs of advertising as incurred. Advertising costs
included in selling, general and administrative expenses were approximately
$148,511 and $458,918 in 2001 and 2000, respectively.

Net Income (Loss) per Common Share

The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings Per Share". Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented, common stock
equivalents were not considered as their effect would be antidilutive.

Segment Information

The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). In accordance with
SFAS No. 131, certain information is disclosed based on the way management
organizes financial information for making operating decisions and assessing
performance. The Company currently operates in a single segment and will
evaluate additional segment disclosure requirements as it expands its
operations.

Business Combinations

Business combinations have been accounted for under the purchase method of
accounting and include the results of operations of the acquired business from
the effective date of acquisition. The cost to acquire companies, including
transaction costs, have been allocated to the underlying net assets of the
acquired company in proportion to their respective fair values. Any excess of
the purchase price over estimated fair values of the net assets acquired has
been recorded as goodwill.

                                      F-8

<PAGE>

                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


The Company periodically reviews the carrying value of acquired intangible
assets, including goodwill, to determine whether an impairment may exist. The
Company considers relevant cash flow and profitability information, including
estimated future operating results, trends and other available information, in
assessing whether the carrying value of intangible assets can be recovered. If
it is determined that the carrying value of intangible assets or goodwill will
not be recovered from the undiscounted future cash flows, the carrying value of
such intangible assets or goodwill would be considered impaired. An impairment
charge for goodwill is measured as any deficiency in the amount of estimated
undiscounted future cash flows, determined on an enterprise-wide basis, in
relation to the net shareholders' equity of the Company. Asset impairments and
goodwill amortization have been broken out separately on the Consolidated
Statement of Operations.

Recent Pronouncements

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Tangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that all purchase price allocable to an assembled
workforce may not be accounted for separately. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. The Company is required to adopt
the provisions of SFAS 141 immediately, except with regard to business
combinations initiated prior to July 1, 2001, and to adopt SFAS 142 effective
with the fiscal year beginning January 1, 2002. The Company does not expect the
adoption of SFAS No. 142 to have a material impact on the earnings and financial
position of the Company.

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement provides accounting and reporting standards for
costs associated with the retirement of long-lived assets. This statement
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity capitalizes a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted to
its present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. The Company will be required to adopt this statement no later
than January 1, 2003. The Company is currently assessing the impact of this
statement on its results of operations, financial position and cash flows.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement replaces SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. However it retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and for measurement of long-lived assets to be disposed of by sale.
This statement applies to all long-lived assets, including discontinued
operations, and replaces the provisions of APB Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair value less
cost to sell, whether reported in continuing operations or in discontinued
operations. The Company will be required to adopt this statement during the
fiscal year beginning January 1, 2002. The Company does not expect the adoption
of SFAS No. 144 to have a material impact on the earnings and financial position
of the Company.

During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101") which provides guidance on
recognition, presentation, and disclosure of revenue in financial statements.
SAB No. 101 does not impact the Company's revenue recognition policies.

                                      F-9

<PAGE>

                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001

NOTE 2. BASIS OF REPORTING

The Company's financial statements are presented on a going-concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.

The Company has incurred a net loss of $4,268,983 for the year ended December
31, 2001 and has incurred net losses since its inception in 1998. The Company
also has a working capital deficiency of $1,730,442 at December 31, 2001and an
accumulated deficit of $11,998,407.

The Company's ability to continue as a going concern is contingent upon its
ability to attain profitable operations. Management plans to increase revenues
by expanding its customer base, enhancing existing products, and developing new
and upgraded products.

The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.

NOTE 3. ACQUISITIONS

On January 12, 1999, the Company acquired the net assets of California Software
Products, Inc. ("CSPI") with a historical cost of $700,840 in exchange for a
Common Stock subscription. Since CSPI's line of business was substantially the
same as the Company's, and the shareholders, officers and directors of CSPI and
CSC were substantially the same, the Company valued the net assets acquired from
CSPI at their historical cost. On January 27, 2000, the subscription was
converted into 2,000,000 shares of the Company's Common Stock.

On October 20, 2000, the Company acquired the net assets of Software
Connections, Inc., d/b/a ALE Systems ("ALE"), consisting of assets valued at
$1,836,632 and liabilities valued at $4,102,233. Initial consideration for this
purchase consisted of a cash payment of $750,000, an earn-out payable bearing no
interest over 60 months valued between $625,000 and $2,500,000 depending on
ALE's operating results during that period, and a note payable bearing no
interest in the amount of $292,500, payable in monthly installments over 36
months. During 2001, the purchase price was revised downward by $966,555 as part
of the litigation settlement. Under the terms of the settlement, the Company
issued a no-interest bearing note payable in the amount of $535,000, due over 36
months, and 400,000 options for the Company's common stock. In addition, as a
result of the settlement, certain liabilities were eliminated. The options
contain no expiration date and are exercisable at $0.18 per share (the fair
market value of the stock on the date of the settlement agreement).

The acquisition has been accounted for as a purchase and, accordingly, the
operating results of ALE have been included in the consolidated financial
statements of the Company since the date of acquisition. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
$3,933,101 was initially set up as goodwill and was being amortized over five
years. As of December 31, 2001, the Company has reduced the carrying amount of
all unamortized goodwill related to this acquisition by recording a permanent
impairment charge in the consolidated statement of operations (See Note 4).

On November 8, 2000, the Company signed a letter of intent to merge with
Unicomp, Inc. ("Unicomp"), a Georgia corporation. On that same date, and two
days thereafter, the Company entered into various agreements with Unicomp
through which the Company acquired, Unibol, Ltd., a United Kingdom corporation
(Unibol UK), and through which the Company contends it also acquired Unibol,
Inc., a Georgia corporation ("Unibol U.S.") In the Stock Purchase Agreement,
Amendment, and related documents, the Company agreed to pay cash of $1,000,000,
an additional $500,000 due in four monthly installments commencing on the first
of the month beginning with the second month after the Closing Date, and
$1,500,000 of the Company's Common Stock due and valued on the six month
anniversary of the Closing Date. On November 13, 2000, the Company paid the
$1,000,000 in cash due under the agreements. Subsequent to the cash payment, a
dispute arose between the Company and Unicomp about Unicomp's providing of
financial information, the identity of the companies included under the
acquisition documents, as well as the intent of certain provisions contained in
the Amendment purporting to grant sole operational and voting control over the
Unibol entities to the Chief Executive Officer of Unicomp for a six month
period. As a result, the Company did not make any of the installment payments

                                      F-10

<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001

due under the purchase agreement, and merger discussions were terminated. The
Company thereafter filed a lawsuit in California against Unicomp, several of its
officers and directors, and a third party alleging fraudulent misrepresentation
and various other charges in connection with the acquisition of Unibol, Ltd. and
Unibol, Inc. Unicomp also filed a lawsuit in Georgia against the Company seeking
to preserve Unicomp's interest in one of the Unibol companies, Unibol, Inc., as
well as to uphold the original terms and conditions of the agreement and
Amendment, although that lawsuit subsequently was dismissed by the Georgia
court. Due to the uncertainty surrounding the realizability of the Companys
$1,000,000 investment, a reserve was established at December 31, 2000 for
$1,000,000.

The Company asserted its physical and operational control over Unibol UK on or
about January 29, 2001, has included the results of Unibol UK's operations for
the period Janury 29, 2001 through December 31, 2001 in the accompanying
Consolidated Statement of Operations. In addition, the Company reversed the
valuation reserve it established as of December 31, 2000 against its $1,000,000
cash investment in Unibol. This reversal of the valuation reserve is presented
as an extraordinary item in the Company's Consolidated Statement of Operations
for the year ended December 31, 2001. The Company has not disclosed proforma
information related to its acquisition of Unibol UK due to the lack of reliable
information provided the Company by the former parent company of Unibol UK.

Subsequent to year end, all pending claims and court issues were settled (Note
6).

NOTE 4. NON-RECURRING IMPAIRMENT CHARGES

The Company recorded a non-recurring impairment charge in the amount of
$3,389,925 related to all of the unamortized portion of goodwill remaining from
the Company's acquisitions of ALE and Unibol as of December 31, 2001. In
recording the impairment charge, the Company considered such factors as relevant
cash flow and profitability information.

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2001 is as follows:

        Computer equipment                                      $      327,158
        Office equipment                                               123,873
        Equipment held under capital leases                             33,431
                                                                --------------
                                                                       484,462
        Less accumulated depreciation and amortization                (230,203
                                                                --------------
                                                                $      254,259
                                                                ==============

NOTE 6. COMMITMENTS AND CONTINGENCIES

Leases
------

In February 2000, the Company entered into a non-cancelable operating lease
agreement for its corporate facilities. The lease is for a term of five years
with an option to extend the lease for an additional five years at the
conclusion of the original lease term. In addition, in June of 2001, the Company
entered into a non-cancelable operating lease for its operations in Belfast,
Ireland and in August of 2001, the Company entered into a non-cancelable
operating lease agreement for its operations in Richmond, VA. Both leases are
for initial terms of five years, with options to extend. The Company also leases
offices in Paris, France and Brussels, Belgium on a month to month basis.


                                      F-11

<PAGE>

                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


Future minimum payments under non-cancelable operating leases with initial terms
of one year or more are as follows:

         2002                                                $       417,182
         2003                                                        428,004
         2004                                                        438,361
         2005                                                        246,043
         2006                                                         74,225
                                                             ---------------
                                                             $     1,603,815
                                                             ===============

Rent expense for the years ended December 31, 2001 and 2000 totaled $472,796 and
$295,961, respectively.

Litigation
----------

On August 17, 2000, a shareholder class action was commenced in the United
States District Court for the Central District of California against the Company
as well as two of its officers and directors, Bruce Acacio and Carol Conway
DeWees. The class action was brought on behalf of purchasers of the stock of the
Company during the period February 9, 2000 through August 6, 2000. In October
2000, the shareholder class action was consolidated with three other nearly
identical lawsuits filed in the same court against the Company, Mr. Acacio, and
Ms. DeWees (Note 13).

On December 4, 2000, an action was commenced in the United States District Court
for the District of Nevada against the Company and two of its officers and
directors, Bruce Acacio and Carol Conway DeWees by three shareholders of the
Company who acquired their stock through a Private Placement Memorandum
conducted by the Company. In December 2001, the federal district court for the
District of Nevada dismissed the action after plaintiff's counsel withdrew and
after plaintiffs failed, after notice from the court, to enegage new counsel.

Following the Company's August 7, 2000 announcement of its intent to restate its
financials for the Restatement Period some of the subscribers began to assert,
either directly or through counsel, that financial information contained in the
Private Placement Memorandum was inaccurate. The Company engaged in
communications with, and ultimately entered into a settlement agreement with
some of the subscribers or their representatives. The collective settlement
agreements provide for payment by the Company of $821,212 in cash, $530,517 in
non-interest bearing promissory notes, and 1,453,472 warrants for the stock of
the Company. The promissory notes call for a balloon payment within thirty-six
(36) months of the date of the notes. The settlement agreements also provide for
the transfer of 930,667 shares of stock to the settling PPM subscribers from
certain individuals and/or entities. On or about March 30, 2001, the Company
delivered initial cash payments totaling $792,962, the promissory notes, the
stock warrants, and the shares of stock to the settling Subscribers. Subscribers
who participated in this settlement were precluded from participating in the
Class Action Litigation settlement.

On December 5, 2000, the Company filed a lawsuit in Orange County, California
against Unicomp, Inc., and others, claiming fraudulent misrepresentation and
other causes of action. The complaint concerns the extent and scope of various
agreements entered into between the Company, on the one hand, and Unicomp, Inc.,
and other related entities, on the other hand, through which the Company
acquired Unibol, Ltd., a United Kingdom corporation, and through which the
Company contends it also acquired Unibol, Inc., a Georgia corporation ("Unibol
U.S."). In response to the above-described complaint, on or about January 3,
2001, the defendants filed an answer to complaint and a cross-complaint for
declaratory relief, breach of contract, and interference with contract against
the Company (Note 13).

In January of 2001 a suit was filed against the Company in the United States
District Court for the Western District of Pennsylvania by a former vendor of
ALE. The suit alledged violations of the Copyright Act and claims for breach of
contract. In November of 2001, the case was settled and dismissed. Under the
terms of the settlement, the settlement amount $360,000 is being paid over a
period of fifty-two months.

On or about April 12, 2001, a lawsuit was filed against the Company and its
officers and directors in the Circuit Court of the City of Richmond, Virginia.
The lawsuit, filed by the Chief Executive Officer of Software Connections (the

                                      F-12

<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


former parent company of ALE Systems ("ALE"), which was acquired by the Company
in October, 2000) and his wife, the sole shareholder of Software Connections,
alleges breach of contract, fraud, and tortuous interference against the Company
and its officers and directors in connection with actions taken by the Company
subsequent to its acquisition of ALE. The Company responded by filing a fraud
action against Software Connection's previous sole shareholder, Gayle Goodrich
and her husband, the former President of Software Connections C. Wesley Lucas in
Superior Court in Orange County, California. Both suits were settled pursuant to
the settlement agreement in October of 2001. Under the terms of the settlement,
the initial purchase price was adjusted downward by $966,555 and is evidenced by
a non-interest bearing note in the amount of $535,000 payable over 36 months. In
addition, the Company granted 400,000 warrants with an exercise price of $0.18
and no expiration date.

The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these other legal matters will have a
material adverse effect on the Company's results of operations or financial
position.

NOTE 7. STOCKHOLDERS' (DEFICIT)

Preferred Stock

The Company's Board of Directors has the authority to issue shares of preferred
stock, in one or more series, and containing certain rights and limitations,
including dividend rights, voting rights, conversion privileges, redemption
rights, and liquidation or sinking fund rights. No preferred stock has been
issued or is outstanding at December 31, 2001 and the Company has no present
plans to issue any shares of preferred stock.

Common Stock

On February 1, 2000, the Company entered into an agreement for investor
relations services that was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933. Under the terms of the agreement, the Company
received investor relations services for a nine month period from February 1,
2000 to October 31, 2000 in exchange for 420,000 shares of the Company's Common
Stock valued at $0.625 per share. These shares were issued on March 6, 2000, and
were valued at the fair market value of the shares on the date the Company
agreed to issue the shares.

On February 1, 2000, the Company entered into an agreement for various corporate
financial services that was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933. Under the terms of the agreement, the Company
received specified financial consulting services in exchange for 200,000 shares
of the Company's Common Stock valued at $0.525 per share. These shares were
issued on March 15, 2000, and were valued at the fair market value of the shares
on the date the Company agreed to issue the shares.

On March 15, 2000 the Company effected a 2 for 1 forward stock split. All share
and per share amounts in this report have been restated to give effect to this
split.

On March 15, 2000, pursuant to a private placement agreement that was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 dated
November 23, 1999, the Company issued 600,000 shares of its Common Stock in
exchange for cash of $200,000 and a note receivable in the amount of $74,032.
The note bears no interest and matures on September 6, 2001. This note was
subsequently forgiven in its entirety in accordance with the terms of an
agreement entered into on March 30, 2001.

On April 6, 2000, the Company entered into an agreement for investor relations
services that was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. Under the terms of the agreement, the Company received
investor relations services for a six month period from April 1, 2000 to
September 30, 2000 in exchange for 150,000 shares of the Company's Common Stock
valued at $5.10 per share. These shares were issued on April 14, 2000, and were
valued at the fair market value of the shares on the date the Company agreed to
issue the shares.

During the three months ended June 30, 2000, the Company completed a private
offering of its Common Stock under the provisions of Rule 506 of Regulation D

                                      F-13

<PAGE>

                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


under the Securities Act of 1933, as amended. The Company issued a total of
2,654,971 shares of its Common Stock in exchange for proceeds of $8,232,639, net
of offering costs of $547,259.

During the year ended December 31, 2000, the Company issued 13,000 shares of its
Common Stock that was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 valued between $1.50 and $7.20 per share in exchange for
other services valued at $55,533, the fair market value of the shares on the
dates the Company agreed to issue the shares.

During the year ended December 31, 2001, the Company issued 8,000 shares of its
common stock that was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 valued at $.25 per share in exchange for services valued
at $2,000, the fair market value of the shares on the date the Company agreed to
issue the shares.

During the period January 19, 2001 thru February 15, 2001, the Company
repurchased 20,000 shares of its common stock on the open market at prices
ranging from $.625 - .75. The shares were recorded using the cost method and are
reflected as treasury stock in the accompanying financial statements.

During the year ended December 31, 2001, the Company issued 1,092,054 shares to
two officers in lieu of cash compensation earned by the officers. The shares
were valued at $186,332, the value of the stock at the dates the issuances were
authorized by the Company.

Stock Purchase Warrants

Pursuant to the January 2001 settlement agreement, the Company issued 1,453,472
warrants for the Companys stock. The warrants have an exercise price of $2.00
and a term of two years.

On September 24, 2001, the Company issued 200,000 warrants to a non-employee in
exchange for services rendered. The warrants contain an exercise price of $0.35
and have a five year term.

On October 31, 2001, pursuant to the settlement agreement reach with the former
shareholder of Software Connections, Inc., the Company issued 400,000 warrants
withan exercise price of $0.18. The options have no expiration date.

Common Stock Subscription

On January 12, 1999, the Company acquired the net assets of California Software
Products, Inc. ("CSPI") with a historical cost of $700,840 in exchange for a
Common Stock subscription. Since CSPI's line of business was substantially the
same as the Company's, and the shareholders, officers, and directors of CSPI and
CSC were substantially the same, the Company valued the net assets acquired from
CSPI at their historical cost. On January 27, 2000, the subscription was
converted into 2,000,000 shares of the Company's Common Stock.

NOTE 8. EMPLOYEE STOCK OPTION PLAN

The Company has elected to follow ABP Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for its employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

On December 4, 2000, the Board of Directors of the Company approved by action
taken without a meeting by written consent, subject to the approval of the
shareholders, an option plan (the "Plan") creating 3,000,000 shares of Common
Stock underlying options that may be granted under the Plan. The Plan was
approved by the holders of a majority of the outstanding Common Stock of the
Company on December 4, 2000. As of December 31, 2001, the Company had issued
1,918,000 shares under the Plan, with 1,082,000 shares remaining for future
grant under the Plan.

                                      F-14

<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


The following is a summary of changes in options outstanding for the year ended
December 31, 2001:

                                                                Weighted-average
                                                     Options      exercise price
                                                   -------------  --------------

    Outstanding - beginning of year                   3,328,500    $       0.60
    Granted                                             900,000            0.24
    Exercised                                                 -               -
    Forfeited                                        (2,310,500)          (0.68)
                                                 -------------     ------------
    Outstanding - end of year                         1,918,000            0.57
                                                  =============    ============

    Exercisable at end of year                              -      $          -
                                                  =============    ============

    Weighted-average fair value of
   options granted during the year                $        0.24
                                                  =============

The following table summarizes information about stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>


                                           Outstanding                                Exercisable
                   --------------------------------------------------------------------------------------------
                                      Weighted average       Weighted                             Weighted
     Range of           Number           remaining           average            Number            average
  exercise prices     outstanding     contractual life    exercise price      exercisable      exercise price
 --------------------------------------------------------------------------------------------------------------
<S>       <C>         <C>                  <C>             <C>                  <C>              <C>
  $0.18 - $0.35       2,409,000            3.87            $     0.27           600,000          $      0.32
  $0.36 - $1.25         105,000            3.73                  0.54                 -                    -
  $1.26 - $13.56          4,000            3.21                 13.56                 -                    -
</TABLE>

The weighted average remaining contractual life of all stock options outstanding
at December 31, 2001 was 3.86 years.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2001:
risk free interest rate of 2%; dividend yield of 0%; volatility factor of the
expected market price of the Company's Common Stock of 167%; and a
weighted-average life of the option of 5.0 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.


                                      F-15
<PAGE>

                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


For purposes of pro forma disclosures, the estimated fair value of the options
is charged to expense in the year(s) that the options were issued. The Company's
pro forma information follows:

                                                           December 31,
                                                     2001             2000
                                               ---------------   -------------

  Pro forma net loss                           $     4,475,733   $   9,262,481
                                               ===============   -------------

  Pro forma loss per share
    - basic and fully diluted                  $          0.35   $        0.83
                                               ===============   =============

NOTE 9. INCOME TAXES

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which
requires use of the liability method. SFAS No. 109 provides that deferred tax
assets and liabilities are recorded based on the differences between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax assets
and liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the deferred
tax assets and liabilities are expected to be settled or realized.

The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:

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

         U.S federal statutory rate               (34.0%)           (34.0%)
         R&D credit                                   0%              8.5%
         Valuation reserve                         34.0%             25.5%
                                               --------------    ------------
         Total                                        --%               --%
                                               ==============    ============

As of December 31, 2001, the Company has a net operating loss carryforward of
approximately $7,000,000 for tax purposes, which will be available to offset
future taxable income. If not used, the carryforward will expire through the
year 2021. To the extent that net operating loss carryforwards, when realized,
relate to stock option deductions, the resulting benefits will be credited to
stockholders' equity. The deferred tax asset relating to the operating loss
carryforward of approximately $2,380,000 at December 31, 2001 has been fully
reserved. The change in the deferred tax asset valuation allowance was $114,000.

NOTE 10. RELATED PARTY TRANSACTIONS

The Company will from time-to-time make loans to or receive loans from its
officers. These loans typically bear no interest and are due on demand.

On December 13, 1999, the Company entered into an employment agreement with
Bruce Acacio, its Chief Executive Officer. The agreement is for a three year
term with the total consideration to be paid summarized as follows:

                                        Year 1        Year 2        Year 3
                                        ------        ------        ------
  Annual Base Salary                   $225,000      $300,000      $350,000
  Annual Bonus (1)                     $100,000      $100,000      $100,000
  Stock Options (shares) (2)            300,000       300,000       300,000


                                      F-16
<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


In addition, on December 13, 1999, the Company also entered into an employment
agreement with Carol Conway DeWees, its President. The agreement is also for a
three year term with the total consideration to be paid summarized as follows:

                                        Year 1        Year 2        Year 3
                                        ------        ------        ------
  Annual Base Salary                   $180,000      $230,000      $280,000
  Annual Bonus (1)                     $100,000      $100,000      $100,000
  Stock Options (shares) (2)            250,000       250,000       250,000

(1)  Bonuses are to be paid quarterly based upon a percentage of achievement of
     revenue goals set forth by the Company's Board of Directors.

(2)  Option grants are to be issued at the end of each year during the term of
     the agreement, and are exercisable at the end of the initial term of the
     agreement.


NOTE 11. EMPLOYEE BENEFIT PLAN

Effective January 12, 1999, the Company assumed the CSPI Savings and Investment
Plan (the "Plan") in conjunction with the Company's acquisition of CSPI covering
substantially all of the Company's employees. Employees may contribute up to 15%
of their total compensation to the Plan. The Plan includes a discretionary
matching component whereby the Company could match up to 25% of the first $4,000
contributed by each participant to the Plan. 401(k) expenses for the Plan,
including administrative costs, were not considered significant for the years
ended December 31, 2001 and 2000.

Effective October 20, 2000, the Company assumed the Software Connections Inc.
401(k) Plan (the " SCI Plan") in conjunction with the Company's acquisition of
ALE. During the year ended December 31, 2001, the Company merged the SCI Plan
into the CSPI Savings and Investment Plan.


                                      F-17
<PAGE>


NOTE 12. LONG TERM DEBT

Long-term debt at December 31, 2001 consists of the following:


         Non-interest bearing note payable
         related to shareholder settlement agreement .........   $      530,517
         Non-interest bearing note payable relating to the
         acquisition of ALE ..................................          512,710
         Non-interest bearing note payable to
         vendor related to debt acquired
         with acquisition of ALE..............................          342,000

         Note payable to shareholders at prime
         plus 2%, payable over 36 months, collateralized
         by Company assets ...................................          288,064
         Non-interest bearing note payable to
         vendor in connection with acquisition
         of Unibol............................................          238,000
         Capital lease obligations                                       37,715
         Non-interest bearing notes payable to officer........           81,012
                                                                 ---------------
                                                                      2,030,018
         Less unamortized discount of 10% on notes payable....         (276,752)
                                                                 ---------------
                                                                      1,753,266
         Less current maturities                                       (550,015)
                                                                 ---------------
                                                                 $    1,203,251
                                                                 ==============

Maturities of long-term debt at December 31, 2001 are as follows:


         2002 ...............................................    $      550,015
         2003 ...............................................           472,663
         2004 ...............................................           917,340
         2005 ...............................................            84,000
         2006 ...............................................             6,000
                                                                 --------------
                                                                 $    2,030,018
                                                                 ==============

During the year ended December 31, 2001, the Company amortized $60,668 of the
discount on long-term notes payable. In addition, the Company paid interest to
related parties in the amount of $ 24,404 during the year ended December 31,
2001.

NOTE 13. SUBSEQUENT EVENTS

Unicomp Settlement Agreement
----------------------------

On January 11, 2002, the Company and Unicomp agreed to binding mediation, which
resolved all pending claims and litigation between the parties. Pursuant to the
terms of the mediated settlement, no monetary consideration was exchanged. The
settlement recognizes the Company as the sole owners of the intellectual
property that was the subject of the litigation, and pursuant to the settlement,
Unicomp, Inc. was granted nonexclusive rights to sublicense the intellectual
property in the Western Hemisphere.

                                      F-18

<PAGE>


                         California Software Corporation
                   Notes to Consolidated Financial Statements
                                December 31, 2001


Shareholder Class Action Settlement
-----------------------------------

On August 17, 2000, a shareholder class action was commenced in the United
States District Court for the Central District of California against the Company
as well as two of its officers and directors, Bruce Acacio and Carol Conway
DeWees. The class action was brought on behalf of purchasers of the stock of the
Company during the period February 9, 2000 through August 6, 2000. In October
2000, the shareholder class action was consolidated with three other nearly
identical lawsuits filed in the same court against the Company, Mr. Acacio, and
Ms. DeWees. The consolidated suit has been settled . Under the terms of the
settlement, the Company will issue 2,000,000 shares of California Software
common stock to the Open Market Purchasers; (2) issue 650,000 shares to the
Subscribers; (3) issue 1.8 million warrants to the Open Market Purchasers; (4)
issue 650,000 warrants to the Subscribers; and (5) pay the costs of
administration, not to exceed $12,000. On March 11, 2002, the court granted
final approval of the settlement, and the case will be dismissed upon full
performance by the parties of their respective obligations under the terms of
the settlement.

NOTE 14. SEGMENT INFORMATION

The Company operates primarily in the United States and Northern Ireland.
Revenues for the year ended December 31, 2001 were approximately $4,378,827 and
$1,360,676 from operations in the United States and Northern Ireland,
respectively. During the year ended December 31, 2000, the Company only
generated revenues from the United States. Long-lived assets as of December 31,
2001 were approximately $186,504 and $67,755 for operations in the United States
and Northern Ireland, respectively.




                                      F-19

<PAGE>




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

During the first quarter of 2000, the Company was seeking to list its Common
Stock on the American Stock Exchange ("AMEX") and, during the listing process,
was notified that the Company would need to submit reaudited financial
statements for the year ended December 31, 1999 from another independent
accountant because the Company was unable to provide evidence that its
independent accountant met the peer review standards mandated by the American
Institute of Certified Public Accountants ("AICPA"). On May 2, 2000, the
Company's Board of Directors approved a resolution engaging a new certifying
independent accountant, Squar, Milner, Reehl & Williamson, LLP ("Squar"), who
was initially engaged to perform a SAS 71 review of the Company's financial
statements for the three months ended March 31, 2000. After appointing Squar,
AMEX notified the Company that it would accept audited financial statements for
the three month period ended March 31, 2000 in lieu of having the year ended
December 31, 1999 reaudited by Squar. Squar subsequently notified the Company
that it would not be able to perform this audit within the timeframe requested
by the Company. On July 24, 2000, the Company engaged a new certifying
independent accountant, Stark, Winter Schenkein & Co. LLP in order to complete
the audit within the Company's timeframe.





                                       17
<PAGE>


                                    PART III


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

The names and positions of the Company's directors, executive officers, and
significant employees are as follows:

Name                   Age     Position
--------------------------------------------------------------------------------
R. Bruce Acacio         40     Chief Executive Officer and Chairman of the Board
Carol Conway DeWees     58     President, Secretary, and Director
Kevin J. Gadawski       34     Chief Financial Officer

Mr. Acacio is Chairman of the Board and Chief Executive Officer of the Company,
and has held those positions since the Company's inception. Mr. Acacio is the
former President and Chief Executive Officer of California Software Products,
Inc. ("CSPI"), a predecessor company. In January 1997, during Mr. Acacio's
tenure as President and Chief Executive Officer, CSPI filed for Chapter 11
protection under the federal bankruptcy laws due to an unresolved conflict with
a major creditor. At CSPI, Mr. Acacio was responsible for the release of new
versions of CSPI's trademarked BABY/36 and BABY/AS2000 products. Prior to his
involvement with CSPI, Mr. Acacio has held sales and middle management positions
with UK-based conglomerate Lex Service, PLC and as an agent manager for IBM. In
these positions, he has been responsible for turning around troubled operations
and expanding business units.

Ms. DeWees is the President and Secretary of the Company and a member of the
Company's Board of Directors. Ms. DeWees has served as a director since the
Company's inception and has served as the President and Secretary of the Company
since July 1999. Prior to that, Ms. DeWees served as Vice President of the
Company and was responsible for new product development and support. Ms. DeWees
is the former Vice President and Chief Financial Officer of CSPI. In January
1997, during Ms. DeWees' tenure as Vice President and Chief Financial Officer,
CSPI filed for Chapter 11 protection under the federal bankruptcy laws due to an
unresolved conflict with a major creditor. At CSPI, Ms. DeWees was directly
involved in the planning and execution of new product releases, support and
documentation of new versions of BABY/36 and BABY/AS2000. Prior to her
involvement with CSPI, Ms. DeWees held account and management positions with
Ketchum Public Relations in San Francisco, California, servicing both the
technology and consumer products sectors.

Mr. Gadawski is the Company's Chief Financial Officer and has held such position
since January 4, 2002. Mr. Gadawski joined the Company in May of 2001 as its
Vice President of Finance. Prior to his employment with the Company, Mr.
Gadawski was the Chief Financial Officer of E-net Financial.com Corporation, a
leader in mortgage brokering and real estate transactions. Prior to that, Mr.
Gadawski held various management positions with Huffy Corporation in Miamisburg,
Ohio. In addition, Mr. Gadawski formerly worked in the audit group of KMPG Peat
Marwick LLP, in its Cincinnati, Ohio office, where he performed audit and
advisory services for a diverse client base.

Ms. Dewees entered into a cease and desist order with the SEC in January 2002.
That cease and desist order provides that she will not commit or cause any
future violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1
and 13a-13 promulgated thereunder. Mr. Acacio entered into a stipulated
injunction with the SEC in January 2002, which enjoins him from engaging in any
acts or practices that constitute violations of Sections 17(a)(2) and (3) of the
Securities Act and Rules 132b2-1 and 13b2-2 of the Exchange Act, from aiding or
abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules
12b-11, 12b-20, 13a-1, and 13a-13 thereunder, and compels Mr. Acacio to pay a
civil penalty pursuant to Section 21(d)(3) of the Exchange Act.


SECTION 16(a)  BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock

                                       18

<PAGE>


and other equity securities of the Company. Officers, directors and greater than
ten-percent stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required during the
fiscal year ended December 31, 2001, its officers, directors and greater than
ten percent beneficial owners complied with all Section 16(a) filing
requirements.

ITEM 10.  EXECUTIVE COMPENSATION.

The following table discloses compensation paid by the Company during the fiscal
year ended December 31, 2001 to (i) the Company's Chief Executive Officer, and
(ii) two individuals who were the only officers, other than the Chief Executive
Officer, who were serving as an officer at the end of 2001 (the "Named Executive
Officers").

<TABLE>
<CAPTION>


SUMMARY COMPENSATION TABLE

                                                   ANNUAL CASH               LONG TERM
                                                  COMPENSATION             COMPENSATION
                                            ------------------------------------------------
                                                                             SECURITIES              ALL OTHER
         NAME AND PRINICPAL                     SALARY        BONUS           UNDERLYING            COMPENSATION
              POSITION                YEAR      ($)(1)       ($) (2)       OPTIONS/SARs (#)              ($)
-----------------------------------------------------------------------------------------------------------------

<S>                                  <C>      <C>           <C>                <C>                  <C>
  R. Bruce Acacio
  Chairman of the Board and Chief
  Executive Officer                   2001  $   254,125   $   58,532           300,000              $       -
                                                                                                    $   1,000(3)
                                      2000      225,000       52,288           300,000

  Carol Conway DeWees
  President and Secretary             2001  $   207,500   $   58,532           250,000              $       -
                                                                                                    $   1,000(3)
                                      2000      180,000       52,288           250,000

  Kevin J. Gadawski
  Chief Financial Officer (4)         2001  $    85,086   $        -           225,000              $       -

                                      2000            -            -                 -              $       -
</TABLE>

(1)  During the year ended December 31, 2001, Mr. Acacio was paid $37,500 in the
     form of restricted common stock in lieu of cash for compensation earned.
     Ms. Dewees was paid $33,750 in the form of restricted common stock in lieu
     of cash compensation earned.

(2)  For the year ended December 31, 2001, all amounts earned as bonus were paid
     in the form of restricted common stock in lieu of cash compensation.

(3)  These payments consist of amounts funded by the Company's 401(k) plan for
     the years ended December 31, 2000.

(4)      Mr. Gadawski joined the Company in May  2001.


                                       19
<PAGE>


OPTION/SAR GRANTS TABLE

Stock Option Grants. During the year ended December 31, 2001, stock options were
awarded to the Company's Chief Executive Officer and the other Named Executive
Officers in the amounts and with the terms indicated in the following table:

<TABLE>
<CAPTION>


                            NUMBER OF            % OF TOTAL
                            SECURITIES          OPTIONS/SARs
                            UNDERLYING           GRANTED TO         EXERCISE OR
                           OPTIONS/SARs     EMPLOYEES IN FISCAL      BASE PRICE
             NAME          GRANTED (#)              YEAR             ($/SH) (1)   EXPIRATION DATE
 ---------------------------------------------------------------------------------------------------

<S>                           <C>                  <C>                <C>             <C>
  R. Bruce Acacio             300,000              33.3%              $   0.24        12/13/06

  Carol Conway DeWees         250,000              27.8%              $   0.24        12/13/06

  Kevin J. Gadawski           200,000              22.2%              $   0.25         4/30/06
                               25,000               2.7%              $   0.18         9/20/06

(1)  All options were granted at the fair market value at the date of grant.


OPTION EXERCISES / FISCAL YEAR-END VALUE

During Fiscal 2001, none of the Named Executive Officers, including the Chief
Executive Officer, exercised any stock options or SARs. The following table
includes the number of shares of Common Stock covered by both exercisable and
unexercisable stock options as of December 31, 2001 for the Named Executive
Officers who hold options.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

                                                                               VALUE OF UNEXERCISED IN-THE-MONEY
                                   NUMBER OF SECURITIES UNDERLYING                        OPTIONS/SARs
             NAME              UNEXERCISED OPTIONS/SARs AT FY END (#)                    AT FY END ($)
-----------------------------------------------------------------------------------------------------------------
                                 EXERCISABLE      UNEXERCISABLE           EXERCISABLE          UNEXERCISABLE
                             --------------------------------------------------------------- --------------------

 R. Bruce Acacio                      -               600,000            $           -        $            -

 Carol Conway DeWees                  -               500,000            $           -        $            -

 Kevin J. Gadawski                    -               225,000            $           -        $            -
</TABLE>


APPROVAL OF THE 2000 STOCK OPTION PLAN

On December 4, 2000 the Board of Directors of the Company approved by action
taken without a meeting by written consent, subject to the approval of the
shareholders, the Option Plan creating 3,000,000 shares of Common Stock
underlying options that may be granted under the Option Plan. The Option Plan
was approved by the holders of a majority of the outstanding Common Stock of the
Company on December 4, 2000. The Board of Directors believes that the
establishment of the Option Plan is in the best interests of the Company because
it permits the Company to attract and retain employees by providing them with
appropriate equity incentives. As of December 31, 2001, approximately 38 persons
were eligible to participate in the Option Plan, and the Company had issued
1,918,000 shares under the Option Plan, with 1,082,000 shares remaining for
future grant.

Options granted under the Option Plan may be either "incentive stock options"
(which qualify for special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) or nonstatutory stock options.
Employees, including officers and directors who are employees, of the Company
and its subsidiaries (an "Eligible Employee"), may be granted either incentive
or nonstatutory stock options. However, members of the Board of Directors who

                                       20

<PAGE>


are not officers or employees of the Company or its subsidiaries, and
consultants to the Company and its subsidiaries (together, an "Eligible Director
or Consultant") may only be granted nonstatutory stock options.

The Option Plan may be administered by the Board of Directors or by a committee
of non-employee directors designated by the Board of Directors. The Option Plan
is currently being administered by the Board of Directors. Subject to the terms
of the Option Plan, the Board of Directors determines the persons who are to
receive awards, the number of shares subject to each such award, and the terms
and conditions of such awards. The Board of Directors or committee thereof may
provide that the total number of shares of stock subject to an option may vest
and become exercisable in periodic installments.

As of December 31, 2001, the aggregate fair market value of shares of Common
Stock subject to outstanding options under the Option Plan was $421,960, based
upon the closing sale price of such stock on the OTCBB on such date.

Upon a dissolution, liquidation or sale of substantially all of the assets of
the Company, a merger or consolidation in which the Company is not the surviving
entity, or a reverse merger in which the Company is the surviving entity, but
the shares of Common Stock of the Company are converted into other property
(collectively, a "Corporate Change"), the surviving entity must assume any
outstanding options under the Option Plan or substitute similar options for such
options, or the options will remain in full force and effect. If the surviving
entity refuses to continue such options or substitute similar options, then the
time in which such options are exercisable will be accelerated and the options
will terminate to the extent not exercised prior to the occurrence of a
Corporation Change.

Unless terminated earlier as provided in the Option Plan, the Option Plan will
terminate on January 24, 2010, which is ten years from the date the Option Plan
was adopted by the Board.

The Board or a committee thereof has the authority to determine the amounts,
terms and grant dates of options to be granted in the future to Eligible
Employees or Eligible Directors or Consultants under the Option Plan. To date,
no such determinations have been made and, as a result, it is not possible to
state such information.

COMPENSATION OF DIRECTORS

The Company's only directors are its current executive officers who are already
drawing a salary for the management of the Company. They do not receive any
additional compensation for their services as directors. Accordingly, it may be
necessary for the Company to compensate newly appointed directors in order to
attract a quality governance team. At this time the Company has not identified
any specific individuals or candidates nor has it entered into any negotiations
or activities in this regard.


                                       21
<PAGE>



EMPLOYMENT AGREEMENTS

On December 13, 1999, the Company entered into an employment agreement with
Bruce Acacio, its Chief Executive Officer. The agreement is for a three year
term beginning January 1, 2000, with the total consideration to be paid
summarized as follows:

                                           Year 1      Year 2       Year 3
                                           ------      ------       ------
  Annual Base Salary                      $225,000    $300,000     $350,000
  Annual Bonus (1)                        $100,000    $100,000     $100,000
  Stock Options (shares) (2)               300,000     300,000      300,000

In addition, on December 13, 1999, the Company also entered into an employment
agreement with Carol Conway DeWees, its President. The agreement is also for a
three year term with the total consideration to be paid summarized as follows:

                                           Year 1      Year 2       Year 3
                                           ------      ------       ------
  Annual Base Salary                      $180,000    $230,000     $280,000
  Annual Bonus (1)                        $100,000    $100,000     $100,000
  Stock Options (shares) (2)               250,000     250,000      250,000

(1)  Bonuses are to be paid quarterly based upon a percentage of achievement of
     revenue goals set forth by the Company's Board of Directors.

(2)  Option grants are to be issued at the end of each year during the term of
     the agreement, and are exercisable at the end of the initial term of the
     agreement.

Both agreements provide that, upon termination of the employee as a result of
unlawful or dishonest acts by the employee, conviction of the employee of a
felony offense, or a breach of any term of the employment agreement by the
employee, the Company shall pay the employee the full amount of compensation
accrued as of the date of termination. In addition, both agreements provide for
the immediate payment of all compensation due under the agreement for the
remainder of the term of the agreement upon the termination of employment due to
a default or breach of any term of the agreement by the Company. Finally, both
agreements contain non-competition provisions as well as provisions under which
both officers will continue to serve the Company in the same capacity in the
event of a change of control. Throughout the contract period, both Mr. Acacio
and Ms. Dewees have voluntarily elected to indefinitely forego the salary
increases contained in their respective employment contracts.


                                       22


<PAGE>


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

The following table sets forth certain information as of December 31, 2001, with
respect to the beneficial ownership of the Company's Common Stock by: (i) all
persons known by the Company to be beneficial owners of more than 5% of the
Company's Common Stock, (ii) each director and Named Executive Officer, and
(iii) by all executive officers and directors as a group.

                                  COMMON STOCK
                                  ------------

       Name and Address             Amount and Nature of           Percent of
    of Beneficial Owner (1)         Beneficial Ownership        Common Stock (2)
   ------------------------         ---------------------     -----------------

R. Bruce Acacio                           3,758,985                 26.52%

Carol Conway DeWees                       3,550,345                 25.04%

Kevin J Gadawski                                  -                     -

All executive officers and
 directors as a group (3 members)         7,309,330                 51.56%

Footnotes to Beneficial Owners:

(1)  The address of each beneficial owner is c/o California Software
     Corporation, 2485 McCabe Way, Irvine, CA 92614.

(2)  The number of shares outstanding used in this calculation was the number of
     shares of Common Stock actually outstanding on March 31, 2002.


                                       23
<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company engaged the services of NevWest Securities Corporation ("NevWest")
on November 23, 1999 as its investment banking firm in conjunction with
corporate finance and investment banking services. The Company agreed to
compensate NevWest for its services as a promoter with a warrant that permitted
NevWest to purchase 600,000 shares of Common Stock in the Company. The principal
terms of the warrant include an exercise price equal to 110% of the average
daily closing price of the Company on the OTCBB (trading symbol: "CAWC"),
calculated as of each day's closing bid over the course of the Company's first
30 days of available and/or active trading on the OTCBB. The warrant was
exercisable within a period commencing 30 days after the first day of available
and/or active trading of the Company on the OTCBB and expiring two (2) years
from such commencement date. On February 7, 2000, NevWest exercised the warrant
and paid the Company $200,000 cash and $74,032 in the form of a non-interest
bearing promissory note with a maturity date of September 6, 2001. On March 30,
2001, the Company entered into an agreement with NevWest and an affiliate to
borrow cash of $450,000 to assist it in paying the cash amounts due under a
settlement agreement with shareholders that participated in the Company's
private placement of its Common Stock during 2000. Under the terms of the notes,
the Company agreed to repay the notes beginning April 10, 2001 over a 36-month
period at an interest rate of prime plus 2% (10% as of March 30, 2001). The
notes are secured by all of the tangible and intangible assets of the Company;
furthermore, the Company's Chief Executive Officer agreed to personally
guarantee one-half of the loan amount. In addition, the Company agreed to
forgive the promissory note owed to it by NevWest in the amount of $74,032.

The Company engaged the services of OTC Financial Network ("OTCFN"), a division
of National Financial Communications Corp., a full service financial
communications and investor relations firm assisting the Company in shareholder
communications. For its services as a promoter, OTCFN received a fee payable in
restricted Common Stock of the Company in the amount of 420,000 shares valued at
$0.625 per share. These shares were issued to OTCFN on March 6, 2000.

The Company engaged the services of A to Z Consultants ("A to Z") to assist the
Company in its shareholder communications. For its services as a promoter, A to
Z received a fee payable in restricted Common Stock of the Company in the amount
of 150,000 shares valued at $5.10 per share. These shares were issued to A to Z
on April 14, 2000.

Certain of these related party notes are collateralized by the Company's assets.

At various times during 2001, the Company received loans and other consideration
from an officer in the amount of $111,012 which consisted of $60,000 cash and
the officer settling a note payable owed by the Company. As of December 31,
2001, $81,012 of these loans remain unpaid.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits:

A list of exhibits required to be filed as part of this Annual Report is set
forth in the Index to Exhibits, which immediately precedes such exhibits and is
incorporated herein by reference.


(b)  Reports on Form 8-K:

None

                                       24
<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.


                          CALIFORNIA SOFTWARE CORPORATION

Date: April 12, 2002

                          By:  /s/  R. Bruce Acacio
                               -------------------------------------------------
                              R. Bruce Acacio
                              Chairman of the Board and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


By: /s/  R. Bruce Acacio
    ------------------------------------------
R. Bruce Acacio
Chairman of the Board and Chief
Executive Officer (Principal Executive Officer)
April 12, 2002

By: /s/  Carol Conway DeWees
----------------------------------------------
Carol Conway DeWees
President, Secretary and Director
April 12, 2002

By: /s/  Kevin J. Gadawski
----------------------------------------------
Kevin J. Gadawski
Chief Financial Officer, (Principal Financial
Officer and Principal Accounting Officer)
April 12, 2002


                                       25
<PAGE>


                                INDEX TO EXHIBITS

  Exhibit
  Number        Name and/or Identification of Exhibit
  ------        -------------------------------------

  10.1          Standard Multi-Tenant Office Lease between the Company and
                Highwoods Properties dated June 12, 2001.

  10.2          Standard Multi-Tenant Office Lease dated June 29, 2001 between
                the Company and Parfa Limited.












                                       26