California Software Corporation

Securities Act of 1933
Release No. 8053 / January 7, 2002

Securities Exchange Act of 1934
Release No. 45242 / January 7, 2002

Accounting and Auditing Enforcement
Release No. 1486 / January 7, 2002

Administrative Proceeding
File No. 3-10672

I.

The Commission deems it appropriate that cease-and-desist proceedings be instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), with respect to California Software Corporation ("California Software").

II.

In anticipation of these proceedings, California Software has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings contained herein, except that California Software admits the jurisdiction of the Commission over it and the subject matter of this proceeding and the matters described in paragraphs III.A. through III.C. of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ("Order"), California Software has consented to the findings¹ and sanctions set forth below.

Accordingly, IT IS ORDERED that proceedings pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and they hereby are, instituted.

III.

On the basis of this Order and the Offer submitted by California Software, the Commission finds that:

A. Respondent California Software is a Nevada corporation with headquarters in Irvine, California, whose common stock is traded on the Over the Counter Bulletin Board;

B. In August 1999 California Software began filing periodic reports with the Commission and in September 1999 California Software registered its common stock under Section 12(g) of the Exchange Act;

C. From September 1999 through May 2000, California Software filed a Form 10-SB, two Forms 10-Q, one Form 10-QSB and a Form 10-KSB with the Commission (the "filings"), which filings contained audited and unaudited financial statements of California Software and California Software Products, Inc. ("CSPI"), a predecessor corporation to California Software;

D. During the first and second quarters of 2000, California Software effected a private placement of its securities, raising an aggregate of $8,779,898 from investors;

E The financial statements and information included in the private placement and the filings contained materially false information in that they materially overstated the revenue, earnings, assets and shareholders equity of California Software and CSPI, primarily as a result of a revenue recognition practice utilized by those companies;

F. Since at least 1996, as part of their marketing practice, California Software and CSPI offered to provide potential customers copies of its software for evaluation for a stated period of time, usually 30 days, after which evaluation the potential customer could decide whether to purchase the software or return it to the company;

G. Until California Software restated its financial statements in September 2000, California Software and CSPI recognized revenue upon shipment of the software to potential customers, whether or not persuasive evidence existed of an arrangement to purchase the software by the potential customer;

H. California Software recognized as revenue and booked as accounts receivable, shipments of software to potential customers for whom persuasive evidence did not exist of an arrangement to purchase the software, or to potential customers who had never agreed to take the software for evaluation;

I. California Software took into account anticipated returns of its software from some of the potential customers by establishing a "return product reserve" account which was used to offset accounts reflecting a recognition of its revenue;

J. Generally Accepted Accounting Principles ("GAAP") require that revenue from the sale of software be recognized consistent with Statement of Position 97-2 which requires, in general, that four criteria must be met prior to recognizing revenue for the sale of software: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the vendor's fee is fixed or determinable, and (iv) collectibility on the sale is probable;

K. Thus, under the revenue recognition method utilized by California Software and CSPI, revenue was recognized before persuasive evidence of an arrangement to purchase the software existed and prior to a determination that collectibility on the sale was probable;

L. In October 2000, California Software restated its financial statements for the year ended December 31, 1999 and for the quarter ended March 31, 2000, upon learning from new auditors that its revenue recognition practice did not comply with GAAP;

M. As a result of the restatement of its financial statements for the year ended December 31, 1999, California Software reduced gross revenues from $12,009,337 to $2,571,164 and net income for that year was reduced from a profit of $2,829,996 to a net loss of $419,737. California Software also reduced total assets from $6,070,652 to $954,301 and shareholders equity was reduced from $2,881,459 to $296,498;

N. As a result of the restatement of its financial statements for the quarter ended March 31, 2000, revenues were reduced from $3,066,232 to $404,411, and California Software reported a loss of $586,080 for the quarter instead of net income of $168,631. California Software also reduced its total assets from $8,795,823 to $2,989,898 and shareholders equity was reduced from $7,743,339 to $2,363,686;

O. California Software did not restate the financial statements included in its Form 10-SB and two Forms 10Q;

P. From the time it became a reporting company, California Software failed to maintain books and records in a manner that accurately and fairly reflected the transactions and dispositions of its assets, and failed to establish internal accounting controls that are sufficient to provide reasonable assurances that, among other things, the company's financial statements are prepared in conformity with GAAP and to maintain accountability of assets;

Q. As a result of the revenue recognition practice implemented by California Software, among other things, California Software's books and records contained false information concerning the transactions and dispositions of its assets;

R. From the time it began to submit its filings with the Commission, California Software has electronically filed its filings with the Commission. With respect to its filings, California Software failed to maintain manually signed signature pages and to cause its chief executive officer, R. Bruce Acacio, to manually sign signature pages with respect to those filings, despite indications to the contrary in California Software's electronic filings;

S. By the conduct described in paragraphs III.A. through III.R. above, California Software has violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-11, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.

IV.

In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offer submitted by California Software. Accordingly,

IT IS ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act that the Respondent, California Software Corporation cease and desist from committing or causing any violation and any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-11, 12b-20, 13a-1, 13a-13 and 13b2-1 promulgated thereunder.

By the Commission.

Jonathan G. Katz
Secretary

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