---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-QSB

|(Mark One)                                       |                                                                                         
|------------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                                | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended November 30, 2002
|or                                              
|o                                                | 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 0-11791

---

PURCHASESOFT, INC.(Exact Name of Small Business Issuer as Specified in Its Charter)

|DELAWARE(State or Other Jurisdiction of
Incorporation or Organization)              |  | 13-2897997(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------------------- |  | ----------------------------------------------
|7514 Girard Ave Ste 1440
La Jolla, CA 92037(Address of Principal Executive Offices)
|(858) 456-6608(Issuer's Telephone Number, Including Area Code)                     
|                                                                                    |  |                                               

---

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 ý    No o

STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE.

|Class                                   |  | Outstanding at January 10, 2002
|--------------------------------------- |  | -------------------------------
|COMMON STOCK, PAR VALUE
$0.01 PER SHARE |  | 33,287,267 SHARES              
|                                        |  |                                

---

---

---

PURCHASESOFT, INC.
INDEX

|Item
Number |         |                                                                                                                                                                             |                                                             | Page
Number
|----------- | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -----------
|PART I.     |         | FINANCIAL INFORMATION                                                                                                                                                       |                                                             |            
|            | Item 1. |                                                                                                                                                                             | Financial Statements                                        |            
|            |         | Balance Sheet as of November 30, 2002                                                                                                                                       |                                                             | 3          
|            |         | Statement of Changes in Net Liabilities in Liquidation
For the period from June 1, 2002 to November 30, 2002
And for the period from September 1, 2002 to November 30, 2002 |                                                             | 4          
|            |         | Statement of Operations
For the period from June 1, 2001 to November 30, 2001
And for the period from September 1, 2001 to November 30, 2001                                |                                                             | 5          
|            |         | Statement of Cash Flows
For the period from June 1, 2001 to November 30, 2001                                                                                               |                                                             | 6          
|            |         | Notes to the Financial Statements                                                                                                                                           |                                                             | 7-9        
|            | Item 2. |                                                                                                                                                                             | Management's Discussion and Analysis of Financial Condition |            
|            | Item 3. |                                                                                                                                                                             | Controls and Procedures                                     |            
|PART II.    |         | OTHER INFORMATION                                                                                                                                                           |                                                             |            
|            | Item 1. |                                                                                                                                                                             | Legal Proceedings                                           |            
|            | Item 6. |                                                                                                                                                                             | Exhibits and Reports on Form 8-K                            |            
|Signatures  |         | 16                                                                                                                                                                         
|            |         |                                                                                                                                                                             |                                                             |            

2

---



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS  COMPANY FOR WHICH REPORT IS FILED: PURCHASESOFT, INC. (THE "COMPANY")

PURCHASESOFT, INC.
BALANCE SHEET (Unaudited)

|            |                                    | November 30, 2002                |        
|----------- | ---------------------------------- | -------------------------------- | -------
|ASSETS      |                                    |                                  |        
|            | Cash and cash equivalents          |                                  | $      
|            |                                    |                                  |        
|LIABILITIES |                                    |                                  |        
|            | Accounts payable                   |                                  |        
|            | Accrued expenses                   |                                  |        
|            | Obligations under operating leases |                                  |        
|            |                                    |                                  |        
|            |                                    |                                  | 291,827
|            |                                    | NET (LIABILITIES) IN LIQUIDATION |        
|            |                                    |                                  |        

3

---

PURCHASESOFT, INC.
STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION (Unaudited)

|                                                           |                         | Three Months
ended
November 30, 2002 |        | Six Months
ended
November 30, 2002 |         
|---------------------------------------------------------- | ----------------------- | ------------------------------------ | ------ | ---------------------------------- | --------
|Net (liabilities) in liquidation as of beginning of period |                         |                                      |        | $                                  | (279,266
|Sources of Additional Cash:                                |                         |                                      |        |                                    |         
|                                                           | Vendor Refund           |                                      |        |                                    |         
|Additional Use of Cash:                                    |                         |                                      |        |                                    |         
|                                                           | Office costs            |                                      | (6,722 | )                                  |         
|                                                           | Professional fees       |                                      | (2,722 | )                                  |         
|                                                           | Telephone and utilities |                                      |       |                                    |         
|                                                           | Other                   |                                      |       |                                    |         
|                                                           |                         |                                      |        |                                    |         
|Adjustments of estimated values                            |                         |                                      |        |                                    | 2,000   
|                                                           |                         |                                      |        |                                    |         
|Net (liabilities) in liquidation as of November 30, 2002   |                         |                                      |        | $                                  | (265,993
|                                                           |                         |                                      |        |                                    |         

4

---

PURCHASESOFT, INC.
STATEMENT OF OPERATIONS (GOING CONCERN BASIS, Unaudited)

|                                  |                            | Three Months
ended
November 30, 2001 |            | Six Months
ended
November 30, 2001 |           
|--------------------------------- | -------------------------- | ------------------------------------ | ---------- | ---------------------------------- | ----------
|Revenue                           |                            |                                      |            |                                    |           
|                                  | Services                   |                                      | $          | 98,831                             |           
|                                  |                            |                                      |            |                                    |           
|Costs and expenses                |                            |                                      |            |                                    |           
|                                  | Cost of service revenue    |                                      |            | 307,855                            |           
|                                  | Cost of product revenue    |                                      |            | 14,000                             |           
|                                  | Sales and marketing        |                                      |            | 977,666                            |           
|                                  | General and administrative |                                      |            | 480,408                            |           
|                                  | Research and development   |                                      |            | 1,560,776                          |           
|                                  |                            |                                      |            |                                    |           
|                                  |                            | Total costs and expenses             |            |                                    | 3,340,705 
|                                  |                            |                                      |            |                                    |           
|                                  |                            | Operating (loss)                     |            |                                    | (3,241,874
|                                  |                            |                                      |            |                                    |           
|Other Income(expense):            |                            |                                      |            |                                    |           
|                                  | Interest income            |                                      |            | 23,016                             |           
|                                  | Interest expense           |                                      |            | (4,928                             | )         
|                                  |                            |                                      |            |                                    |           
|                                  |                            |                                      | 18,088     |                                    |           
|                                  |                            |                                      |            |                                    |           
|                                  |                            | Net (loss)                           |            | $                                  | (3,223,786
|                                  |                            |                                      |            |                                    |           
|Loss per share-basic and diluted  |                            | $                                    | (0.10      | )                                  | $         
|                                  |                            |                                      |            |                                    |           
|Weighted average number of shares |                            |                                      | 32,183,865 |                                    |           

5

---

PURCHASESOFT, INC.
STATEMENT OF CASH FLOWS (GOING CONCERN BASIS, Unaudited)

|For the Six Months ended November 30, 2001        |                                                                                 |                                                |          
|------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------- | ---------
|Cash Flows from Operating Activities              |                                                                                 |                                                |          
|                                                  | Net (loss)                                                                      |                                                | $        
|                                                  | Adjustments to reconcile net (loss) to net cash (used by) operating activities: |                                                |          
|                                                  |                                                                                 | Depreciation and amortization                  |          
|                                                  |                                                                                 | Provision for bad debt                         |          
|                                                  |                                                                                 | Loss on asset disposition                      |          
|                                                  |                                                                                 | Options granted for services                   |          
|                                                  | Decrease in:                                                                    |                                                |          
|                                                  |                                                                                 | Accounts receivable                            |          
|                                                  |                                                                                 | Prepaid expenses and other assets              |          
|                                                  | Increase (decrease) in:                                                         |                                                |          
|                                                  |                                                                                 | Accounts payable and accrued expenses          |          
|                                                  |                                                                                 | Deferred revenue                               |          
|                                                  |                                                                                 |                                                |          
|                                                  |                                                                                 | Net cash flow (used by) operating activities   |          
|Cash Flows from Investing Activities              |                                                                                 |                                                |          
|                                                  | Purchase of property and Equipment                                              |                                                |          
|                                                  | Increase in security deposits                                                   |                                                |          
|                                                  |                                                                                 |                                                |          
|                                                  |                                                                                 | Net cash flow (used by) investing activities   |          
|Cash Flows from Financing Activities              |                                                                                 |                                                |          
|                                                  | Proceeds from exercise of options/warrants                                      |                                                |          
|                                                  | Proceeds from issuance of notes payable                                         |                                                |          
|                                                  | Proceeds from issuance of common stock in rights offering                       |                                                |          
|                                                  | (Payments) of capital leases                                                    |                                                |          
|                                                  |                                                                                 |                                                |          
|                                                  |                                                                                 | Net cash flow provided by financing activities |          
|                                                  |                                                                                 | Net (decrease) in cash and cash equivalents    |          
|Cash and cash equivalents at beginning of period  |                                                                                 |                                                | 2,358,688
|                                                  |                                                                                 |                                                |          
|Cash and cash equivalents at end of period        |                                                                                 | $                                              | 1,605,075
|                                                  |                                                                                 |                                                |          
|Supplemental disclosure of cash flow information: |                                                                                 |                                                |          
|                                                  | Cash paid for interest                                                          |                                                | $        

6

---

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of PresentationOn December 21, 2001, the Board of Directors of the Company approved a plan to wind down the
operations of the Company, which includes salvaging the value of its assets during the wind down (the "Plan"). The key objectives of the Plan are (1) to conserve the assets of the Company in
order to extend operations pending a sale; (2) to maximize the value of the Company's assets in any sale to third party; and (3) to maintain the value in public shell if possible.

As
a result of the adoption of the Plan and the imminent nature of the liquidation, the Company adopted the liquidation basis of accounting effective December 1, 2001. The
liquidation basis of accounting requires the Company to accrue an estimate for all liabilities related to expenses to be incurred during the wind down period. Additionally, assets are stated at their
estimated net realizable value and liabilities are stated at their anticipated settlement amounts. The estimated net realizable value of assets represents management's best estimated of the
recoverable value of the assets, net of selling expenses, and without consideration for the effect that the settlement of any litigation may have on the value of the assets.

Presentation of Interim InformationThe financial statements included herein have been prepared by the Company without audit;
however in the opinion of the management of the Company, all normal adjustments for the fair presentation of such financial information on a liquidation basis for three and six months ended
November 30, 2002 and a going concern basis for the three and six months ended November 30, 2001 have been included. The results for the three and six months ended November 30,
2002 may not be indicative of results for the year ending May 31, 2003.

The
financial statements for the three and six months ended November 30, 2001 were prepared on the going concern basis of accounting, which contemplates realization of assets and
satisfaction of liabilities in the normal course of business.

The
financial statements and notes are presented as permitted by Form 10-QSB, and do not contain certain information included in the Company's audited financial
statements and notes for the fiscal year ended May 31, 2002.

Loss Per Common ShareThe Company accounts for income (loss) per share in accordance with SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires that presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity. Diluted net loss per common share does not differ from basic net loss per common share since potential shares of common stock from
the exercise of stock options and warrants are anti-dilutive for all periods presented. Shares excluded from diluted loss per share totaled 3,896,300 on November 30, 2001.

NOTE 2ADJUSTMENTS OF ESTIMATED VALUES

Effective with the decision to liquidate, the carrying amounts of assets and liabilities were adjusted from their historical bases to the amounts of cash expected
from their realization and settlement. Because of the expected short liquidation period, the effects of discounting would not be significant

7

---

and have been ignored. The initial adjustment increased net liabilities by $3,705,699 from net asset of $1,989,435 to net liabilities of $1,716,264, as follows:

Historical
Basis

Liquidation
ValueCash

$
1,605,075

$
1,605,075Customer accounts


14,969


Prepaid expense and other assets


397,648


335,861Property and equipment


1,092,830


160,000Unsecured vendor accounts


(297,424
)

(352,616
)Capital lease obligations


(166,599
)

(166,599
)Accrued expenses


(582,514
)

(3,297,985
)Deferred revenue


(74,550
)

$
1,989,435

$
(1,716,264
)


It
is at least reasonably possible that the amounts expected to be realized in the liquidation process will change in the near future.

Adjustments
totaling $62,066 for the six months ended November 30, 2002 principally relate to the following:



NOTE 3OBLIGATIONS UNDER OPERATING LEASES

The Company historically leased office space in New Jersey under a non-cancellable operating lease agreement, which expires on July 31, 2005.
The Company currently does not occupy the office and is negotiating to terminate the lease. No settlement has been reached through to date. The Company accrued the future minimum lease payments under
the lease, in the amount of $122,374, upon the adoption of liquidation basis of accounting on December 1, 2001.

NOTE 4STOCKHOLDERS EQUITY

On July 31 2001, the Company granted non-transferable rights to its stockholders of record on the record date established in connection with
the rights offering to purchase up to an aggregate of 12,000,000 shares non-transferable rights to purchase of the Company's common stock at $0.88 per share. Each stockholder received 0.41
rights or such other number as the President of the Company may determine such that the aggregate proceeds from the offering will be not more than $10,000,000 for each share of common stock held on
the record date. Upon the closing of rights offering on September 7, 2001, the Company had issued 6,297,151 shares of its common stock and raised $3.3 million, net of offering expense of
$200,000.

8

---

NOTE 5LITIGATION

The Company was named as a defendant in a lawsuit by a former employee. The suit alleged a breach of his separation agreement with the Company, claiming that the
Company refused to allow him to exercise certain stock options between December 1999 and April 2000. The lawsuit seeks an award of damages and costs. On August 16, 2002, the
parties reached an agreement in principle to settle the case for a payment of $2,500 to the former employee by the Company and the complaint was dismissed without prejudice on August 19, 2002.
The settlement agreement was executed and settlement amount of $2,500 paid on October 10th, 2002.

On
April 12, 2002, another former employee of the Company filed suit against the Company and certain Company employees alleging fraudulent misrepresentation, negligent
misrepresentation, breach of employment contract and breach of covenants of good faith and fair dealing. This former employee sought damages for three years of lost compensation pursuant to an
employment contract allegedly arising from the vesting schedule of the employee's stock option plan. Since the employee failed to serve the defendants as required by the Massachusetts Rules of Civil
Procedures and the complaint was dismissed without prejudice on July 22, 2002. While the applicable stature of limitations has not expired for these alleged claims, the likely outcome of this
lawsuit cannot be assessed.

On
October 17, 2002, a former financial advisor of the Company threatened suit against the Company alleging the Company filed to pay the advisor the monthly preliminary advisory
fee owed to the advisor pursuant to the terms of the parties' March 1, 2001 engagement agreement as amended. The threatened lawsuit seeks for a total payment of $210,000; a $90,000 minimum
advisory fee plus $120,000 preliminary advisory fee at $10,000 per month for twelve months beginning October 2001 to October 2002. Management, after consultation with the legal counsel,
believed that the realistic claim amount should be $90,000 and intends to defend. The Company increased the litigation settlement reserve to $90,000 at August 31, 2002. Negotiations to settle
the claim are ongoing and management expects to reach a settlement agreement before the end of the third quarter.

NOTE 6PLAN FOR THE RESTART OF OPERATIONS

On November 8th, 2002, the Board of Directors approved a plan for the restart of service and support to previous Company's customers and for the cessation
of the wind down of operations. Under this plan, the Company will engage certain subcontractors to provide management, sales and support through commissions and revenue sharing agreements. The Company
has executed a contract with a former employee to provide support, contingent on the first executed customer agreement. As of January 10th, the Company has not secured any contracts, booked
revenue or incurred expenses related to restarting the business and consequently has not changed the basis of its accounting.

9

---



ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and attached notes and
the other financial information included elsewhere in this report. This Management's Discussion and Analysis of Financial Condition and Results of Operations section contains descriptions of our
expectations regarding future trends affecting our business. These forward-looking statements and other forward-looking statements made elsewhere in this document are made in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The discussion below and under the heading "Risk Factors" sets forth numerous factors we believe could cause actual results
to differ materially from those contemplated by the forward-looking statements. We are not under any obligation to update the information contained in this section.

Overview

On December 21, 2001, we announced our decision to pursue an orderly wind down and cessation of our business operations. The Board of Directors and
management engaged in a concerted effort to explore various strategic alternatives for the future of the Company, including its sale, prior to making the decision to begin the orderly wind down. These
efforts did not result in the identification of a party that was prepared to provide capital or acquire the Company. The Board of Directors therefore concluded that the orderly wind down of the
Company was the most prudent course of action.

The
key objectives of the wind down plan are (1) to conserve the assets of the Company in order to extend operations pending a sale; (2) to maximize the value of the
Company's assets in any sale to third party; and (3) to maintain the value in public shell if possible.

We
have net liabilities in liquidation and do not expect to have any cash that could be returned to stockholders. We have sold or disposed of all of our fixed and other tangible assets.
We have recognized no revenue following the announcement to begin the orderly wind down. We may not be able to negotiate a settlement of all of the Company's obligations to its creditors. These
include, without limitation, long-term contractual obligations associated with one remaining office lease, a business agreement with a third party and trade payables with vendors.

On
July 31, 2002, L-R Global Partners, L.P., a Delaware limited partnership entered into a Stock Purchase Agreement with Steven A. Flagg and Thomas B. Marsh. Pursuant
to the Purchase Agreement, Flagg and Marsh acquired 27,264,170 shares of common stock, par value $0.01 per share, of PurchaseSoft, Inc. Such shares constituted all of the shares of the Company
held by L-R Global Partners, L.P.

On
August 5th, Steven Flagg and Thomas Marsh were elected as Directors and all of the previous members of the Board resigned as directors and officers of the Company. Immediately
subsequent to the meeting, a second Board Meeting was convened, at such time Steven Flagg was appointed Chairman and President, and Thomas Marsh was appointed Secretary and Treasurer. As of
January 10, 2003, we had no employees, no office space and no personal property. Administration of the wind down effort and all of the Company's records had been transferred to the offices of
Steven Flagg and Thomas Marsh in La Jolla California.

On
November 8, 2002 the Company filed a report on Form 8-K announcing that on November 8th, 2002, the Board of Directors had approved a plan to attempt
to restart service to former PurchaseSoft customers, which if successful, would take the Company out of wind down status. President Steven Flagg presented an assessment study for the restart of
service to existing PurchaseSoft customers that was requested by the Company in August. Louis Blatt and David Billings completed a customer survey and evaluation of the Company's product. They
reported that a number of customers indicated an interest in signing agreements for maintenance should the Company restart operations.

10

---

The
assessment was accompanied by a plan to restart service and support for previous customers of PurchaseSoft who are currently without maintenance. Under this plan, the Company would
sign agreements with David Billings, Kona Systems, Computer Horizons Corporation and certain former PurchaseSoft employees to provide management, sales and support. These firms would be compensated
through subcontracting, commission and revenue sharing agreements, and in some cases the issuance of PurchaseSoft common stock, NSO's or warrants.

In
reaching the decision to restart support operations, the Company has made a commitment to take every action possible to continue support for its customers. This new objective is
consistent with the previously stated key objectives of the Company. Those key objectives are (1) to conserve the assets of the Company in order to extend operations pending a sale;
(2) to maximize the value of the Company's assets in any sale to third party; and (3) to maintain the value in public shell if possible.

However,
as of January 10, 2003, the Company has not yet been successful in securing any customer maintenance agreements or other revenue and is continuing the wind down commenced
last December 21, 2001.

Liquidity and Capital Resources

As of November 30, 2002, net liabilities in liquidation were $265,993. Cash and cash equivalents were $25,834. Our primary cash needs are for
administrative expenses and professional fees to wind down the Company's affairs, negotiate settlements with creditors and make required SEC filings.

As
of January 10th 2003, we have been able to negotiate settlements with all but three remaining creditors: an investment banking agreement, one trade payable and an
office lease with Office Associates in New Jersey. We will continue to seek settlements for those liabilities. The settlements will be limited to the cash that is available to settle these claims
after deducting cash necessary to pay administrative expenses, professional fees and SEC filing costs incurred during the balance of the wind down.

Certain Business Risks

Stockholders and prospective purchasers of our common stock should carefully consider the following risk factors in addition to the other information appearing in
this Quarterly Report on Form 10-QSB.

Stockholders are not expected to receive any distributions as part of the Company's wind down.

The Company's intangible assets may not be sold.

Although we intend to continue to pursue opportunities to sell certain intangible assets during the wind down, as of January 10, 2003, there have been no
offers for these intangible assets and consequently, we have assigned no value to them in the Statement of Net Liabilities in Liquidation. Sales of the Company's intangible assets will be made on such
terms as are approved by the Board of Directors and may be conducted by competitive bidding, public sales or privately negotiated sales. The prices at which we will be able to sell these assets will
depend largely on factors beyond our control, including, without limitation, the condition of financial markets, the availability of financing to prospective purchasers of the assets, United States
and foreign regulatory approvals, public market perceptions, and limitations on transferability of certain assets.

The Company may not be able to settle all of its remaining obligations to Creditors.

The Company has certain current and future obligations to creditors. These include, without limitation, a long-term contractual obligation associated
with one remaining office lease and business agreements with one other third party and trade payables with vendors. As part of the wind down

11

---

process, we will attempt to settle these remaining obligations with the Company's creditors. We cannot guarantee that we will be able to settle such obligations with each creditor. If we are unable
to reach an agreement with a creditor, that creditor may choose to bring a lawsuit against the Company. Such litigation could delay or even prevent the Company from completing its intended wind down
plan.

We need additional capital to operate our business and a failure to raise this capital or find new sources of revenue will result in completing the liquidation of the Company.

The Company has substantially completed a wind down of operations and unless certain conditions are met the Company will complete the liquidation and cease to
exist. One of the primary conditions will be the availability of financing for any plan to continue operations. Financing may not be available on terms that are favorable to us, or at all. Failure to
settle the remaining liabilities will impair our ability to implement any business plan and may result in an inability to continue operations.

Our management team has limited experience with us and may not be successful.

Our management has a very limited history in operating PurchaseSoft and we cannot be assured that our management team will be successful in completing the wind
down successfully and finding new opportunities to build shareholder value.

If we are unable to hire and retain the skilled personnel that we need, the implementation of any business plan and any future growth could slow or halt.

We have no management team or personnel. Our ability to generate revenues and our future success may depend upon our ability to attract and retain skilled
personnel.

Before we are able to begin to restart business operations, our products may become obsolete.

The market for our software products is characterized by rapid technological advances, constantly evolving industry standards, changing end-user
requirements, and frequent new product introductions and/or enhancements. The introduction of new products by our competitors, the market acceptance of products embodying new technologies and the
emergence of new industry standards could render our existing products obsolete and unmarketable. If our products become technologically obsolete, we may be unable to sell our products in the
marketplace and generate revenues.

Our prospects could be jeopardized if we are unable to protect our intellectual property or become subject to intellectual property rights litigation, which could require us to
incur significant costs.

We rely on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other industry standard methods for
protecting ownership of our proprietary software and business practices. In spite of these precautions, the possibility exists that an unauthorized third party will copy or reverse-engineer portions
of our products or obtain and use information that we regard as proprietary.    Any lawsuits regarding intellectual property rights could impair our ability to restart the Company.

There may be future sales of substantial amounts of our common stock that could cause our stock price to fall.

Our common stock is traded on the National Association of Securities Dealers OTC Bulletin Board®. Our common stock has historically been highly
illiquid. Steven A. Flagg and Thomas B. Marsh, who serve on our Board of Directors, one of who is President, in the aggregate owned approximately 82% of our common stock as of January 10, 2003.
If either of these directors were to sell even a small portion of their total shares in a short time, the market price of our common stock would likely decline dramatically. Further, sales of a
substantial number of shares of our common stock

12

---

by any holder in a short time would likely cause the market price of our common stock to decrease significantly. In addition, the sale of any of these shares may impair our future ability to raise
capital through the sale of additional stock.

Your ability to influence the outcome of key transactions is limited because we are controlled by two major stockholders.

The two directors of the Company, one of whom is our President, in the aggregate owned approximately 82% of our common stock as of January 10, 2003. The
these two directors have enough
voting power to approve or disapprove any matters that are determined by a majority vote of our stockholders, which severely limits your ability to influence PurchaseSoft through voting your shares.

If a public trading market for shares of our common stock is not maintained, you may not be able to sell shares of our common stock.

Although shares of our common stock are presently quoted on the OTC Bulletin Board, we cannot assure you that they will continue to be quoted in the future.
Furthermore, in contrast to stock that is quoted on the NASDAQ National Market or traded on a national securities exchange, as a result of our stock being quoted on the OTC Bulletin Board,
stockholders may:



Because shares of our common stock are not listed on a national securities exchange or quoted on the NASDAQ National Market, we face increased costs in complying with
securities laws.

While securities listed on the NASDAQ National Market System or national securities exchanges are in many cases exempt from the registration requirements of state
securities laws, securities traded on the OTC Bulletin Board must comply with the registration requirements of state securities laws, which increases the time and costs associated with complying with
state securities laws when raising capital. We cannot assure that this cost of compliance will not have a material adverse effect on the viability of the Company.

Our stock may be subject to penny stock regulations that make it more difficult for broker-dealers to easily trade our stock and may consequently limit the ability of holders
of our common stock to sell it.

The Securities and Exchange Commission has adopted regulations imposing limitations upon the manner in which certain low priced securities, referred to as a
"penny stock," are publicly traded. Under these regulations, a penny stock is defined as any equity security that has a market price of less than $5.00 per share, subject to specified exceptions.
Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. Also, under these regulations, some broker-dealers who recommend these types of securities to persons other than established customers and "accredited investors" must make a
special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Trading activities for penny stocks are more difficult for
broker-dealers than in the case of securities not defined as penny stocks. Because our common stock may be a penny stock this may have the result of depressing the market for our securities, and a
stockholder may find it difficult to sell shares of our common stock.

13

---

ITEM 3: CONTROLS AND PROCEDURES

Management has conducted an evaluation of the design and operation of its disclosure controls and procedures and found no changes have been made to those controls
during the period ending November 30, 2002. Management believes its disclosure controls and procedures are adequate to provide timely and accurate reporting of financial results and
non-financial material information.

Management
has evaluated its internal controls and found no changes have been made to those controls during the period ending November 30, 2002. Management believes the current
internal controls and reporting procedures are adequate to provide timely and accurate reporting of financial results.

14

---



PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS.

Medico Case Settled on October 10, 2002The Company had been named as a defendant in a lawsuit by a former employee. The suit alleged
a breach of his separation agreement with the Company, claiming that the Company refused to allow him to exercise certain stock options between December 1999 and April 2000. The lawsuit
seeks an award of damages and costs. On August 16, 2002, the parties reached an agreement in principle to settle the case for a payment of $2,500 to the former employee by the Company and the
complaint was dismissed without prejudice on August 19, 2002. The settlement agreement was executed and settlement amount of $2,500 paid on October 10th, 2002.

Employee Claim Dismissed on July 22, 2002On April 12, 2002, another former employee of the Company filed suit against the
Company and certain Company employees alleging fraudulent misrepresentation, negligent misrepresentation, breach of employment contract and breach of covenants of good faith and fair dealing. This
former employee sought damages for three years of lost compensation pursuant to an employment contract allegedly arising from the vesting schedule of the employee's stock option plan. Since the
employee failed to serve the defendants as required by the Massachusetts Rules of Civil Procedures and the complaint was dismissed without prejudice on July 22, 2002.

Threatened Lawsuit in NegotiationOn October 17, 2002, a former financial advisor of the Company threatened suit against the Company
alleging the Company filed to pay the advisor the monthly preliminary advisory fee owed to the advisor pursuant to the terms of the parties' March 1, 2001 engagement agreement as amended. The
threatened lawsuit seeks for a total payment of $210,000; a $90,000 minimum advisory fee plus $120,000 preliminary advisory fee at $10,000 per month for twelve months beginning October 2001 to
October 2002. Management, after consultation with the legal counsel, believed that the realistic claim amount should be $90,000 and intends to defend. The Company increased the litigation
settlement reserve to $90,000 at August 31, 2002. Negotiations to settle the claim
are ongoing and management expects to reach a settlement agreement before the end of the third quarter.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K



15

---



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Issuer caused this report to be signed on its behalf by the undersigned, thereunto to be
duly authorized.

|                       |  | PurchaseSoft, Inc.
(Issuer)                                          
|---------------------- |  | ---------------------------------------------------------------------
|                       |  |                                                                      
|Date: January 10, 2003 |  | /s/STEVEN A. FLAGGSteven A. Flagg
President and Acting CEO           
|                       |  |                                                                      
|Date: January 10, 2003 |  | /s/THOMAS B. MARSHThomas B. Marsh
Secretary, Treasurer and Acting CFO

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 January 10, 2003.

|Signature                         |  | Title   
|--------------------------------- |  | --------
|                                  |  |         
|/s/STEVEN A. FLAGGSteven A. Flagg |  | Director
|/s/THOMAS B. MARSHThomas B. Marsh |  | Director

16

---

CERTIFICATIONS

I,
Steven A. Flagg, certify that;



|Date: January 10, 2003 |  | /s/STEVEN A. FLAGGSteven A. Flagg
President and Director
|---------------------- |  | --------------------------------------------------------

17

---

I,
Thomas B. Marsh, certify that;



|Date: January 10, 2003 |  | /s/THOMAS B. MARSHThomas B. Marsh
Secretary, Treasurer and Director
|---------------------- |  | -------------------------------------------------------------------

18

---

QuickLinks