<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(MARK ONE)

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

                FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2007

                                       OR

|_|   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                                            13-2897997
 (State or Other Jurisdiction of                              (I.R.S. Employer
  Incorporation or Organization)                             Identification No.)

                      2091 BUSINESS CENTER DRIVE, SUITE 100
                                IRVINE, CA 92612
                    (Address of Principal Executive Offices)

                                 (949) 263-0910
                (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 No |_|

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

COMMON STOCK, PAR VALUE $0.01 PER SHARE            33,785,838 SHARES at 2/28/07

<PAGE>

                               PURCHASESOFT, INC.
                                   FORM 10-QSB
                         QUARTER ENDED FEBRUARY 28, 2007

                              CROSS REFERENCE SHEET

                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1 Consolidated Financial Statements ......................................4

Item 2 Management's Discussion and Analysis of Financial Condition and
       Results of Operations .................................................12

Item 3 Controls and Procedures ...............................................13

                           PART II - OTHER INFORMATION

Item 1 Legal Proceedings .....................................................13

Item 2 Changes in Securities and Use of Proceeds .............................13

Item 3 Defaults Upon Senior Securities .......................................13

Item 4 Submission of Matters to a Vote of Security Holder ....................13

Item 5 Other Information .....................................................13

Item 6 Exhibits and Reports On Form 8-K ......................................14

Signatures



                                       2
<PAGE>

                               PURCHASESOFT, INC.
                                   FORM 10-QSB
                         QUARTER ENDED FEBRUARY 28, 2007
                                   (UNAUDITED)

                   ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                                      INDEX

Consolidated Balance Sheet                                                    4

Consolidated Statements of Income                                             5

Consolidated Statements of Cash Flows                                         6

Consolidated Notes to Financial Statements                                    7












                                       3
<PAGE>
<TABLE>
<S>            <C>
                                     ITEM 1. FINANCIAL STATEMENTS

                                          PURCHASESOFT, INC.
                                      CONSOLIDATED BALANCE SHEET
                                  FEBRUARY 28, 2007 AND MAY 31, 2006

                                                ASSETS
                                                                          UNAUDITED
                                                                         FEBRUARY 28,       MAY 31,
                                                                             2007            2006
                                                                         ------------    ------------
Current Assets
   Cash                                                                  $    113,499    $     78,365

Accounts Receivable                                                            56,875          68,100
   Prepaid Licenses                                                             5,820              --
   Prepaid Expenses and Other Assets                                            3,010           2,810
                                                                         ------------    ------------
 Total Current Assets                                                         179,204         149,275

Property and equipment, net                                                     4,224           6,643
   Deposits                                                                     4,839           4,839
   Goodwill                                                                    97,002          97,002
                                                                         ------------    ------------
        TOTAL ASSETS                                                     $    285,269    $    257,759
                                                                         ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable & accrued expenses                                   $    429,204         422,205
   Deferred maintenance revenues current portion                              254,743         116,565
   Deferred software sales                                                    108,522          95,024
   Shareholder notes payable                                                   20,000         102,000
                                                                         ------------    ------------
     Total Current Liabilities                                                812,469         735,794

Long-term deferred maintenance revenues, net of current portion                14,809          14,809

     Total Liabilities                                                        827,278         750,603

Shareholders' Deficit
   Common stock, $0.01 par value, 100,000,000 shares authorized,
     33,785,838 shares issued and outstanding at February 28, 2007 and
     24,674,338 issued and outstanding at May 31, 2006                        337,859         246,744
   Paid-in capital                                                         43,785,925      43,876,129
   Accumulated deficit                                                    (44,576,761)    (44,526,685)
   Treasury stock (4,780 shares), at cost                                     (89,032)        (89,032)
     Total Stockholders' Deficit                                             (542,009)       (492,844)
                                                                         ------------    ------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $    285,269    $    257,759
                                                                         ============    ============

                       See accompanying notes to unaudited financial statements

                                                   4
<PAGE>

                                      PURCHASESOFT, INC.
                              STATEMENT OF OPERATIONS (UNAUDITED)
                  FOR NINE AND THREE MONTHS ENDING FEBRUARY 28, 2007 AND 2006

                                  THREE MONTHS    THREE MONTHS   NINE MONTHS     NINE MONTHS
                                     ENDED           ENDED          ENDED           ENDED
                                 FEBRUARY 28,    FEBRUARY 28,    FEBRUARY 28,    FEBRUARY 28,
                                     2007            2006            2007           2006
                                 ------------    ------------    ------------    ------------
REVENUE:
  Products                       $    103,721    $     69,799    $    233,483    $    327,083

  Services                             64,771          50,880         215,173         171,704
                                 ------------    ------------    ------------    ------------
     Total Revenues                   168,492         120,679         448,656         498,787

OPERATING EXPENSES:
  Cost of revenue                      75,035          89,710         245,053         287,227
  General and Administrative           90,366          71,901         250,905         220,173
                                 ------------    ------------    ------------    ------------

     Total Operating Expenses         165,401         161,611         495,958         507,400

     OPERATING PROFIT (LOSS)            3,091         (40,932)        (47,302)         (8,613)

OTHER INCOME (EXPENSE)
   Interest expense                      (489)         (1,650)         (2,774)         (5,619)
                                 ------------    ------------    ------------    ------------
     Total Other Expense                 (489)         (1,650)         (2,774)         (5,619)
                                 ------------    ------------    ------------    ------------

     NET INCOME (LOSS)                  2,602         (42,582)        (50,076)        (14,232)
                                 ============    ============    ============    ============

Net (loss) per share-basic and
   diluted                               0.00           (0.00)          (0.00)          (0.00)

Weighted average number
    of shares                      33,785,887      24,396,609      28,412,438      20,937,482



                   See accompanying notes to unaudited financial statements

                                              5

<PAGE>

                               PURCHASESOFT, INC.
                       STATEMENT OF CASH FLOWS (UNAUDITED)
                FOR NINE MONTHS ENDING FEBRUARY 28, 2007 AND 2006


                                                         NINE MONTHS ENDED
                                                   FEBRUARY 28,    FEBRUARY 28,
                                                       2007            2006
                                                   ------------    ------------
Cash Flows from Operating Activities:
   Net Income (loss)                               $    (50,076)   $    (14,232)
   Adjustments to reconcile net (loss)
      to net cash used in operating activities:
     Depreciation and amortization                        5,239           5,047
     Common Stock Issued for Services                       911
   Increase (decrease) in:
     Accounts receivable                                 11,225         (30,934)
     Prepaid licenses                                    (5,820)          1,570
     Prepaid expenses                                      (199)         (2,750)
     Accounts payable and accrued expenses               89,211          90,844
     Deferred revenues - maintenance                     43,154          21,800
     Deferred software sales                             26,129              --
                                                   ------------    ------------
     TOTAL ADJUSTMENTS                                  169,850          85,577

     NET CASH FLOW PROVIDED BY (USED IN)
        OPERATING ACTIVITIES                            119,774          71,345

Cash Flows (Used in) Investing Activities:
         Purchase of Property and Equipment              (2,821)             --
                                                   ------------    ------------
         NET CASH USED IN INVESTING ACTIVITIES           (2,821)             --

Cash Flows from Financing Activities:
   Repayment of related party notes                     (82,000)        (30,000)
                                                   ------------    ------------
     NET CASH FLOW PROVIDED BY FINANCING
        ACTIVITIES                                      (82,000)        (30,000)

     NET (DECREASE) IN CASH                              34,953          41,345
                                                   ------------    ------------
Cash balance at beginning of period                      78,546          45,967
                                                   ------------    ------------
CASH BALANCE AT END OF PERIOD                      $    113,499    $     87,312
                                                   ============    ============


            See accompanying notes to unaudited financial statements

                                        6
</TABLE>


<PAGE>


                 NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, BUSINESS & OPERATIONS

PurchaseSoft, Inc. (the Company) designs, market and services purchasing and
material management application software. The Company acquired Computer
Information Enterprises, Inc. (CIE) on February 16, 2004. CIE develops and
markets a document management solution (IMAGELINK) for accounting ERP software
within the Microsoft Dynamics SL, Microsoft Dynamics GP and Sage MAS90/200
environments.


NOTE 2 - GOING CONCERN AND MANAGEMENT'S PLANS

The Company's primary source of operating funds since inception has been
provided through debt and equity financing. The company intends to raise
additional capital through private debt and equity investors. At February 28,
2007, the Company had stockholders' and working capital deficits of $542,009 and
$633,265, respectively. The Company had revenues of $448,656 and incurred a net
loss of $50,076 for the nine months ended February 28, 2007.

Management has taken steps to improve the Company's liquidity by raising funds
and seeking revenue sources through the development of products through which
the Company may generate additional revenue. There can be no assurance that the
Company will be successful in these endeavors and therefore may have to consider
other alternatives.

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. However, the above matters raise
substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING METHOD AND YEAR END

The Company's financial statements re prepared using the accrual method of
accounting. The Company has elected a May 31 year-end.

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 reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

CONCENTRATIONS OF CREDIT RISK - CASH

The Company maintains its cash with various financial institutions, which may
exceed federally insured limits throughout the period.

                                       7
<PAGE>


INVENTORIES

Inventories are stated at the lower of cost or market. Cost is computed on a
weighted-average basis, which approximates the first-in, first-out method;
market is based upon estimated replacement costs.

MARKETABLE SECURITIES AVAILABLE FOR SALE

The Company evaluates its investment policies and the appropriate classification
of securities at the time of purchase consistent with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain investments in
Debt and equity Securities," at each balance sheet date and determined that all
of its investment securities are to be classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in stockholders' deficiency under the
caption "Accumulated Other Comprehensive Loss". Realized gains and losses and
declines in value judged to be other than-temporary on available-for-sale
securities are included in net gain on sale of marketable securities. The cost
of securities sold is based on the specific identification method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, generally three to seven
years. Leasehold improvements are amortized over the shorter of the useful life
or the remaining lease term. Upon retirement or other disposition of these
assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gains or losses are reflected in operations.
Expenditures for maintenance and repairs are charged to operations as incurred.
Renewals and betterments are capitalized.

IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal.

BASIC AND DILUTED NET INCOME PER SHARE

Basic earnings per share is calculated using the weighted-average number of
common shares outstanding during the period without consideration of the
dilutive effect of stock options and convertible preferred stock. Diluted
earnings per share is calculated using the weighted-average number of common
shares outstanding during the period after consideration of the dilutive effect
of stock options and convertible preferred stock.


                                       8
<PAGE>

STOCK-BASED COMPENSATION

Fair value on the date of grant and recognize compensation expense in our
consolidated In December 2004, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123(R), Share-Based Payment. This pronouncement amends SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees . SFAS No. 123(R) requires that
companies account for awards of equity instruments issued to employees under the
fair value method of accounting and recognize such amounts in their statements
of operations. Under SFAS No. 123(R), we are required to measure compensation
cost for all stock-based awards at statements of operations over the service
period that the awards are expected to vest.

The Company accounts for stock-based compensation issued to non-employees and
consultants in accordance with the provisions of SFAS 123(R) and the Emerging
Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring or in
Conjunction with Selling, Goods or Services". Common stock issued to
non-employees in exchange for services is accounted for based on the fair value
of the services received.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.

SOFTWARE DEVELOPMENT COSTS

Capitalization of software development costs for software to be sold, leased, or
otherwise marketed begins upon the establishment of technological feasibility,
which is generally the completion of a working prototype that has been certified
as having no critical bugs and is a release candidate. Amortization begins once
the software is ready for its intended use, generally based on the pattern in
which the economic benefits will be consumed. To date, software development
costs incurred between completion of a working prototype and general
availability of the related product have not been material.

REVENUE RECOGNITION

Our revenue is derived from the licensing of software products, consulting and
maintenance and support. Primarily, we recognize revenue pursuant to the
requirements of AICPA Statement of Position 97-2, "Software Revenue
Recognition", and any applicable amendments or modifications, when persuasive
evidence of an arrangement exists, we have delivered the product or performed
the service, the fee is fixed or determinable and collection is probable.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We provide an allowance for estimated uncollectible accounts receivable balances
based on historical experience and the aging of the related accounts receivable.
As of December 31, 2007 and 2006 the Company has no reserve for doubtful
accounts.

ADVERTISING

The Company expenses advertising costs as incurred. There were no Advertising
costs for the period ended February 28, 2007.

INCOME TAXES

The Company accounts for income taxes using the liability method as required by
Statement of Financial Accounting Standards ("FASB") No. 109, Accounting for
Income Taxes ("SFAS 109"). Under this method, deferred tax assets and
liabilities are determined based on differences between their financial
reporting and tax basis of assets and liabilities. The Company was not required
to provide for a provision for income taxes for the periods ended February 28,
2007 and May 31, 2006, as a result of net operating losses incurred during the
periods. As of December 31, 2007, the Company has available approximately
$16,260,000 of net operating losses ("NOL") available for income tax purposes
that may be carried forward to offset future taxable income, if any. These
carryforwards expire in various years through 2026. At February 28, 2007 and May
31, 2006, the Company has a deferred tax asset of approximately $6,476,000 and
$6,456,000, relating to the Company's net operating losses., respectively. The
Company's deferred tax asset has been fully reserved by a valuation allowance
since realization of its benefit is uncertain. The Company's ability to utilize
its NOL carryforwards may be subject to an annual limitation in future periods
pursuant to Section 382 of the Internal Revenue Code of 1986, as amended.


                                       9
<PAGE>

The provision for income taxes using the federal and state tax rates as compared
to the Company's effective tax rate is summarized as follows:

                                                  February 28,      May 31,
                                                     2007            2006
                                                  ------------   ------------
Statutory Federal Tax (Benefit) Rate                   -34%           -34%
Statutory State Tax (Benefit) Rate                      -6%            -6%
                                                  ------------   ------------
Effective Tax (Benefit) Rate                           -40%           -40%

Valuation Allowance                                     40%            40%
                                                  ------------   ------------
Effective Income Tax                                     0%             0%
                                                  ============   ============

Significant components of the Company's deferred tax assets at February 28, 2007
and May 31, 2006 are as follows:

                                                  February 28,      May 31,
                                                     2007            2006
                                                  ------------   ------------

Net Operating Loss Carryforward                   $  6,476,112   $  6,456,167
Valuation Allowance                                 (6,476,112)    (6,456,167)
                                                  ------------   ------------
Net Deferred Tax Asset                            $         --   $         --
                                                  ============   ============

RESEARCH AND DEVELOPMENT COSTS

Expenditures for research and development are expensed as incurred. Such costs
are required to be expensed until the point that technological feasibility is
established. The Company incurred no research and development costs for the
period ended February 28, 2007.

RECLASSIFICATIONS

Certain items in the prior year financial statements have been reclassified for
comparative purposes to conform to the presentation in the current period's
presentation. These reclassifications have no effect on the previously reported
income (loss).

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS
141(R)). This Statement provides greater consistency in the accounting and
financial reporting of business combinations. It requires the acquiring entity
in a business combination to recognize all assets acquired and liabilities
assumed in the transaction, establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed, and
requires the acquirer to disclose the nature and financial effect of the
business combination. FAS 141(R) is effective for fiscal years beginning after
December 15, 2008. We will adopt FAS 141(R) no later than the first quarter of
fiscal 2010 and are currently assessing the impact the adoption will have on our
financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160. Noncontrolling Interests in
Consolidated Financial Statements (FAS 160). This Statement amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective for
fiscal years beginning after December 15, 2008. We will adopt FAS 160 no later
than the first quarter of fiscal 2010 and are currently assessing the impact the
adoption will have on our financial position and results of operations.

                                       10
<PAGE>

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities , which permits entities to choose to
measure at fair value eligible financial instruments and certain other items
that are not currently required to be measured at fair value. The standard
requires that unrealized gains and losses on items for which the fair value
option has been elected be reported in earnings at each subsequent reporting
date. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. We will adopt SFAS No. 159 no later than the first quarter of fiscal 2009.
We are currently assessing the impact the adoption of SFAS No. 159 will have on
our financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R) . SFAS No. 158 requires company plan
sponsors to display the net over- or under-funded position of a defined benefit
postretirement plan as an asset or liability, with any unrecognized prior
service costs, transition obligations or actuarial gains/losses reported as a
component of other comprehensive income in shareholders' equity. SFAS No. 158 is
effective for fiscal years ending after December 15, 2006. We adopted the
recognition provisions of SFAS No. 158 as of the end of fiscal 2007. The
adoption of SFAS No. 158 did not have an effect on the Company's financial
position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS
No. 157 establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the application of SFAS No. 157 may change
current practice for some entities. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We will adopt SFAS No. 157 in the
first quarter of fiscal 2009. We are currently assessing the impact that the
adoption of SFAS No. 157 will have on our financial position and results of
operations.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in Income Taxes -- an interpretation of FASB Statement No. 109 (FIN 48). This
interpretation clarifies the application of SFAS No. 109, Accounting for Income
Taxes , by defining a criterion that an individual tax position must meet for
any part of the benefit of that position to be recognized in an enterprise's
financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006, but earlier adoption is permitted. The Company is in the
process of evaluating the impact of the application of the Interpretation to its
financial statements.

NOTE 4 - PROPERTY AND EQUIPMENT


Property and equipment consists of the following:


                                           February 28, 2007     May 31, 2006
-----------------------------------        -----------------   -----------------
Computer Equipment                           $     22,571        $    20,780
Less: Accumulated Depreciation                    (18,348)           (14,137)
-----------------------------------        -----------------   -----------------
Net Property & Equipment                     $      4,224        $     6,643
                                           =================   =================
NOTE 5 -GOODWILL

Goodwill represents the purchase price allocation for the acquisition of
Computer Information Enterprises, Inc. (CIE) on February 16, 2004. Any change in
the fair value of the net asset of the acquired company will change the amount
of the purchase price allocable to goodwill.


                                       11
<PAGE>


NOTE 6 - SHAREHOLDER NOTE PAYABLE

At May 31, 2004, the Company had three demand notes payable totaling $205,000 to
two officers of the Company. The notes had an interest rate of 6% per annum. The
due dates on two of these notes were extended to October 31, 2005. In
consideration of the due date extension, the Company issued 12,000,000 shares of
its $0.01 par value common stock, with a market value of $1,200, to the officer.

As of May 31, 2006, the Company had one 6% interest bearing shareholder demand
note totaling $102,000.

During the nine months ended February 28, 2007 the Company paid down its note
payable by $82,000 to $20,000.

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

At February 28, 2007 and May 31, 2006, accounts payable and accrued expenses are
comprised of the following:

                                                    February 28,      May 31,
                                                        2007           2006
                                                    ------------   ------------
Accounts Payable                                    $     14,093   $     12,066
Accrued Officer Salaries                                 382,253        283,000
Accrued Royalty Expense                                    6,509          8,540
Accrued Interest                                          26,349         23,575
Other Accrued Expenses                                        --         95,024
                                                    ------------   ------------
Total Accounts Payable and Accrued Expenses         $    429,204   $    422,205
                                                    ============   ============

NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT)

The authorized capital stock of the Company consists of 100,000,000 shares of
common stock at a par value of $0.01. At February 28, 2007 there were 33,785,838
shares issued and outstanding and at May 31, 2006 there were 24,674,388 shares
issued and outstanding. All common stock shares are presented to reflect a 5 to
1 reverse stock split approved by the Board of Directors on March 1, 2005.

During the nine months ended February 28, 2007, the company issued 9,000,000
shares to Officers of the company for services totaling $900 and 111,500 shares
to unaffiliated individuals for services totaling $11.

NOTE 9 - COMMITMENTS & CONTINGENCIES

LEASE AGREEMENT

The Company has a one year lease on office space expiring on February 28, 2008
for a maximum of $40,308 annually.

LITIGATION

Neither our company nor any of our property is a party to, or the subject of,
any pending legal proceedings other than ordinary, routine litigation incidental
to our business.

NOTE 10 - SUBSEQUENT EVENTS

     EQUITY

For the fiscal year ended May 31, 2007 a total of Nine Million One Hundred and
Fourteen Thousand (9,114,000) shares of stock were issued. Eight Million
(8,000,000) shares to Steven Flagg, One Million (1,000,000) shares to Kevin
Yanoscik and One Hundred Eleven Thousand Five Hundred (111,500) shares to third
parties, all for services. Two Thousand Five Hundred (2,500) shares were issued
to a shareholder because of lost shares.


                                       12
<PAGE>

For the fiscal year ended May 31, 2008, a total of Nine Million Five Hundred
Thousand shares were issued. Steven Flagg received Eight Million (8,000,000)
shares and Kevin Yanoscik received One Million Five Hundred Thousand (1,500,000)
shares.

     CONTRACTS

An Executive Employment Agreement for Craig Chandler, a key employee, was
amended and extended for an additional year effective February 28, 2007.

An Amended and Restated Management Consulting Agreement was executed by Steven
A. Flagg on December 31, 2006.

     MAJOR SALES/OTHER

There were no sales concentrated to one particular customer that accounted for
greater than 5.5% of the company's total software sales during the fiscal year.


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

This document includes "forward-looking" statements within the meaning of the
Private Securities Litigation Act of 1995. This Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information so long as they identify these statements as forward-looking and
provide meaningful cautionary statements identifying important factors that
could cause actual results to differ from the expected results. All statements
other than statements of historical fact made in this document are forward
looking. In some cases, they can be identified by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
consider various factors that may cause actual results to differ materially from
any forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes liability for the accuracy and completeness of the forward-looking
statements. Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not limited to:
recession and other external economic factors over which the Company has no
control; the timing and speed with which our major customers and prospects
execute their plans for the use of our software, continued development of the
Company's software products; competitive product and pricing pressures; use of
internally developed software applications; patent and other litigation risk;
the risk of key staff leaving the Company; the risk that major customers of the
Company's products may terminate use of our software as well as other risks and
uncertainties, including but not limited to those detailed from time to time in
the Company's Securities and Exchange Commission filings. These forward-looking
statements are made only as of the date hereof, and the Company undertakes no
obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.

                                    OVERVIEW

The financial results reflected are for the third quarter ended February 28,
2007. This financial statement should be read in conjunction with the Company's
Form 10-K as of May 31, 2006


                                       13
<PAGE>

CURRENT OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES

Revenue. Year to date revenues for the nine months ended February 28, 2007
declined 10% from the comparable period ended February 28, 2006. Software sales
for the nine month period ended 2007 totaled $233,483 compared to $327,083 at
February, 2006. Consulting revenues, comprised of both third-party consulting
services and charges for customization work of its core ImageLink product
declined from $41,132 at February, 2006 to $23,971 at February, 2007.
Maintenance revenues for the comparable periods increased over 50%, from
$120,279 at February, 2006 to $180,507 at February of 2007, representing the
continued renewal of maintenance support for its core product sales.

For the three month period ended February 28, 2007 revenues were $168,492
compared to $120,679, an increase of $47,813, or nearly 39%, with the
predominance of this increase reflected in software sales which increased from
$69,799 in the quarter ended February, 2006 to $103,721 at February, 2007.

Contributing to the overall decline in software sales was a change in accounting
policy with the adoption of SOP 97-2, as amended by SOP 98-4 and. SOP 98-9. In
prior fiscal periods IMAGELINK sales and installations were contractually
fulfilled within several days upon receipt of payment. With the introduction of
more complex peripheral products such as Batch Processing, Bar Code and Work
Flow, installation time has increased from less than a week to upwards of two
months. If not for the incorporation of SOP 97-2, as amended by SOP 98-4 and SOP
98-9 in fiscal year 2006, software sales would have been $99,769 higher for the
nine month period ended February 28, 2007.

Operating Expenses. Operating expenses totaling $495,958 and $507,400
respectively, for the nine months year-to-date February 28, 2007 and 2006
reflect a moderate decline per full-time employee (FTE) as the company continues
to focus on cost containment.

Liquidity. The Company's cash balance is $113,499 at February 28, 2007 compared
to $87,312 for the comparable period ended February 28, 2006. The company for
the nine month period ended February, 2007 relied on internally-generated funds
to support its operating activities with the repayment of shareholder notes of
$82,000 in the current period being the largest contributor to the decline in
cash at the quarter ending February 28, 2007 compared to the prior fiscal
quarter.


ITEM 3: CONTROLS AND PROCEDURES

Within the 90 days prior to the filing of this report, we carried out an
evaluation, under the supervision and with the participation of our President
and Secretary/Treasurer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure controls and procedures are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Based on this evaluation, our President and
Secretary/Treasurer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC reports.

There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date of our most recent evaluation.


                                       14
<PAGE>

                           PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS:                                             NONE
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS:                     NONE
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:                               NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:           NONE
ITEM 5: OTHER INFORMATION:                                             NONE
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                               NONE


Exhibits

31.1  Certification of Steven A. Flagg, Chairman and Chief Executive Office of
      the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2  Certification of Kevin A. Yanoscik, Chief Financial officer of the
      Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1  Certification of Steven A. Flagg, Chairman and Chief Executive Officer of
      the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2  Certification of Kevin A. Yanoscik, Chief Financial Officer of the
      Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.








                                       15
<PAGE>


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: May 23, 2008                           /s/ Steven A. Flagg
                                             -----------------------------------

                                             Steven A. Flagg
                                             President and CEO

Date: May 23, 2008                           /s/ Kevin A. Yanoscik
                                             -----------------------------------

                                             Kevin A. Yanoscik
                                             Secretary, Treasurer and  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
May 23, 2008.

SIGNATURE                                                     TITLE
-----------------------------------     ----------------------------------------

/s/ Steven A. Flagg                                          Director
---------------------------
Steven A. Flagg

/s/ Kevin A. Yanoscik                                        Director
---------------------------
Kevin A. Yanoscik






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