**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**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 August 31, 2003**                                                                              |
|                                                                                                                                  |   |   |
| **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**                                                                                                   |

 

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**PURCHASESOFT, INC.**

(Exact Name of Small Business Issuer as Specified in Its Charter)

 
| **DELAWARE**                                                   |   | **13-2897997**                      |
|----------------------------------------------------------------|--------|-------------------------------------|
| (State or Other Jurisdiction  ofIncorporation or Organization) |   | (I.R.S. EmployerIdentification 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)         |

 

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Check whether the issuer:(1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ý No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes oNo ý

 

**STATE THENUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON EQUITY,AS OF THE LATEST PRACTICABLE DATE.**

** **

| **Class**                                |   | **Outstanding at October 10,  2003** |   |
|------------------------------------------|--------|-------------------------------------------|--------|
| COMMON STOCK, PAR VALUE $0.01  PER SHARE |   | 33,287,267 SHARES                         |   |

 

 

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**PURCHASESOFT, INC.**

**INDEX**

 
| **Item  Number** |                                                                                                                   |
|------------------|------------------------------------------------------------------------------------------------------------------------|
|             |                                                                                                                   |
| PART I.          | FINANCIAL INFORMATION                                                                                                  |
| Item 1.          | Financial Statements                                                                                                   |
|             | Balance Sheet as of August 31, 2003                                                                               |
|             | Statement of Operations  For the period from June 1, 2003 to August 31, 2003                                 |
|             | Statement of Changes in Net Liabilities in  Liquidation  For the period from June 1, 2002 to August 31, 2002 |
|             | Statement of Cash Flows  For the period from June 1, 2003 to August 31, 2003                                 |
|             | Notes to the Financial Statements                                                                                      |
| 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       |                                                                                                                   |

 

2

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIALSTATEMENTS**

**COMPANY FOR WHICHREPORT IS FILED: PURCHASESOFT, INC. (THE “COMPANY”)**

 

 

**PURCHASESOFT, INC.**

**BALANCE SHEET(Unaudited)**

**August 31, 2003**

 
| **ASSETS**                                                                                             |   |        | ** ** |
|--------------------------------------------------------------------------------------------------------|--------|-------------|------------|
| Current Assets                                                                                         |   |        |       |
| Cash                                                                                                   |   | $           | 9,199      |   |
| Total current assets                                                                                   |   | 9,199       |       |
|                                                                                                   |   |        |       |
| Property and equipment, net of accumulated  depreciation of $337                                       |   | 926         |       |
|                                                                                                   |   |        |       |
| Goodwill                                                                                               |   | 150,803     |       |
|                                                                                                   |   |        |       |
| **TOTAL ASSETS**                                                                                       |   | $           | 160,928    |   |
|                                                                                                   |   |        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                          |   |        | ** ** |
| Current Liabilities                                                                                    |   |        |       |
| Accounts payable and accrued expenses                                                                  |   | $           | 18,648     |   |
| Deferred revenue                                                                                       |   | 10,814      |       |
| Short-term note payable                                                                                |   | 60,000      |       |
| Total current liabilities                                                                              |   | 89,462      |       |
|                                                                                                   |   |        |       |
| Stockholders’ Equity                                                                              |   |        |       |
| Common stock, $0.01 par value, 50,000,000  shares authorized, 33,287,267 shares issued and outstanding |   | 332,873     |       |
| Paid-in capital                                                                                        |   | 43,155,822  |       |
| Accumulated deficit                                                                                    |   | (43,328,197 | )          |
|                                                                                                   |   | 160,498     |       |
| Treasury stock (4,780 shares), at cost                                                                 |   | (89,032     | )          |
| Total stockholders’ equity                                                                        |   | 71,466      |       |
|                                                                                                   |   |        |       |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                    |   | $           | 160,928    |   |

 

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**PURCHASESOFT, INC.**

**STATEMENT OFOPERATIONS (Unaudited)**

**For three months ending August 31, 2003**

 
| Revenue                           |   |       |    |
|-----------------------------------|--------|------------|---------|
| Services                          |   | $          | 4,250   |   |
|                              |   |       |    |
| Costs and expenses                |   |       |    |
| Cost of service revenue           |   | 3,600      |    |
| Sales and marketing               |   | 264        |    |
| General and administrative        |   | 69,446     |    |
| Research and development          |   | 1,625      |    |
| Total costs and expenses          |   | 74,935     |    |
|                              |   |       |    |
| **Operating (loss)**              |   | (70,685    | )       |
|                              |   |       |    |
| Other expense                     |   |       |    |
| Interest expense                  |   | (450       | )       |
|                              |   | (450       | )       |
|                              |   |       |    |
| **Net (loss)**                    |   | $          | (71,135 | ) |
|                              |   |       |    |
| Loss per share-basic and diluted  |   | $          | (0.00   | ) |
|                              |   |       |    |
| Weighted average number of shares |   | 33,287,267 |    |

 

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**PURCHASESOFT, INC.**

**STATEMENT OF CASHFLOWS (Unaudited)**

**For threemonths ending August 31, 2003**

 
| Cash Flows from Operating Activities:                                          |   |    |    |
|--------------------------------------------------------------------------------|--------|---------|---------|
| Net (loss)                                                                     |   | $       | (71,135 | ) |
| Adjustments to reconcile net (loss) to net  cash used in operating activities: |   |    |    |
| Depreciation                                                                   |   | 126     |    |
| Increase (decrease) in:                                                        |   |    |    |
| Accounts payable and accrued expenses                                          |   | 6,520   |    |
| Deferred revenue                                                               |   | (4,250  | )       |
| **Net cash flow used in operating activities**                                 |   | (68,739 | )       |
|                                                                           |   |    |    |
| Cash Flows from Investing Activities:                                          |   | —  |    |
|                                                                           |   |    |    |
| Cash Flows from Financing Activities:                                          |   |    |    |
| Proceeds from issuance of notes payable                                        |   | 60,000  |    |
| **Net cash flow provided by financing  activities**                            |   | 60,000  |    |
|                                                                           |   |    |    |
| **Net (decrease) in cash**                                                     |   | (8,739  | )       |
|                                                                           |   |    |    |
| Cash balance at beginning of period                                            |   | 17,938  |    |
|                                                                           |   |    |    |
| **Cash balance at end of period**                                              |   | $       | 9,199   |   |

 

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**PURCHASESOFT, INC.**

**STATEMENT OF CHANGES OF NET LIABILITIES INLIQUIDATION (Unaudited)**

**For three months ending August 31, 2002**

 
| Net  (liabilities) in liquidation as of May 31, 2002        |   |   |   | $       | (207,780 | ) |
|------------------------------------------------------------------|--------|--------|--------|---------|----------|---|
|                                                             |   |   |   |    |     |
| Sources of Additional Cash:                                      |   |   |   |    |     |
| Vendor Refund                                                    |   |   |   | 653     |     |
|                                                             |   |   |   |    |     |
| Additional Use of Cash:                                          |   |   |   |    |     |
| Office costs                                                     |   | (207   | )      |    |     |
| Professional fees                                                |   | (6,769 | )      |    |     |
| Telephone and utilities                                          |   | (469   | )      |    |     |
| Other                                                            |   | (628   | )      | (8,073  | )        |
|                                                             |   |   |   |    |     |
| Adjustments of estimated values                                  |   |   |   | (64,066 | )        |
|                                                             |   |   |   |    |     |
| **Net (liabilities) in liquidation as of  August 31, 2002** |   |   |   | $       | (279,266 | ) |

 

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**NOTES TO UNAUDITEDINTERIM FINANCIAL STATEMENTS**

 

**NOTE1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Basis of Presentation OnDecember 21, 2001, the Board of Directors of the Company approved a planto wind down the operations of the Company, which includes salvaging the valueof its assets during the wind down.  Asa result of the adoption of the Plan and the imminent nature of theliquidation, the Company adopted the liquidation basis of accounting effectiveDecember 1, 2001. The liquidation basis of accounting requires the Companyto accrue an estimate for all liabilities related to expenses to be incurredduring the wind down period. Additionally, assets are stated at their estimatednet realizable value and liabilities are stated at their anticipated settlementamounts. The estimated net realizable value of assets represents management’sbest estimated of the recoverable value of the assets, net of selling expenses,and without consideration for the effect that the settlement of any litigationmay have on the value of the assets.

 

On November 8, 2002, the Board of Directorsapproved a plan for the restart of service and support to previous Company’scustomers and for the cessation of the wind down of operations. Under thisplan, the Company engaged certain subcontractors to provide management, salesand support through commissions and revenue sharing agreements.  With the first new revenue generated in thefourth quarter of fiscal year ended May 31, 2003, the Company changed itsaccounting method from liquidating basis to going concern basis effective onMarch 1, 2003.

 

Presentation of InterimInformation Thefinancial information at August 31, 2003 and for the three months then isunaudited but includes all adjustments (consisting only of normal recurringadjustments) that the Company considers necessary for a fair presentation ofthe financial information set forth herein, in accordance with accountingprinciples generally accepted in the United States of America (“U.S. GAAP”) forinterim financial information, and with the instructions to Form 10-QSB.Accordingly, such information does not include all of the information andfootnotes required by U.S. GAAP for annual financial statements. For furtherinformation refer to the Financial Statements and footnotes thereto included inthe Company’s Annual Report on Form 10-KSB for the year ended May 31,2003.

 

Theresults for the three months ended August 31, 2003 may not be indicativeof results for the year ending May 31, 2004 or any future periods.

 

Forthe prior year, the financial statements for the three months endedAugust 31, 2002 were prepared on the liquidation basis of accounting,which contemplates realization of assets at their net realizable value andsatisfaction of liabilities at their anticipated settlement amounts.

 

Goodwill TheCompany assesses goodwill for recoverability if the market capitalization ofthe Company is less than its net assets. The Company measures declines in valueof goodwill that are other than temporary using the market value method. The Companymeasures the market value based on the quoted market price of the Company thatis most representative of the fair value of the Company’s common stockmultiplied by the number of common shares outstanding.  The Company did not recognize any impairmentloss for goodwill in the reported period.

 

Loss Per Common Share The Company accounts for income (loss) pershare in accordance with SFAS No. 128, “Earnings Per Share.” SFAS No. 128requires that presentation of basic and diluted earnings per share for entitieswith complex capital structures. Basic earnings per share includes no dilutionand is computed by dividing net income (loss) available to common stockholdersby the weighted average number of common stock outstanding for the period.Diluted earnings per share reflect the potential dilution of securities thatcould share in the earnings of an entity. Diluted net loss per common sharedoes not differ from basic net loss per common share since potential shares ofcommon stock from the exercise of stock options and warrants are anti-dilutivefor all periods presented. Shares excluded from diluted loss per share totaled83,333 on August 31, 2003.

 

**NOTE2 – GOING CONCERN**

 

The Company’s financial statements have beenprepared on a going concern basis, which contemplates the realization of assetsand the settlement of liabilities and commitments in the normal course ofbusiness.  In the near term, the Companyexpects operating costs to continue to exceed funds generated fromoperations.  As a result, the Companyexpects to continue to incur operating losses and may not have enough money togrow its business in the future.  TheCompany can give no assurance that it will achieve profitability or be capableof sustaining profitable operations.  Asa result, operations in the near future are expected to continue to use workingcapital.

 

Management is currentlyinvolved in active negotiations to obtain additional financing and activelyincreasing marketing efforts to increase revenues. The Company continuedexistence depends on its ability to meet its financing requirements and the

 

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successof its future operations. The financial statements do not include anyadjustments that might result from the outcome of this uncertainty.

 

**NOTE3 – SHORT-TERM NOTE PAYABLE**

 

OnJuly 14, 2003, the Company issued a note payable of $60,000 to raiseoperating capital.  The note carriesinterest at 6% per annum and is due and payable within 150 days. In addition,the Company granted the creditor stock warrants to purchase up to 175,000shares at an exercise price of $0.01 per share commencing August 1, 2003.These warrants expire on December 31, 2003.

 

**NOTE4 – NET LOSS PER SHARE**

 

The following table setsforth the computation of basic and diluted net loss per share:

 
|                                 |   | **Three  Months  ended  August 31, 2003** |    |
|--------------------------------------|--------|------------------------------------------------|---------|
| Numerator:                           |   |                                           |    |
| Net (Loss)                           |   | $                                              | (71,135 | ) |
|                                 |   |                                           |    |
| Denominator:                         |   |                                           |    |
| Weighted Average of Common Shares    |   | 33,287,267                                     |    |
|                                 |   |                                           |    |
| Net Loss per Share-basic and diluted |   | $                                              | (0.00   | ) |

 

**NOTE5 – SEGMENT INFORMATION**

 

TheCompany is currently managed and operated as one business. The entire businessis managed by a single management team that reports to the Company’s President.The Company does not operate separate lines of business or separate business entitieswith respect to any of its product candidates. Accordingly, the Company doesnot prepare discrete financial information with respect to separate productareas or by location and dose not have separately reportable segments asdefined by SFAS No. 131 “Disclosures about Segments of an Enterprise andRelated Information”.

 

**NOTE6 - GUARANTEES**

 

TheCompany from time to time enters into certain types of contracts thatcontingently require the Company to indemnify parties against third partyclaims. These contracts primarily relate to certain agreements with theCompany’s officers, directors and employees, under which the Company may berequired to indemnify such persons for liabilities arising out of theiremployment relationship.

 

Theterms of such obligations vary. Generally, a maximum obligation is notexplicitly stated. Because the obligated amounts of these types of agreementsoften are not explicitly stated, the overall maximum amount of the obligationscannot be reasonably estimated. Historically, the Company has not beenobligated to make significant payments for these obligations, and noliabilities have been recorded for these obligations on its balance sheets asof August 31, 2003.

 

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**ITEM 2: MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

 

The following discussion of ourfinancial condition and results of operations should be read in conjunctionwith our financial statements and attached notes and the other financialinformation included elsewhere in this report. This Management’s Discussion andAnalysis of Financial Condition and Results of Operations section containsdescriptions of our expectations regarding future trends affecting ourbusiness. These forward-looking statements and other forward-looking statementsmade elsewhere in this document are made in reliance upon the safe harborprovisions of the Private Securities Litigation Reform Act of 1995. Thediscussion below and under the heading “Risk Factors” sets forth numerous factorswe believe could cause actual results to differ materially from thosecontemplated by the forward-looking statements. We are not under any obligationto update the information contained in this section.

 

**Overview**

 

InJuly 2003 the Company successfully settled the last of the remainingliabilities that had been incurred prior to and during the wind downperiod.  Management has been completely successful in discharging thoseliabilities, preserving the intellectual property and public filing status ofthe Company for the future benefit of all its existing shareholders.  Witha clean and newly restated balance sheet at May 31, 2003, the Company cannow focus on the future and the task of rebuilding shareholder value.

 

Therewere several significant events that occurred during the first quarter offiscal year ending May 31, 2003 that render a year over year comparativediscussion of operating results and the Company’s financial conditionproblematic and essentially useless.

 

1.               On August 5th, 2002 theCompany announced a change in control in that L-R Global sold its 82% interestto Steven Flagg and Tom Marsh.  TheCompany had been put into wind down status by L-R Global.

 

2.               In the Company’s 10-QSB for the period endingFebruary 28,2003, the Company announced that it would be resumingoperations and will begin reporting as a going concern effective March 1st,2003.

 

Asa result of this decision, the first quarter of the fiscal year endingMay 31, 2003 was reported using a liquidation method of accounting. While the Company has resumed operations and reporting as a going concern withthe results of the fourth quarter of the year ending May 31, 2003, thechange in control accounting adjustments, the liquidation of all previousassets, liabilities, employees and locations, and the change in businessstrategy make all comparative analysis with previous years operating financialperiods irrelevant.

 

**CurrentOperating Results, Liquidity and Capital Resources**

 

Revenue.  Forthe first quarter ending August 31, 2003 revenue increased to $4,250 from$3,186 in the previous quarter.  Theincrease was due to the results of a full quarter of maintenance contractrevenue from customers signed in the previous quarter.  New software declined as the Company did notsell any additional upgrades in the quarter. With the completion of the new release of PurchaseSoft 9.0, the Companyexpects revenue to increase from the sale of upgrades and new customers. The Company expects to upgrade and sign maintenance contracts with a majority ofthe customers still using the PurchaseSoft 5.0 product once the 9.0 upgrade isavailable.

 

OperatingExpenses.  Operating Expenses for the quarter were$74,935 vs. $14,172 in the previous quarter. The increase was due to the legal, travel and consulting expense relatedto the Company’s acquisition program. Accounting and SEC filing and compliance costs also were higher as aresult of the 10-KSB filing in August. The Company expects these expenses to remain the same over the next fewquarters as a result of costs related to product development, marketing andsales expense for the 9.0 re-launch, and a full-time acquisition search. The Company does not expect to be profitable or cash flow positive during thefirst three quarters of the year ending May 31, 2004.

 

Liquidity.  TheCompany’s cash balance and working capital was $9,199 at August 31, 2003compared to $17,182 at May 31, 2003. The Company raised $60,000 during the quarter.  The Company plans to finance the projected expenses associatedwith the acquisition search with $250,000 in bridge loans with attachedwarrants from private investors.  Aprivate placement is planned to provide working capital in the event theCompany is successful in the acquisition of one or more businesses.

 

**Certain BusinessRisks**

 

Stockholders and prospectivepurchasers of our common stock should carefully consider the following riskfactors in addition to the other information appearing in this Quarterly Reporton Form 10-QSB.

 

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Historyof Losses and Accumulated Deficit; Uncertainty of Future Profitability.

 

TheCompany has experienced ongoing losses from operations.  The Company onlyresumed operations as a going concern in March 2003.  The Companyexpects that such losses may continue for at least some period until productsales may be generated in sufficient volume to offset expenses.  TheCompany does not expect to be profitable unless and until such time as sales ofits software products and services generate sufficient revenue to fund itsoperations.

 

Uncertaintyof Market Acceptance of PurchaseSoft Software.

 

TheCompany cannot offer any assurance that its PurchaseSoft products and/or theproducts of any acquired business will achieve and sustain marketacceptance.  The Company believes that its history of financialperformance has negatively affected its image in the marketplace and that itmay have forfeited business from potential customers who expressed concernsabout the Company’s financial status and ability to remain solvent.  The Company believes that the ownership and management changes in PurchaseSoftwill help position the Company to overcome these past objections.  TheCompany believes its largest challenge is to gain wide spread market acceptanceof its products.  The failure to obtain market acceptance would have amaterial adverse affect on the Company’s business.

 

NewManagement, Ability to Recruit Sales, Service, and Implementation Personnel.

 

TheCompany’s management has a very limited history in operating the Companyalthough they are experienced in managing companies with similar challengessimilar.  There can be no assurance that the Company’s management will besuccessful in meeting their planned objectives.  The ability to achieveanticipated revenues is substantially dependent on the ability of the Companyto attract on a timely basis and retain skilled personnel, especially keymanagement, sales, support, and development personnel.  The Companybelieves that its future success will depend in large part on its ability toattract and retain highly skilled technical, managerial, marketing, andprofessional services personnel to ensure the high quality of products andservices provided to its customers.  The Company competes in the marketfor such personnel against numerous companies, including larger, moreestablished companies with significantly greater financial resources than theCompany.  There can be no assurance that the Company will be successful inattracting and retaining skilled personnel.  The Company’s inability toattract and retain qualified employees would have a material adverse effect onthe Company’s business.

 

IntenseCompetition.

 

Thesoftware products industry is intensely competitive.  The Company facescompetition from several sources ranging from large ERP vendors, medium sizedERP vendors, industry specific vendors and best-of-breed vendors. Thesebest-of-breed competitors have focused on certain market segments.  Thesecompetitors all offer software products performing functions similar to theCompany’s products.  The market space in which the Company competes isexperiencing tremendous growth and this will invite new competitors. There can be no assurance that competitors do not have or will not offer ordevelop products that are superior to the Company’s products or that achievegreater market acceptance.  In addition, suppliers of database systems andcompanies that develop management information software applications for largemultinational manufacturers have begun to target the Company’s potentialcustomers and offer applications that compete in its markets.  As aresult, competition (including pricing competition) may increase, which couldresult in price reductions and loss of market share.  The Company may alsoface market resistance from potential customers within the large installed baseof legacy systems, who may be reluctant to commit the time and resourcesnecessary to convert to a web services, client-server or browser-based softwareproduct.  As the client-server and/or browser-based computing marketexpands, a large number of companies, many with significantly greater resourcesthan the Company, may enter the market or increase their market share byacquiring or entering into alliances with competitors of the Company. There can be no assurance that the Company will be able to compete successfullyagainst its competitors or that the competitive pressures faced by the Companywill not adversely affect its financial performance.

 

RapidTechnological Change and New Products.

 

The market for the Company’ssoftware products is characterized by rapid technological advances, evolvingindustry standards, change in end-user requirements, and frequent new productintroductions and enhancements.  The introduction of products embodyingnew technologies and the emergence of new industry standards could render theCompany’s existing products and products currently under development asobsolete and unmarketable.  Accordingly, the Company’s future success willdepend upon its ability to enhance its current products and develop andintroduce new products that keep pace with technological developments, satisfyvarying end-user requirements, and achieve market acceptance.  Any failureby the Company to anticipate or respond adequately to technologicaldevelopments or end-user requirements, or any significant delays in productdevelopment or introduction, could severely damage the Company’s competitiveposition and have a material adverse effect on revenues.  There can be noassurance that the Company will be successful in developing and marketing newproducts or product enhancements on a timely basis or that the Company will notexperience significant delays in the future which could have a material adverseeffect on the Company’s results of operations.  In

 

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addition, there can be noassurance that new products or product enhancements developed by the Companywill achieve market acceptance.

 

Dependenceon a Single Product-Line.

 

Substantiallyall of the Company’s revenues are expected to be derived from the sale ofsoftware products and related support services.  Accordingly, any eventthat adversely affects revenue generated from the sale of software or from theprofessional fees derived from the installation of such products, such ascompetition from other products, significant flaws in the products, orincompatibility with third party hardware or software products, negativepublicity or evaluation, or obsolescence of the hardware platforms or softwareenvironments in which the products run, could have a material adverse effect onthe Company’s results of operations.  The Company’s future financialperformance will depend on the continued development and introduction of newand enhanced versions of its software and other products and on customeracceptance of such new enhanced products.

 

Fluctuationin Quarterly Operating Results.

 

TheCompany’s revenues and operating results can vary substantially from quarter toquarter.  Sales revenues in any quarter are substantially dependent onaggregate contracting activity and the Company’s ability to recognize revenuein that quarter in accordance with its revenue recognition policies andgenerally accepted accounting principles.  Revenues may vary from quarterto quarter due to variances in prior quarter contracting activity, which maypositively or adversely affect the Company’s future financialperformance.  The Company’s sales cycle is relatively long andvariable.  The Company’s ability to increase revenue is dependent on itsability to grow sales activity which provides opportunities for consulting,training and subsequent maintenance revenues.  Additionally the Companymay not be able to recruit, hire, and train sufficient numbers of qualified consultantsto perform such services.  Due to the forgoing, it is likely that in oneor more future quarters the Company’s operating results will be below theexpectations of public securities market analysts.  In such event, theprice of the Company’s Common Stock would likely be materially adverselyaffected.

 

IntellectualProperty and Proprietary Rights.

 

TheCompany relies on a combination of copyright, trademark and trade secret laws,employee and third party nondisclosure agreements, and other industry standardmethods for protecting ownership of its proprietary software and businesspractices.  There can be no assurance, however, that in spite of theseprecautions, an unauthorized third party will not copy or reverse-engineercertain portions of the Company’s products or obtain and use information thatthe Company regards as proprietary.  In addition, the laws of some foreigncountries do not protect the Company’s proprietary rights to the same extent asdo the laws of the United States.  There can be no assurance that themechanisms used by the Company to protect its software will be adequate or thatthe Company’s competition will not independently develop software products thatare substantially equivalent or superior to the Company’s software products. The Company expects that, as the number of software products in the industryincreases and the functionality of these products further overlaps, softwareproducts will increasingly be subject to claims of infringement on third partyproprietary rights.  Any such claim, whether with or without merit, couldresult in costly litigation and require the Company to enter into royalty orlicensing arrangements.  Such royalty or license arrangements, ifrequired, may not be available on terms acceptable to the Company or at all.

 

Needfor Additional Capital

 

TheCompany will need to raise additional capital to finance its development andacquisition plans.  The availability of financing for any plan will becritical to continue operations.  Financing may not be available on termsthat are favorable to us, or at all.

 

FutureSales of Common Stock

 

Ourcommon stock is traded on the National Association of Securities DealersOTC:Pink Sheets.  Our common stock has historically been highlyilliquid.  Steven A. Flagg and Thomas B. Marsh, who serve on our Board ofDirectors, one of whom is President, in the aggregate owned approximately 69.2%of our common stock as of October 10th, 2003.  If either of thesedirectors were to sell even a small portion of their total shares in a shorttime, the market price of our common stock would likely declinedramatically.  Further, sales of a substantial number of shares of ourcommon stock by any holder in a short time would likely cause the market priceof our common stock to decrease significantly.  In addition, the sale ofany of these shares may impair our future ability to raise capital through thesale of additional stock.

 

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Inabilityto Influence the Outcome of Key Transactions 

 

Thetwo directors of the Company, one of whom is our President, in the aggregateowned approximately 69.2% of our common stock as of October 10,2003.  These two directors have enough voting power to approve ordisapprove any matters that are determined by a majority vote of ourstockholders, which severely limits your ability to influence PurchaseSoftthrough voting your shares.

 

Maintenanceof a Public Trading Market for Shares of Our Common Stock

 

Althoughshares of our common stock are presently quoted on the OTC Pink Sheets, wecannot assure you that they will continue to be quoted in the future. During the period of the Company’s wind down the Company lost its market makersand has declined to establish new market makers until full and substantial operationsare underway through product sales or an acquisition.  Furthermore, incontrast to stock that is quoted on the NASDAQ National Market or traded on anational securities exchange, as a result of our stock being quoted on the OTCPink Sheets, stockholders may:

 

•                  Findit more difficult to obtain accurate and timely quotations regarding the bidand asked prices;

•                  Experiencegreater spreads between bid and asked prices;

•                  Becharged relatively higher transactional costs when buying or selling our commonstock; and

•                  Encountermore difficulty in effecting sales or purchases of common stock.

 

Costof Compliance with Securities Laws

 

Whilesecurities listed on the NASDAQ National Market System or national securitiesexchanges are in many cases exempt from the registration requirements of statesecurities laws, securities traded on the OTC Pink Sheets must comply with theregistration requirements of state securities laws, which increases the timeand costs associated with complying with state securities laws when raisingcapital.  We cannot assure that this cost of compliance will not have amaterial adverse effect on the viability of the Company.

 

LiquidityReduction due to “Penny Stock” Regulatory Requirements

 

TheSecurities and Exchange Commission has adopted regulations imposing limitationsupon the manner in which certain low priced securities, referred to as a “pennystock,” are publicly traded.  Under these regulations, a penny stock isdefined as any equity security that has a market price of less than $5.00 pershare, subject to specified exceptions.  Unless an exception is available,the regulations require the delivery, prior to any transaction involving apenny stock, of a disclosure schedule explaining the penny stock marketand the risks associated with it.  Also, under these regulations, somebroker-dealers who recommend these types of securities to persons other thanestablished customers and “accredited investors” must make a special writtensuitability determination for the purchaser and receive the purchaser’s writtenagreement to a transaction prior to sale.  Trading activities for pennystocks are more difficult for broker-dealers than in the case of securities notdefined as penny stocks. Because our common stock may be a penny stock this mayhave the result of depressing the market for our securities, and a stockholdermay find it difficult to sell shares of our common stock.

 

**ITEM 3:  CONTROLS AND PROCEDURES**

 

Withinthe 90 days prior to the filing of this report, we carried out an evaluation,under the supervision and with the participation of our President andSecretary/Treasurer, of the effectiveness of the design and operation of ourdisclosure controls and procedures. Our disclosure controls and procedures aredesigned with the objective of ensuring that information required to bedisclosed in our reports filed under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms. Based on this evaluation, our President andSecretary/Treasurer concluded that our disclosure controls and procedures areeffective in timely alerting them to material information required to beincluded in our periodic SEC reports.

 

Therehave been no significant changes in our internal controls or in other factorswhich could significantly affect internal controls subsequent to the date ofour most recent evaluation.

 

12

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**PART II: OTHERINFORMATION**

 

**ITEM 1: LEGAL PROCEEDINGS.**

 

**None.**

 

**ITEM 6: EXHIBITS ANDREPORTS ON FORM 8-K**

 
|   | (a)    | Exhibits                 |                                                               |
|--------|--------|--------------------------|--------------------------------------------------------------------|
|   |   |                     |                                                               |
|   | 1.     | 10.25                    | Note Payable – Brian Tauber                                   |
|   |   |                     |                                                               |
|   | 2.     | 10.26                    | Warrant- Brian Tauber                                              |
|   |   |                     |                                                               |
|   | 3.     | 31.1                     | Certifications  of the President & CEO                         |
|   |   |                     |                                                               |
|   | 4.     | 31.2                     | Certifications  of the Secretary/Treasurer & CFO               |
|   |   |                     |                                                               |
|   | 5.     | 32.1                     | Written  statement of the CEO pursuant to 18 SSC Section 1350 |
|   |   |                     |                                                               |
|   | 6.     | 32.2                     | Written  statement of the CFO pursuant to 18 SSC Section 1350 |
|   |   |                     |                                                               |
|   | (b)    | Reports on Form 8-K |
|   |   |                     |                                                               |
|   | 1.     |                     | None.                                                              |

 

13

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**SIGNATURES**

 

Inaccordance with Section 13 or 15(d) of the Exchange Act, the Issuer causedthis report to be signed on its behalf by the undersigned, thereunto to be dulyauthorized.

 
|                         | PurchaseSoft,  Inc.                  |
|------------------------------|--------------------------------------|
|                         | (Issuer)                             |
|                         |                                 |
| Date:  October 14, 2003 | /s/  Steven A. Flagg                 |   |
|                         |                                 |
|                         | Steven  A. Flagg                     |
|                         | President  and Acting CEO            |
|                         |                                 |
| Date:  October 14, 2003 | /s/  Thomas B. Marsh                 |   |
|                         |                                 |
|                         | Thomas  B. Marsh                     |
|                         | Secretary,  Treasurer and Acting CFO |

 

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and onOctober 14, 2003.

 
| **Signature**        |   | **Title** |
|----------------------|--------|-----------|
|                 |   |      |
| /s/  Steven A. Flagg |   |      | Director |
| Steven  A. Flagg     |   |      |
|                 |   |      |
| /s/  Thomas B. Marsh |   |      | Director |
| Thomas  B. Marsh     |   |      |

 

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