**UNITED STATES**

**SECURITIES 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 February 28, 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 THE NUMBEROF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON EQUITY, AS OFTHE LATEST PRACTICABLE DATE.**

** **

| **Class**                               |   | **Outstanding at April 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 February 28, 2003                                                                                                                                                                                                              |
|             | Statement of Changes in Net Liabilities in  Liquidation  For the period from June 1, 2002 to February 28, 2003  And for the period from December 1, 2002 to February 28, 2003  And for the prior period from December 1, 2001 to February 28, 2002 |
|             | Statement of Operations  For the period from June 1, 2001 to November 30, 2001                                                                                                                                                                     |
|             | Statement of Cash Flows  For the period from June 1, 2001 to November 30, 2001                                                                                                                                                                     |
|             | 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)**

 
|                                 |   | **February 28, 2003** |    |
|--------------------------------------|--------|-----------------------|---------|
| **ASSETS**                           |   |                  |    |
| Cash and cash equivalents            |   | $                     | 8,996   |   |
|                                 |   |                  |    |
| **LIABILITIES**                      |   |                  |    |
| Accounts payable                     |   | 49,461                |    |
| Accrued expenses                     |   | 24,250                |    |
|                                 |   | 73,711                |    |
|                                 |   |                  |    |
| **NET (LIABILITIES) IN LIQUIDATION** |   | $                     | (64,715 | ) |

 

3

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**PURCHASESOFT, INC.**

**STATEMENT OF CHANGESIN NET LIABILITIES IN LIQUIDATION (Unaudited)**

 
|                                                    |   |                   |   |                                     |     |
|---------------------------------------------------------|--------|------------------------|--------|------------------------------------------|----------|
|                                                    |   | **Three Months ended** |   | **Nine Months ended  February 28, 2003** |     |
| **February 28, 2003**                                   |   | **February 28, 2002**  |
| Net (liabilities) in liquidation at beginning of period |   |                   |   | $                                        | (265,993 | ) |   |   | $ | (1,716,264 | ) |   |   | $ | (207,780 | ) |
|                                                    |   |                   |   |                                     |     |   |   |   |   |   |   |   |   |
| Sources of Additional Cash:                             |   |                   |   |                                     |     |   |   |   |   |   |   |   |   |
| Vendor refund                                           |   | —                 |   |                                     |     | — |   |   |   | 21,370 |   |   |   |
| Interest income                                         |   | —                 |   |                                     |     | 6,884 |   |   |   | — |   |   |   |
| Sales of property and equipment                         |   | —                 |   | —                                   |     | 40,863 |   | 47,747 |   | — |   | 21,370 |   |
|                                                    |   |                   |   |                                     |     |   |   |   |   |   |   |   |   |
| Additional Use of Cash:                                 |   |                   |   |                                     |     |   |   |   |   |   |   |   |   |
| Office costs                                            |   | (2,009                 | )      |                                     |     | (154,001 | ) |   |   | (8,938 | ) |   |   |
| Professional fees                                       |   | (8,879                 | )      |                                     |     | (67,634 | ) |   |   | (18,370 | ) |   |   |
| Salaries and Payroll Taxes                              |   | —                 |   |                                     |     | (613,359 | ) |   |   | — |   |   |   |
| Telephone and utilities                                 |   | —                 |   |                                     |     | (11,289 | ) |   |   | (469 | ) |   |   |
| Other                                                   |   | (6,958                 | )      | (17,846                                  | )        | (391,860 | ) | (1,238,143 | ) | (7,586 | ) | (35,363 | ) |
|                                                    |   |                   |   |                                     |     |   |   |   |   |   |   |   |   |
| Adjustments of estimated values                         |   |                   |   | 219,124                                  |     |   |   | 1,859,846 |   |   |   | 157,058 |   |
|                                                    |   |                   |   |                                     |     |   |   |   |   |   |   |   |   |
| **Net (liabilities) in liquidation at end of period**   |   |                   |   | $                                        | (64,715  | ) |   |   | $ | (1,046,814 | ) |   |   | $ | (64,715 | ) |

 

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**PURCHASESOFT, INC.**

**STATEMENT OFOPERATIONS (GOING CONCERN BASIS, Unaudited)**

 

 
|                              |   | **For the Six Months Ending  November 30, 2001** |       |
|-----------------------------------|--------|--------------------------------------------------|------------|
| Revenue                           |   |                                             |       |
| Services                          |   | $                                                | 199,035    |   |
|                              |   |                                             |       |
| Costs and expenses                |   |                                             |       |
| Cost of service revenue           |   | 595,501                                          |       |
| Cost of product revenue           |   | 14,000                                           |       |
| Sales and marketing               |   | 2,139,847                                        |       |
| General and administrative        |   | 1,080,389                                        |       |
| Research and development          |   | 2,696,611                                        |       |
| Total costs and expenses          |   | 6,526,348                                        |       |
|                              |   |                                             |       |
| **Operating (loss)**              |   | (6,327,313                                       | )          |
|                              |   |                                             |       |
| Other Income(expense):            |   |                                             |       |
| Interest income                   |   | 46,082                                           |       |
| Interest expense                  |   | (24,381                                          | )          |
|                              |   | 21,701                                           |       |
|                              |   |                                             |       |
| **Net (loss)**                    |   | $                                                | (6,305,612 | ) |
|                              |   |                                             |       |
| Loss per share-basic and diluted  |   | $                                                | (0.21      | ) |
|                              |   |                                             |       |
| Weighted average number of shares |   | 29,573,994                                       |       |

 

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**PURCHASESOFT, INC.**

**STATEMENT OF CASHFLOWS (GOING CONCERN BASIS, Unaudited)**

 

 
|                                                                             |   | **For the Six Month Period Ending   November 30, 2001** |       |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------|------------|
| Cash Flows from Operating  Activities                                            |   |                                                    |       |
| Net (loss)                                                                       |   | $                                                       | (6,305,612 | ) |
| Adjustments to reconcile net  (loss) to net cash (used by) operating activities: |   |                                                    |       |
| Depreciation and amortization                                                    |   | 137,492                                                 |       |
| Provision for bad debt                                                           |   | 3,981                                                   |       |
| Loss on asset disposition                                                        |   | 34,552                                                  |       |
| Options granted for services                                                     |   | 168,054                                                 |       |
| Decrease in:                                                                     |   |                                                    |       |
| Accounts receivable                                                              |   | 100,877                                                 |       |
| Prepaid expenses and other  assets                                               |   | 94,419                                                  |       |
| Increase (decrease) in:                                                          |   |                                                    |       |
| Accounts payable and accrued  expenses                                           |   | (129,180                                                | )          |
| Deferred revenue                                                                 |   | 39,738                                                  |       |
| **Net cash  flow (used by) operating activities**                                |   | (5,855,679                                              | )          |
|                                                                             |   |                                                    |       |
| Cash Flows from Investing  Activities                                            |   |                                                    |       |
| Purchase of property and  Equipment                                              |   | (202,514                                                | )          |
| Increase in security deposits                                                    |   | (268                                                    | )          |
| **Net cash  flow (used by) investing activities**                                |   | (202,782                                                | )          |
|                                                                             |   |                                                    |       |
| Cash Flows from Financing  Activities                                            |   |                                                    |       |
| Proceeds from exercise of  options/warrants                                      |   | 4,215                                                   |       |
| Proceeds from issuance of  notes payable                                         |   | 2,000,000                                               |       |
| Proceeds from issuance of  common stock in rights offering                       |   | 3,357,472                                               |       |
| (Payments) of capital leases                                                     |   | (56,839                                                 | )          |
| **Net cash  flow provided by financing activities**                              |   | 5,304,848                                               |       |
|                                                                             |   |                                                    |       |
| **Net  (decrease) in cash and cash equivalents**                                 |   | (753,613                                                | )          |
|                                                                             |   |                                                    |       |
| Cash and cash equivalents at  beginning of period                                |   | 2,358,688                                               |       |
|                                                                             |   |                                                    |       |
| **Cash and  cash equivalents at end of period**                                  |   | $                                                       | 1,605,075  |   |
|                                                                             |   |                                                    |       |
| Supplemental disclosure of  cash flow information:                               |   |                                                    |       |
| Cash paid for interest                                                           |   | $                                                       | 24,381     |   |

 

6

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**NOTE 1****–SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

Basisof Presentation On December 21, 2001, the Board of Directors of the Companyapproved a plan to wind down the operations of the Company, which includessalvaging the value of its assets during the wind down (the “Plan”). The keyobjectives of the Plan are (1) to conserve the assets of the Company in orderto extend operations pending a sale; (2) to maximize the value of the Company’sassets in any sale to third party; and (3) to maintain the value in publicshell if possible.

 

As aresult of the adoption of the Plan and the imminent nature of the liquidation,the Company adopted the liquidation basis of accounting effective December 1,2001. The liquidation basis of accounting requires the Company to accrue anestimate for all liabilities related to expenses to be incurred during the winddown period. Additionally, assets are stated at their estimated net realizablevalue and liabilities are stated at their anticipated settlement amounts. Theestimated net realizable value of assets represents management’s best estimatedof the recoverable value of the assets, net of selling expenses, and withoutconsideration for the effect that the settlement of any litigation may have onthe value of the assets.

 

Presentation of Interim Information Thefinancial statements included herein have been prepared by the Company withoutaudit; however in the opinion of the management of the Company, all normaladjustments for the fair presentation of such financial information on aliquidation basis for the three and nine month periods ended February 28, 2003and for the three month period ended February 28, 2002, and on a going concernbasis for the six month period ended November 30, 2001, have beenincluded.  The results for the three andnine month periods ended February 28, 2003 may not be indicative of results forthe year ending May 31, 2003.

 

The financialstatements for the six months ended November 30, 2001 were prepared on thegoing concern basis of accounting, which contemplates realization of assets andsatisfaction of liabilities in the normal course of business.

 

The financial statements and notes arepresented as permitted by Form 10-QSB, and do not contain certain informationincluded in the Company’s audited financial statements and notes for the fiscalyear ended May 31, 2002.

 

Loss Per Common Share The Company accounts forincome (loss) per share in accordance with SFAS No. 128, “Earnings Per Share.”SFAS No. 128 requires that presentation of basic and diluted earnings per sharefor entities with complex capital structures. Basic earnings per share includesno dilution and is computed by dividing net income (loss) available to commonstockholders by the weighted average number of common stock outstanding for theperiod. Diluted earnings per share reflect the potential dilution of securitiesthat could share in the earnings of an entity. Diluted net loss per commonshare does not differ from basic net loss per common share since potentialshares of common stock from the exercise of stock options and warrants areanti-dilutive for all periods presented. Shares excluded from diluted loss pershare totaled 3,896,300 on November 30, 2001.

 

**NOTE2-ADJUSTMENTS OF ESTIMATED VALUES**

 

Effective with the decision to liquidate,the carrying amounts of assets and liabilities were adjusted from theirhistorical bases to the amounts of cash expected from their realization andsettlement. Because of the expected short liquidation period, the effects ofdiscounting would not be significant and have been ignored. The initialadjustment increased net liabilities by $3,705,699 from net asset of $1,989,435to net liabilities of $1,716,264, as follows:

 

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|                             |   | **Historical  Basis** |      | **Liquidation  Value** |   |
|----------------------------------|--------|-----------------------|-----------|------------------------|--------|
| Cash                             |   | $                     | 1,605,075 |                   | $      | 1,605,075 |   |
| Customer accounts                |   | 14,969                |      | —                 |   |
| Prepaid expense and other assets |   | 397,648               |      | 335,861                |   |
| Property and equipment           |   | 1,092,830             |      | 160,000                |   |
| Unsecured vendor accounts        |   | (297,424              | )         | (352,616               | )      |
| Capital lease obligations        |   | (166,599              | )         | (166,599               | )      |
| Accrued expenses                 |   | (582,514              | )         | (3,297,985             | )      |
| Deferred revenue                 |   | (74,550               | )         | —                 |   |
|                             |   |                  |      |                   |   |
|                             |   | $                     | 1,989,435 |                   | $      | (1,716,264 | ) |

 

It is at least reasonably possible that theamounts expected to be realized in the liquidation process will change in thenear future.  Adjustments totaling$157,058, for the nine months ended February 28, 2003 principally relate to thefollowing:

 

Accounts Payable. The Company settled two vendor accounts and wrote off $20,934 during thereported period.

 

Estimated costs to be incurred during theliquidation period.  At February 28, 2003,the Company estimates that the remaining costs to be incurred during theliquidation period reduce from $35,000 to $22,750; including professional feesof $3,250, office costs of $4,500 and insurance cost of $15,000.

 

Estimated Litigation Settlement Costs Reserve.  In January 2003, the Company reached an agreementto settle a threatened lawsuit disclosed in Note 4 for $6,000 and wrote downthe reserve by $84,000 during the reported period.

 

**NOTE3-OBLIGATIONS UNDER OPERATING LEASES**

 

The Company historically leased office spacein New Jersey under a non-cancelable operating lease agreement, which expireson July 31, 2005.  The Company currentlydoes not occupy the office and has been negotiating to terminate the lease. OnMarch 12, 2003, the Company and the landlord reached a mutual release agreementto terminate the lease. The Company wrote off the accrued future minimum leasepayments of $122,374 in the reported quarter.

 

**NOTE4-SETTLEMENT**

 

On October 17, 2002, a former financialadvisor of the Company threatened suit against the Company alleging the Companyfiled to pay the advisor the monthly preliminary advisory fee owed to theadvisor pursuant to the terms of the parties’ March 1, 2001 engagementagreement as amended. The threatened lawsuit sought a total payment of$210,000; a $90,000 minimum advisory fee plus $120,000 preliminary advisory feeat $10,000 per month for twelve months beginning October 2001 to October 2002.Management, after consultation with the legal counsel, believed that therealistic claim amount should have been $90,000. The Company increased thelitigation settlement reserve to $90,000 at August 31, 2002.  In January 2003, the Company and the advisorreached a settlement agreement providing that the Company paid $6,000 in cashand transferred an intellectual property right in the Company’s future V4product specification which was developed by Tata Infotech Ltd.  The advisor agreed to pay the Company aroyalty equal to 3% of the net license fees received by the advisor arisingfrom licensing of the product for a period of 36 months.

 

**NOTE 5 – PLAN FOR THE RESTART OF OPERATIONS**

 

On November 8th, 2002, the Board of Directorsapproved a plan for the restart of service and support to Company’s customersand for the cessation of the wind down of operations. Under this plan, theCompany will engage certain subcontractors to provide sales and support throughcommissions and revenue sharing agreements. The Company has executed a contractwith a former employee to provide support, contingent on the first executedcustomer agreement. On April 9th, 2003, the Company secured its first contractunder this plan with Chase Manhattan Bank and consequently will change thebasis of its accounting in the quarter ending May 31, 2003 to that of a goingconcern.

 

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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 financial informationincluded elsewhere in this report. This Management’s Discussion and Analysis ofFinancial Condition and Results of Operations section contains descriptions ofour expectations regarding future trends affecting our business. Theseforward-looking statements and other forward-looking statements made elsewherein this document are made in reliance upon the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995. The discussion below andunder the heading “Risk Factors” sets forth numerous factors we believe couldcause actual results to differ materially from those contemplated by theforward-looking statements. We are not under any obligation to update theinformation contained in this section.

 

**Overview**

 

On December 21, 2001, weannounced our decision to pursue an orderly wind down and cessation of ourbusiness operations. The Board of Directors and management engaged in aconcerted effort to explore various strategic alternatives for the future ofthe Company, including its sale, prior to making the decision to begin theorderly wind down. These efforts did not result in the identification of aparty that was prepared to provide capital or acquire the Company. The Board ofDirectors therefore concluded that the orderly wind down of the Company was themost prudent course of action.

 

The key objectives of the winddown plan were (1) to conserve the assets of the Company in order toextend operations pending a sale; (2) to maximize the value of theCompany’s assets in any sale to third party; and (3) to maintain the valuein public shell if possible.

 

We have net liabilities inliquidation and do not expect to have any cash that could be returned tostockholders. We have sold or disposed of all of our fixed and other tangibleassets. We have recognized no revenue following the announcement to begin theorderly wind down. We may not be able to negotiate a settlement of all of theCompany’s obligations to its creditors. These include one remaining tradepayable with a telecom vendor.

 

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

 

On August 5th,2002, Steven Flagg and Thomas Marsh were elected as Directors and all of theprevious members of the Board resigned as directors and officers of theCompany. Immediately subsequent to the meeting, a second Board Meeting wasconvened, at such time Steven Flagg was appointed Chairman and President, andThomas Marsh was appointed Secretary and Treasurer. As of April 10th,2003, we had no employees and no office space. Administration of the wind down effort and all of the Company’s recordshad been transferred to the offices of Steven Flagg and Thomas Marsh in La JollaCalifornia.

 

On November 8, 2002 theCompany filed a report on Form 8-K announcing that on November 8th,2002, the Board of Directors had approved a plan to attempt to restart serviceto former PurchaseSoft customers, which if successful, would take the Companyout of wind down status. President Steven Flagg presented an assessment studyfor the restart of service to existing PurchaseSoft customers that wasrequested by the Company in August. Louis Blatt and David Billings completed acustomer survey and evaluation of the Company’s product. They reported that anumber of customers indicated an interest in signing agreements for maintenanceshould the Company restart operations.

 

The assessment was accompaniedby a plan to restart service and support for previous customers of PurchaseSoftwho are currently without maintenance. Under this plan, the Company would signagreements with certain former PurchaseSoft employees to provide management,sales and support. These firms would be compensated through subcontracting,commission and revenue sharing agreements, and in some cases the issuance ofPurchaseSoft common stock, NSO’s or warrants.

 

In reaching the decision torestart support operations, the Company has made a commitment to take everyaction possible to continue support for its customers. This new objective isconsistent with the previously stated key objectives of

 

9

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the Company. Those keyobjectives are (1) to conserve the assets of the Company in order toextend operations pending a sale; (2) to maximize the value of theCompany’s assets in any sale to third party; and (3) to maintain the valuein public shell if possible.

 

**On April 9th, 2003, the Company signedits first maintenance agreement under the Restart Plan with a Chase ManhattanBank group in JPMorganCHASE and consequently will cease wind down status.  For the quarter ending May 31, 2003, theCompany will use a going concern method of accounting.**

 

**Liquidity and CapitalResources**

 

As of February 28, 2003, netliabilities in liquidation were $64,715. Cash and cash equivalents were $8,996.Our primary cash needs are for administrative expenses and professional feesfor accounting and SEC filings. Some expenses have been incurred by the Companyto restore the previous versions of the Company’s software products from backuptapes to operation servers necessary for customer support.  As of April 10th 2003, wehave been able to negotiate settlements with all but one trade payable, acreditor not actively seeking payment.

 

**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.

 

*Stockholders are notexpected to receive any distributions from the Company’s wind down.*

 

*The Company’sintangible assets may not be sold.*

 

Although we may continue topursue opportunities to sell or license certain intangible assets there havebeen no offers for these intangible assets and consequently, we have assignedno value to them in the Statement of Net Liabilities in Liquidation. Sale orlicense of the Company’s intangible assets will be made on such terms as areapproved by the Board of Directors and may be conducted by competitive bidding,public sales or privately negotiated sales. The prices at which we might beable to sell these assets will depend largely on factors beyond our control,including, without limitation, the condition of financial markets, UnitedStates and foreign regulatory approvals, public market perceptions, andlimitations on transferability of certain assets.

 

*The Company may notsettle its remaining obligations to a Creditor.*

 

The Company has certain currentand future obligations to creditors. These include, without limitation, a tradepayable with a vendor. As part of the wind down process, we will attempt tosettle these remaining obligations. We cannot guarantee that we will be able tosettle such obligations. If we are unable to reach an agreement with acreditor, that creditor may choose to bring a lawsuit against the Company. Suchlitigation could delay or even prevent the Company from completing its plans.

 

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

 

The Company has substantiallycompleted a wind down of operations and unless certain conditions are met theCompany will not be able to restart operations and could cease to exist. One ofthe primary conditions will be the availability of financing for any plan tocontinue operations. Financing may not be available on terms that are favorableto us, or at all.

 

*Our management teamhas limited experience with us and may not be successful.*

 

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

 

10

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*If we are unable tohire and retain the skilled personnel that we need, the implementation of anybusiness plan and any future growth could slow or halt.*

 

We have employed no operatingmanagement team or personnel. Our ability to generate revenues and our futuresuccess may depend upon our ability to attract and retain skilled personnel.

 

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

 

The market for our softwareproducts is characterized by rapid technological advances, constantly evolvingindustry standards, changing end-user requirements, and frequent new productintroductions and/or enhancements. The introduction of new products by ourcompetitors, the market acceptance of products embodying new technologies andthe emergence of new industry standards could render our existing productsobsolete and unmarketable. If our products become technologically obsolete, wemay be unable to sell our products in the marketplace and generate revenues.

 

*Our prospects couldbe jeopardized if we are unable to protect our intellectual property or becomesubject to intellectual property rights litigation, which could require us toincur significant costs.*

 

We rely on a combination ofcopyright, trademark and trade secret laws, employee and third-partynondisclosure agreements and other industry standard methods for protectingownership of our proprietary software and business practices. In spite of theseprecautions, the possibility exists that an unauthorized third party will copyor reverse-engineer portions of our products or obtain and use information thatwe regard as proprietary.  Any lawsuitsregarding intellectual property rights could impair our ability to restart theCompany.

 

*There may be futuresales of substantial amounts of our common stock that could cause our stockprice to fall.*

 

Our common stock is traded onthe National Association of Securities Dealers OTC Bulletin Board®. Our commonstock has historically been highly illiquid. Steven A. Flagg and Thomas B.Marsh, who serve on our Board of Directors, one of whom is President, in theaggregate owned approximately 82% of our common stock as of April 10,2003. If either of these directors were to sell even a small portion of their totalshares in a short time, the market price of our common stock would likelydecline dramatically. 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 of any ofthese shares may impair our future ability to raise capital through the sale ofadditional stock.

 

*Your ability toinfluence the outcome of key transactions is limited because we are controlledby two major stockholders.*

 

The two directors of theCompany, one of whom is our President, in the aggregate owned approximately 82%of our common stock as of April 10, 2003. These two directors have enoughvoting power to approve or disapprove any matters that are determined by amajority vote of our stockholders, which severely limits your ability toinfluence PurchaseSoft through voting your shares.

 

*If a public tradingmarket for shares of our common stock is not maintained, you may not be able tosell shares of our common stock.*

 

Although shares of our commonstock are presently quoted on the OTC Bulletin Board, we cannot assure you thatthey will continue to be quoted in the future. Furthermore, in contrast tostock that is quoted on the NASDAQ National Market or traded on a nationalsecurities exchange, as a result of our stock being quoted on the OTC BulletinBoard, stockholders may:  a) find itmore difficult to obtain accurate and timely quotations regarding the bid andasked prices for our common stock; b) experience greater spreads between bidand asked prices; c) be charged relatively higher transactional costs whenbuying or selling our common stock; and d) encounter more difficulty ineffecting sales or purchases of common stock.

 

*Because shares ofour common stock are not listed on a national securities exchange or quoted onthe NASDAQ National Market, we face increased costs in complying withsecurities laws.*

 

While securities listed on theNASDAQ National Market System or national securities exchanges are in manycases exempt from the registration requirements of state securities laws,securities traded on the OTC Bulletin Board must comply

 

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with the registrationrequirements of state securities laws, which increases the time and costsassociated with complying with state securities laws when raising capital. Wecannot assure that this cost of compliance will not have a material adverseeffect on the viability of the Company.

 

*Our stock may besubject to penny stock regulations that make it more difficult forbroker-dealers to easily trade our stock and may consequently limit the abilityof holders of our common stock to sell it.*

 

The Securities and ExchangeCommission has adopted regulations imposing limitations upon the manner inwhich certain low priced securities, referred to as a “penny stock,” arepublicly traded. Under these regulations, a penny stock is defined as anyequity security that has a market price of less than $5.00 per share, subject tospecified exceptions. Unless an exception is available, the regulations requirethe delivery, prior to any transaction involving a penny stock, of a disclosureschedule explaining the penny stock market and the risks associated with it.Also, under these regulations, some broker-dealers who recommend these types ofsecurities to persons other than established customers and “accreditedinvestors” must make a special written suitability determination for thepurchaser and receive the purchaser’s written agreement to a transaction priorto sale. Trading activities for penny stocks are more difficult forbroker-dealers than in the case of securities not defined as penny stocks.Because our common stock may be a penny stock this may have the result ofdepressing the market for our securities, and a stockholder may find itdifficult to sell shares of our common stock.

 

**ITEM 3:  CONTROLS AND PROCEDURES**

 

Management has conducted anevaluation of the design and operation of its disclosure controls andprocedures and found no changes have been made to those controls during theperiod ending February 28, 2003. Management believes its disclosure controlsand procedures are adequate to provide timely and accurate reporting offinancial results and non-financial material information.

 

Management has evaluated itsinternal controls and found no changes have been made to those controls duringthe period ending February 28, 2003. Management believes the current internalcontrols and reporting procedures are adequate to provide timely and accuratereporting of financial results.

 

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**PART II: OTHERINFORMATION**

 

**ITEM 1: LEGAL PROCEEDINGS.**

 

**Medico Case Settledon October 10, 2002**—The Company had been named as a defendant in a lawsuit by a formeremployee. The suit alleged a breach of his separation agreement with theCompany, claiming that the Company refused to allow him to exercise certainstock options between December 1999 and April 2000. The lawsuit seeksan award of damages and costs. On August 16, 2002, the parties reached anagreement in principle to settle the case for a payment of $2,500 to the formeremployee by the Company and the complaint was dismissed without prejudice onAugust 19, 2002. The settlement agreement was executed and settlementamount of $2,500 paid on October 10th, 2002.

 

**Employee ClaimDismissed on July 22, 2002**—On April 12, 2002, another former employee of the Company filedsuit against the Company and certain Company employees alleging fraudulentmisrepresentation, negligent misrepresentation, breach of employment contractand breach of covenants of good faith and fair dealing. This former employeesought damages for three years of lost compensation pursuant to an employmentcontract allegedly arising from the vesting schedule of the employee’s stockoption plan. Since the employee failed to serve the defendants as required bythe Massachusetts Rules of Civil Procedures and the complaint was dismissedwithout prejudice on July 22, 2002.

 

**Threatened LawsuitSettled on January 22, 2003**—On October 17, 2002, a former financial advisor of the Companythreatened suit against the Company alleging the Company filed to pay theadvisor the monthly preliminary advisory fee owed to the advisor pursuant tothe terms of the parties’ March 1, 2001 engagement agreement as amended.The threatened lawsuit sought a total payment of $210,000; a $90,000 minimumadvisory fee plus $120,000 preliminary advisory fee at $10,000 per month fortwelve months beginning October 2001 to October 2002. Managementcompleted an agreement to settle the claim on January 22, 2003 for $6,000 and alicense for the rights to certain intellectual property related to thedevelopment of a new version of the Company’s procurement product.  The Company will receive a royalty of 3% ofany revenue generated by sales of products completed using that intellectualproperty for a period of three years.

 

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

 
|   | (a)    | Exhibits                 |
|--------|--------|--------------------------|
|   |   |                     |
|   |   | 1.                       | Exhibit 99.1 WRITTEN STATEMENT OF THE CEO  PURSUANT TO 18 S.S.C. SECTION 1350 |
|   |   |                     |   |
|   |   | 2.                       | Exhibit 99.2 WRITTEN STATEMENT OF THE CFO  PURSUANT TO 18 S.S.C. SECTION 1350 |
|   |   |                     |   |
|   |   | 3.                       | Exhibit 99.3 Devonshire Holdings LLC  Settlement Agreement dated January 22, 2003 |
|   |   |                     |   |
|   | (b)    | Reports on Form 8-K |
|   |   |                     |   |
|   |   | 1.                       | None. |

 

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**SIGNATURES**

 

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

 
|                 | PurchaseSoft, Inc.  (Issuer)                       |
|----------------------|----------------------------------------------------|
|                 |                                               |
| Date: April 10, 2003 | /s/ Steven A. Flagg                                |   |
|                 | Steven A. Flagg  President and Acting CEO          |
|                 |                                               |
| Date: April 10, 2003 | /s/ Thomas B. Marsh                                |   |
|                 | Thomas B. MarshSecretary, Treasurer and Acting CFO |

 

In accordance with the ExchangeAct, this report has been signed below by the following persons on behalf ofthe Registrant and in the capacities and on April 10, 2003.

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

 

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**CERTIFICATIONS**

 

I, Steven A. Flagg, certify that;

 

1.                                       I have reviewed this quarterly report onForm 10-QSB of PurchaseSoft, Inc.;

 

2.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officers an Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and have:

 

a.                                       Designed such disclosure controls and proceduresto ensure that material information relating to her registrant, including itsconsolidated subsidiaries, is make known to us by others within those entitiesparticularly during the period in which this quarterly report is beingprepared;

 

b.                                      Evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a dated within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c.                                       Presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls an procedures based on ourevaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a.                                       All significant deficiencies in the design oroperation of internal controls which cold adversely affect the registrants’ability to record, process, summarized and report financial data and haveidentified for the registrants auditors any material weaknesses in internalcontrols: and

 

b.                                      Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls: and

 

6.                                       The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not their were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date: April 10, 2003 | /s/ Steven A. Flagg                   |   |
|----------------------|---------------------------------------|--------|
|                 | Steven A. FlaggPresident and Director |

 

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I, Thomas B. Marsh, certify that;

 

7.                                       I have reviewed this quarterly report onForm 10-QSB of PurchaseSoft, Inc.;

 

8.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

9.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

10.                                 The registrant’s other certifying officers an Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and have:

 

a.                                       Designed such disclosure controls and proceduresto ensure that material information relating to her registrant, including itsconsolidated subsidiaries, is make known to us by others within those entitiesparticularly during the period in which this quarterly report is being prepared;

 

b.                                      Evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a dated within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c.                                       Presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls an procedures based on ourevaluation as of the Evaluation Date;

 

11.                                 The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a.                                       All significant deficiencies in the design oroperation of internal controls which cold adversely affect the registrants’ability to record, process, summarized and report financial data and haveidentified for the registrants auditors any material weaknesses in internalcontrols: and

 

b.                                      Any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls: and

 

12.                                 The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not their were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date: April 10, 2003 | /s/ Thomas B. Marsh                              |   |
|----------------------|--------------------------------------------------|--------|
|                 | Thomas B. MarshSecretary, Treasurer and Director |

 

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