<PAGE>

-------------------------------------------------------------------------------

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)

    /X/  Quarterly report under Section 13 or 15(d) of the Securities Exchange
         Act of 1934

    For the quarterly period ended August 31, 2000

    / /  Transition report under Section 13 or 15(d) of the Exchange Act

    For the transition period from           to
                                   ----------  ---------------

Commission File Number 0-11791

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

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

                               ONE RESEARCH DRIVE
                                   SUITE 100 B
                              WESTBOROUGH, MA 01581
                           ---------------------------
                    (Address of Principal Executive Offices)

                                 (508) 599-1300
                                 --------------
                (Issuer's Telephone Number, Including Area Code)


         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                Yes   /X/                       No   / /

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

<TABLE>
<CAPTION>

                   CLASS                   OUTSTANDING AT OCTOBER 10, 2000
-----------------------------------------  -------------------------------
<S>                                        <C>
         COMMON STOCK, PAR VALUE                  14,773,046 SHARES
             $0.01 PER SHARE
</TABLE>

<PAGE>

                               PURCHASESOFT, INC.

                                      INDEX

<TABLE>
<CAPTION>

 ITEM                                                                                           PAGE
NUMBER                                                                                         NUMBER
------                                                                                         ------
<S>                                                                                            <C>
PART I.           FINANCIAL INFORMATION

     Item 1.      Financial Statements

                      Balance Sheets as of August 31, 2000 and May 31, 2000................        3

                      Statements of Operations for the three months ended
                      August 31, 2000 and August 31, 1999..................................        4

                      Statements of Cash Flows for the three months ended
                      August 31, 2000 and August 31, 1999..................................        5

                      Notes to the Financial Statements....................................      6-8

     Item 2.      Management's Discussion and Analysis of Financial Condition
                      and Results of Operations ...........................................     8-13


PART II.          OTHER INFORMATION

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

     Signatures       .....................................................................       14
</TABLE>


                                       2
<PAGE>

PART I.      FINANCIAL INFORMATION

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


                               PURCHASESOFT, INC.
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                     (Unaudited)
                                                   August 31, 2000              May 31, 2000
                                                  --------------------        ------------------
<S>                                               <C>                         <C>
Assets

Current Assets
   Cash and cash equivalents                      $      3,648,338              $     4,992,306
   Accounts receivable, net                                 45,536                       12,709
   Prepaid expenses and other current assets               204,054                      149,940
                                                    ---------------               --------------
Total Current Assets                                     3,897,928                    5,154,955
                                                    ---------------               --------------

Property and equipment, net                                772,169                      460,408
                                                    ---------------               --------------

Other Assets
   Security deposits                                       266,946                      297,269
                                                    ---------------               --------------
Total Other Assets                                         266,946                      297,269
                                                    ---------------               --------------

Total Assets                                      $      4,937,043              $     5,912,632
                                                    ===============               ==============

Liabilities and Stockholders' Equity (Deficit)

Current Liabilities
   Accounts payable                               $        102,931              $       126,893
   Current obligations under capital leases                120,028                       50,002
   Accrued expenses                                        585,493                      509,493
   Deferred revenues                                        41,004                       52,881
                                                    ---------------               --------------
Total Current Liabilities                                  849,456                      739,269
                                                    ---------------               --------------

Noncurrent Obligations
   Note payable with a related party                     5,000,000                    5,000,000
   Noncurrent obligations under capital leases             193,592                       42,460
                                                    ---------------               --------------
Total Noncurrent Obligations                             5,193,592                    5,042,460
                                                    ---------------               --------------

Commitments and Contingencies

Stockholders' Equity (Deficit)
Common stock, $0.01 par value, 25,000,000
   shares authorized, 14,733,046 and 14,730,549
   issued and outstanding respectively                     147,330                      147,305
Additional paid-in-capital                              25,376,747                   25,375,283
Accumulated deficit                                    (26,541,050)                 (25,302,653)
                                                    ---------------               --------------
                                                        (1,016,973)                     219,935

Less treasury stock (4,780 shares) at cost                 (89,032)                     (89,032)
                                                    ---------------               --------------
Total Stockholders' Equity (Deficit)                    (1,106,005)                     130,903
                                                    ---------------               --------------

Total Liabilities and Stockholders' Equity
   (Deficit)                                      $      4,937,043              $     5,912,632
                                                    ===============               ==============
</TABLE>

                 See accompanying notes to financial statements


                                        3
<PAGE>

                               PURCHASESOFT, INC.
                             STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                            FOR THE THREE MONTHS ENDED
                                      ---------------------------------------
                                         August 31,            August 31,
                                            2000                  1999
                                      ----------------     ------------------
<S>                                   <C>                  <C>
Net revenues:
   Product                            $       25,000        $       39,975
   Services                                   38,176                62,863
                                        -------------         -------------
Total net revenues                            63,176               102,838
                                        -------------         -------------

Costs and expenses:
   Cost of product revenues                    7,000                    33
   Cost of service revenues                   65,172                83,078
   Sales and marketing                       217,972               320,232
   General and administrative                714,406               485,959
   Research and development                  279,896               246,703
                                        -------------         -------------
Total costs and expenses                   1,284,446             1,136,005
                                        -------------         -------------

Operating loss                            (1,221,270)           (1,033,167)

Interest income (expense)                    (17,126)               37,684
                                        -------------         -------------

Net loss                              $   (1,238,396)       $     (995,483)
                                        =============         =============


Net loss per common share
   (Basic and diluted)                $        (0.08)       $        (0.07)
                                        =============         =============


Weighted average
   shares outstanding                     14,731,742            13,807,015
                                        =============         =============
</TABLE>

                 See accompanying notes to financial statements


                                        4
<PAGE>

                               PURCHASESOFT, INC.
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                         FOR THE THREE MONTHS ENDED
                                                               -----------------------------------------------
                                                                 August 31, 2000           August 31, 1999
                                                               --------------------      ---------------------
<S>                                                            <C>                       <C>
Cash flows from operating activities:
   Net loss                                                      $  (1,238,396)           $      (995,483)
   Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
      Depreciation and amortization                                     38,266                     19,178
      Provision for bad debts                                            1,264                      2,057
      (Gain)/Loss on Asset Disposition                                   1,278                        - -
      Stock compensation for shares issued for services                    - -                     15,000
   Changes in operating assets and liabilities:
      Accounts receivable                                              (34,091)                    27,546
      Prepaid expenses and other assets                                (54,114)                    30,680
      Accounts payable                                                 (23,962)                  (187,021)
      Accrued expenses                                                  76,000                    (93,172)
      Deferred revenue                                                 (11,877)                   (55,424)
                                                                   ------------             --------------
Net cash used in operating activities                               (1,245,632)                (1,236,639)
                                                                   ------------             --------------

Cash flows from investing activities:
   Additions to property and equipment                                (103,276)                   (13,439)
   Proceeds from disposition of assets                                   1,800                        - -
   Increase in security deposits                                        30,323                       (390)
                                                                   ------------             --------------
Net cash used in investing activities                                  (71,153)                   (13,829)
                                                                   ------------             --------------

Cash flows from financing activities:
   Net proceeds from exercise of option                                  1,488                        - -
   Payment of capital leases                                           (28,671)                   (11,710)
                                                                   ------------             --------------
Net cash used in financing activities                                  (27,183)                   (11,710)
                                                                   ------------             --------------

Net decreases in cash and cash equivalents                          (1,343,968)                (1,262,178)
Cash and cash equivalents, beginning of year                         4,992,306                  3,824,505
                                                                   ------------             --------------
Cash and cash equivalents, end of period                         $   3,648,338            $     2,562,327
                                                                   ============             ==============

Supplemental disclosure of cash flow information:
   Cash paid for interest                                        $       6,364            $         2,581
   Cash paid for income taxes                                    $          --            $            --
                                                                   ============             ==============

Supplemental disclosure of non-cash transaction:
   Capital lease obligation incurred                             $     249,829            $           - -
                                                                   ============             ==============
</TABLE>

                 See accompanying notes to financial statements


                                        5
<PAGE>

                               PURCHASESOFT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                 AUGUST 31, 2000


         NOTE 1.  GENERAL INFORMATION:

         The Financial Statements included herein have been prepared by the
Company without audit except the May 31, 2000 balance sheet, which was audited.
The Statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting of
only normal recurring accruals which are, in the opinion of management,
necessary for a fair statement of the results of operations for the periods
shown. These statements do not include all information required by Generally
Accepted Accounting Principles to be included in a full set of Financial
Statements. These Financial Statements should be read in conjunction with the
May 31, 2000 Financial Statements and notes thereto included in the Company's
latest report on Form 10-KSB.

         The Company is considered a Small Business (SB) filer pursuant to
Securities and Exchange Commission (SEC) regulations. As such, the accompanying
financial statements, are not intended to, nor do they, include all disclosures
required by the SEC's Regulation S-X.


         NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:

         (a)      Use of Estimates

         Management is required to make estimates and assumptions during the
preparation of financial statements in conformity with generally accepted
accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. They also affect the
reported amounts of net income (loss) during the period. Actual results could
differ materially from these estimates and assumptions.

         (b)      Revenue Recognition and Accounts Receivable

         The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) No. 97-2, "Software Revenue Recognition," as amended
by SOP 98-4 and SOP 98-9. The Company recognizes software license revenue at the
point when evidence of an arrangement exists, the software product has been
shipped, there are no uncertainties surrounding product acceptance, the fees are
fixed and determinable and collection of the related receivable is considered
probable. In multiple-element software arrangements that include rights to
multiple software products, maintenance or services, the Company allocates the
total arrangement fee using the residual method. Under the residual method, the
fair value of the undelivered maintenance and services elements, as determined
based on vendor-specific objective evidence, is deferred and the remaining
(residual) arrangement fee is recognized as software product revenue. Service
revenues are comprised of revenues derived from software maintenance agreements
and professional services. Maintenance fees are recorded as deferred revenue and
recognized ratably over the maintenance period, which is usually twelve months.
Professional service revenue is recognized as the services are performed.

         Accounts receivable is presented net of an allowance for uncollectible
accounts of $37,154 and $35,890 at August 31, 2000 and May 31, 2000,
respectively. Bad debt expense is recorded in general and administrative
expenses.


                                       6

<PAGE>

         (c)      Research and Development

         The Company is engaged in research and development activities in the
area of computer software. In accordance with generally accepted accounting
principles, costs incurred prior to determination of technological feasibility
are considered research and development and expensed as incurred. Technological
feasibility is determined after a working model has been completed. Capitalized
costs are amortized over the shorter of an economic life of one to three years
or the proportion of current period product revenues to total expected product
revenues. During the first quarter of fiscal 2001, the Company's research and
development costs primarily relate to software development during the period
prior to technological feasibility and have been charged to expense as incurred.
Costs otherwise capitalizable after technological feasibility is achieved have
also been expensed because they have been insignificant.

         (d)      Cash and Cash Equivalents

         The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes.

         (e)      Property and Equipment

         Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operations over the estimated useful
lives of the related assets, generally five to seven years, using the
straight-line method. Depreciation and amortization expense was $38,266 and
$19,178 for the three months ended August 31, 2000, and August 31, 1999,
respectively.

         (f)      Income Taxes

         The Company accounts for income taxes using the liability method in
accordance with the provisions of the Statement of Financial Accounting Standard
(SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires that
deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts.

         (g)      Loss Per Common Share

         The Company accounts for income (loss) per share in accordance with
SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires dual presentation of
basic and diluted earnings per share for entities with complex capital
structures. Basic earnings per share includes no dilution and is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of Common Stock outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity. Diluted net loss per common share does not differ from
basic net loss per common share since potential shares of common stock from the
exercise of stock options and warrants are anti-dilutive for all periods
presented. Shares excluded from diluted earnings per share totaled 3,321,709 and
3,964,546 on August 31, 2000 and 1999, respectively.

         (h)      Stock-Based Compensation

         The Company accounts for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."


                                       7
<PAGE>

         (i)      Recently Issued Accounting Standards

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. This statement establishes a new model for accounting for derivatives
and hedging activities. Under SFAS No. 133, all derivatives must be recognized
as SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of FASB Statement No. 133" which defers the
effective date to all fiscal quarters of fiscal years beginning after June 15,
2000. In June 2000, the FASB issued Statement of Accounting Standards No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities an
Amendment of FASB Statement No. 133" which amends certain aspects of SFAS No.
133. The adoption of SFAS No. 133 and SFAS No. 138, which are both effective for
the Company on June 1, 2001, are not expected to have a significant impact on
the Company's financial position or results of operations.

         In April 2000, the FASB issued FASB Interpretation ("FIN") No. 44,
"Accounting for Certain Transactions Involving Stock Compensation and
Interpretation of APB No. 25", which is effective July 1, 2000, except for
certain conclusions which cover specific events after either December 15, 1998
or January 12, 2000. FIN No. 44 clarifies the application of APB No. 25 related
to modifications of stock options, changes in grantee status, and options issued
on a business combination, among other things. The adoption of FIN No. 44 is not
expected to have a significant impact on the Company's financial position or
results of operations.


         ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

         Except for the historical information contained herein, this Quarterly
Report on Form 10-QSB may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, but not limited to, (i) the Company's belief in
the growth of the e-Procurement and e-Commerce systems software and services
market and (ii) expectations for the Company's strategy and future performance.
Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results of operations may differ materially
from those projected or suggested in the forward-looking statements due to
certain risks and uncertainties, including, but not limited to, the following
risks and uncertainties: (i) the Company's history of losses and accumulated
deficit, limited revenues, and the uncertainty of future profitability; (ii)
capital requirements; (iii) the uncertainty of market acceptance of the
Company's products; (iv) new management and ability to recruit sales, service,
and implementation personnel; (v) the intense competition in the software field;
(vi) rapid technological change and new products; (vii) dependence on a single
product-line; (viii) new product development and functionality enhancements;
(ix) fluctuations in quarterly operating results; and (x) intellectual property
and proprietary rights. Additional information concerning certain risks and
uncertainties that would cause actual results to differ materially from those
projected or suggested in the forward-looking statements is contained in the
Company's filings with the Securities and Exchange Commission, including those
risks and uncertainties discussed under the caption "Risk Factors" in the
Company's Annual Report on Form 10-KSB for the year ended May 31, 2000. The
forward-looking statements contained herein represent the Company's judgment as
of the date of this Quarterly Report on Form 10-QSB, and the Company cautions
readers not to place undue reliance on such statements.


                                       8

<PAGE>

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED AUGUST 31, 2000 AND 1999

OVERVIEW

         The Company reported a net loss for the quarter of $1,238,396.

         On August 14, 2000, the Company announced changes in its senior
management. Current board member, Donald S. LaGuardia was appointed interim
President and CEO. Jeffrey Pinkerton was appointed Vice Chairman and Chief
Product Strategist. Mr. LaGuardia is a member of L-R Managers, LLC, the general
partner of L-R Global Partners, LP, the majority stockholder in PurchaseSoft. He
has served as a director of the Company since June 1998 and chairs the Company's
audit committee. Mr. LaGuardia was an auditor and then a consultant with
PricewaterhouseCoopers from 1987 to 1991. From 1991 to 1997 he held various
managerial positions with BMW of North America, Inc. until he left in 1997 to
join L-R Global Partners, L.P. Mr. Pinkerton will focus on product strategy and
at the same time undertake a more active role in the promotion of the Company's
products and solutions. He has been associated with PurchaseSoft and has held
various positions within the Company since 1987, when it first began marketing
its computer-based purchasing system.


REVENUES

TOTAL REVENUES

         Total revenues, which includes product and service revenues, for the
three months ended August 31, 2000, was $63,176 compared to $102,838 for the
three months ended August 31, 1999, a decrease of $39,662, or 38.6%.

PRODUCT REVENUES

         Product revenues for the three months ended August 31, 2000 was
$25,000 compared to $39,975 for the three months ended August 31, 1999, a
decrease of $14,975, or 37.5%. During the three months ended August 31, 2000,
the Company added one new customer and delivered one PurchaseSoft-TM-
software system. In the three months ended August 31, 1999, the Company also
added one new customer and delivered one PurchaseSoft-TM- software system.
During the three month period ended August 31, 1999, the Company was
marketing and selling PurchaseSoft-TM-, a two-tier, 32-bit client server
based solution. The target market for this solution was the middle market,
principally in North America. In October 1999, the Company began marketing
and selling its new flagship product, PurchaseSmart-TM-/SourceSmart-TM-,
written in Java and HTML. This new product is priced substantially higher
than the PurchaseSoft-TM- product and is being marketed aggressively
throughout North America, Europe and Asia. The Company has made no sales of
its PurchaseSmart-TM-/SourceSmart-TM- software solution to date. In December
1999, the Company changed its method of distribution from a direct sales
based model to one based primarily on resellers and strategic partnerships.
The Company believes that this method of distribution will be successful but
that it will take some time to implement.


                                       9
<PAGE>

SERVICE REVENUES

         Professional service revenues for the three months ended August 31,
2000 were $6,500 compared to $27,775 for the three months ended August 31, 1999,
a decrease of $21,275, or 76.6%. This decrease results from a combination of two
factors. The first factor is the relationship of service revenues generated by
product revenues, both in terms of absolute dollars and percentages. In the
three months ended August 31, 2000, service revenues generated by product
revenues were $6,500, or 26.0% of product revenues, compared to $15,000 in
service revenues, or 37.5% of product revenues, for the three months ended
August 31, 1999, a decrease of $8,500 or 56.7%. The second factor is the service
revenues generated from existing customers. In the three months ended August 31,
2000, the Company did not generate any service revenues from existing customers
whereas it generated $12,775 in service revenues from existing customers for the
three months ended August 31, 1999, a decrease of $12,775, or 100.0%.

         Maintenance revenues for the three months ended August 31, 2000 were
$31,676 compared to $35,088 for the three months ended August 31, 1999, a
decrease of $3,412 or 9.7%. The following table shows maintenance revenues
generated for each of the products being supported during the period noted:

<TABLE>
<CAPTION>

                                               CAP                GTPP             PurchaseSoft          Total
                                               ---                ----             ------------          -----
<S>                                          <C>                 <C>               <C>                  <C>
Three months ended 8/31/00                   $      0            $  7,741            $ 23,935           $ 31,676
Three months ended 8/31/99                   $    312            $ 27,458            $  7,318           $ 35,088

Dollar change                                ($   312)           ($19,717)           $ 16,617           ($ 3,412)
Percentage change                             (100.0%)             (71.8%)             227.1%              (9.7%)
</TABLE>

CAP-TM-            - Computer Aided Purchasing, DOS based system  (Supported
                     through December 31, 1999).


GTPP-TM-           - GT PurchasePro, Two-tier, 16-bit client server based
                     system (Supported generally through May 31, 2000, except
                     for several specific customers who will be supported until
                     their one year agreements expire).

PurchaseSoft-TM-   - Two-tier, 32-bit client server based system.

         In the three months ended August 31, 2000, maintenance revenues
associated with products that were no longer being supported or being phased out
were down $20,029 as compared to the three month period ended August 31, 1999.
In contrast, the Company's maintenance revenues on its PurchaseSoft-TM- product
increased by $16,617, or 227.1%, over the three months ended August 31, 1999.

         Maintenance contracts have been generally sold to customers for 15% of
the software product list price for a one-year renewable term. The Company
records payment of these maintenance contracts as deferred maintenance revenue
and recognizes revenue on a pro-rata basis over the term of the contract. These
contracts entitle the customer to telephone support and unspecified upgrades, as
they become available. The Company believes that maintenance and support
services are a very important component of the overall solution it is providing
and intends to continue investing in the personnel and technical resources
necessary to provide customers with state of the art maintenance and support
services. In order to provide this level of service, the Company is considering
raising its pricing of maintenance contracts.


                                       10
<PAGE>

COSTS AND EXPENSES

COST OF PRODUCT REVENUES

         Cost of product revenues for the three months ended August 31, 2000 was
$7,000 compared to $33 for the three months ended August 31, 1999, an increase
of $6,967, or 21112.1%. The PurchaseSoft-TM- system sold in the three months
ended August 31, 2000 included our WebQUOTE-TM- product, which requires the use
of third party software, which the Company licenses. The $7,000 incurred in this
current period is the royalty due for third party software. The cost of product
revenues have generally been insignificant in relation to product revenues. In
the event that the Company relies on third party software as an increasing
component of its total software solution, royalties and other costs associated
with the licensing of this third party software may become significant. There
were no third party royalties in the three months ended August 31, 1999.

COST OF SERVICE REVENUES

         Cost of service revenues for the three months ended August 31, 2000
were $65,172 compared to $83,078 for the three months ended August 31, 1999, a
decrease of $17,906, or 21.6%. Accounting for the majority of this decrease was
compensation and benefit expenses, which decreased $18,637. The Company opened
its new customer support operation in Roseland, New Jersey in June 2000 and
phased out customer support from its Edina, Minnesota location as of the end of
July 2000. Headcount averaged approximately three personnel during both periods,
however the staff in the new location had an overall lower average compensation
program, which accounts for the lower compensation and benefit expenses. The
Company intends to continue to build its customer support infrastructure in
order to offer its customers timely, thorough and accurate support and
professional services. Most of these costs are fixed and therefore may bear no
variable relationship to service revenues in the short term. The Company expects
that cost of service revenues will continue to increase in absolute dollars, and
that they are likely to grow in proportional terms, at a faster rate than the
related service revenue, until such time as revenues grow and reach full
utilization of the costs used to produce them.

SALES AND MARKETING

         Sales and marketing expenses for the three months ended August 31, 2000
were $217,972 compared to $320,232 for the three months ended August 31, 1999, a
decrease of $102,260, or 31.9%.

           Sales expenses decreased from $203,264 for the three months ended
August 31, 1999 to $87,110 for the three months ended August 31, 2000, a
decrease of $116,154, or 57.1%. Compensation and benefit expenses decreased
$139,967 resulting from the restructuring of the Company's primary method of
distribution in December 1999 from a direct sales force to an indirect sales
force using resellers and partners, which resulted in many of the direct sales
positions being eliminated. During the three months ended August 31, 2000, the
Company had an average of two sales personnel compared to an average of seven
personnel during the three month period ended August 31, 1999. Offsetting this
decrease in part was an increase of $32,694 in connection with hosting fees the
Company pays to provide product demonstrations to prospects.

          Marketing expenses increased from $116,968 for the three months ended
August 31, 1999 to $130,862 for the three months ended August 31, 2000, an
increase of $13,894, or 11.9%. Compensation and benefit expenses increased
$24,233, which reflects an increased average headcount of nearly four personnel
for the three months ended August 31, 2000 compared to an average of one person
for the three months ended August 31, 1999. Offsetting this increase in part was
a decrease of $10,264 in marketing consulting fees, advertising and promotion
expenses. The Company expects to incur significant sales and marketing expenses
in future periods.


                                       11
<PAGE>

GENERAL AND ADMINISTRATIVE

         General and administrative expenses for the three months ended
August 31, 2000 were $714,406 compared to $485,959 for the three months ended
August 31, 1999, an increase of $228,447, or 47.0%. Compensation and benefit
expenses increased $26,414. Headcount averaged approximately eleven personnel
in the three months ended August 31, 2000 compared to approximately ten
personnel for the three months ended August 31, 1999. Travel expenses
increased $64,452 reflecting trips made by executives in developing its
indirect distribution network of resellers, alliance partners and key
prospects. Relocation expenses associated with moving several employees from
remote offices to the new corporate headquarters in Westborough,
Massachusetts as well as moving and reinstalling equipment from the old
offices to the new corporate headquarters totaled $39,953. Depreciation
expense increased $11,994 resulting from new capital additions. Occupancy
costs increased $64,820 resulting from increased rent associated with the new
corporate headquarters in Westborough, Massachusetts and the Company's new
facility in Roseland, New Jersey. The Company experienced duplicate rent for
the three months ended August 31, 2000 as it had employees at both the new
and former corporate headquarters during this period. The lease on the former
corporate headquarters in Edina, Minnesota expired on August 31, 2000 and the
Company has entered into a one year lease for approximately 800 square feet
of office space for three employees who remain in Minnesota.

RESEARCH AND DEVELOPMENT

         Research and development expenses for the three months ended August
31, 2000 were $279,896 compared to $246,703 for the three months ended August
31, 1999, an increase of $33,193, or 13.5%. The Company invested an
additional $59,278 in exploring and testing new technologies during the three
months ended August 31, 2000 compared to the prior period. Amortization
expense of $6,683 relating to purchased software being incorporated in the
development of the Company's supplier exchange was incurred in the three
months ended August 31, 2000. Offsetting these increases in part was a
decrease in compensation and benefit expenses of $36,895, which was primarily
due to the elimination of contracted development costs and a reduction in
average headcount from approximately eleven personnel for the three months
ended August 31, 1999 to ten personnel for the three month period ended
August 31, 2000. The Company intends to make continual and substantial
investments in its research and development activities to keep the Company's
software solutions at the leading edge of e-Procurement and e-Commerce
offerings.

NET INTEREST INCOME/EXPENSE

         Net interest income for the three months ended August 31, 1999 was
$37,684 compared to net interest expense of $17,126 for the three months
ended August 31, 2000, a decrease of $54,810. Interest expense increased
$79,439 primarily due to the interest accrued to L-R Global Partners, L.P. on
their demand promissory note. Interest income increased $24,629 due to
average higher cash balances.

NET LOSS

         For the three months ended August 31, 2000, the Company reported a
net loss of $1,238,396 (or $0.08 per share) as compared with a net loss of
$995,483 (or $0.07 per share) for the three months ended August 31, 1999. The
loss for the three months ended August 31, 2000 increased over the loss for
the three months ended August 31, 1999, by $242,913. This increased loss is
primarily attributable to an increase in general and administrative expenses
of $228,447, a decrease in net interest income of $54,810 and a decrease in
revenues of $39,662, which were offset in part by a decrease in sales and
marketing expenses of $102,260.

                                       12

<PAGE>

         The increase in the loss per share results from the higher net loss of
$242,913 in the three months ended August 31, 2000 and was offset in part by an
increase in the average outstanding shares during the three months ended August
31, 2000 to 14,731,742 from 13,807,015 for the three months ended August 31,
1999.


LIQUIDITY AND CAPITAL RESOURCES

         As of August 31, 2000, the Company had cash and cash equivalents
totaling $3,648,338 and working capital of $3,048,472. The Company used
$1,245,632 of cash in operating activities during the three months ended
August 31, 2000 of which $1,238,396 was the net loss for the period. The
Company used $71,153 of cash in investing activities during the three months
ended August 31, 2000 to acquire property and equipment totalling $103,276
and was offset by a refund of $30,323, which reduced its security deposits
relating to the expiration of its leased office space in Edina, Minnesota.
The Company used $27,183 of cash in financing activities during the three
months ended August 31, 2000 primarily for capital lease payments.

         In March 2000, the Company borrowed $5,000,000 from L-R Global
Partners, LP and signed a demand promissory note in return. Under the terms of
this note, the Company must repay the principal and interest due at any time
upon the demand of L-R Global. Subsequently, L-R Global issued to the Company a
letter, which stated that they would not demand repayment prior to September 15,
2001. Accordingly, the Company has classified this note payable as non-current
in its balance sheet dated August 31, 2000. Proceeds from the demand promissory
note are being used to fund the Company's sales and marketing activities,
product development initiatives, customer support, and other general operating
expenses.

         The Company made $353,105 in capital expenditures during the three
months ended August 31, 2000, including assets acquired under capital leases
as compared with $13,439 in the three months ended August 31, 1999. The most
significant asset acquired was a software license the Company is using in
building its supplier exchange solution. The cost of this license was
$267,309, of which the Company paid $17,480 in cash and entered into a
capital lease for the balance of $249,829. The terms of this lease require
the Company to pay $8,053 per month for thirty-six months and has an
effective interest rate of approximately 9.9%. The Company had no significant
commitments as of August 31, 2000 for capital expenditures.

         The Company believes that its existing capital resources and revenue
from future software sales and services will be sufficient to fund its
planned operating expenses and capital requirements for the next twelve
months. At August 31, 2000, the Company reported a Stockholders' deficit of
$1,106,005. This reflects the classification of the $5,000,000 investment by
L-R Global Partners, L.P. in March 2000 as long-term debt. The Company
expects continuing losses, which will cause the deficit equity to continue to
grow should the Company not raise new equity capital. The Company recognizes
that to be competitive it must raise additional equity capital to accelerate
its sales and marketing programs and to establish a stronger financial
position. The Company is pursuing two primary capital raising strategies to
raise this growth capital: In the short term, the Company's strategy is to
seek a strategic partnership with an established technology company that
could provide the necessary growth capital as well as technology expertise, a
reseller network and an installed customer base into which the Company could
market its products. As a strategy for the mid-term, the Company might seek
to raise additional funds through public or private debt or equity
financings, including, but not limited to, another rights offering. In the
event that the Company conducts another rights offering, L-R Global Partners,
L.P. has given the Company a written commitment to purchase up to $5,000,000
of the Company's Common Stock in a rights offering and pay for its purchase
by canceling the debt that the Company owes to L-R Global Partners, L.P.
should other financing options not be available.

                                       13

<PAGE>

PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

         10.1    Management consulting agreement dated as of August 15, 2000 by
                 and between PurchaseSoft, Inc. and Donald LaGuardia.

         27.1    Financial Data Schedule filed herewith

    (b)  Reports on Form 8-K

         None

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                             PURCHASESOFT, INC.



Date:  October 11, 2000      By:    /s/  Donald S. LaGuardia
                                --------------------------------------------
                             Name:  Donald S. LaGuardia
                             Title: President and Chief Executive Officer




Date:  October 11, 2000      By:    /s/  Philip D. Wolf
                                --------------------------------------------
                             Name:  Philip D. Wolf
                             Title: Treasurer, Chief Financial Officer
                                    and Assistant Secretary


                                       14