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

                                   FORM 10-QSB

(MARK ONE)
|X|    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2006

                                       OR

|_|    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 0-11791

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

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

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

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

                                 (949) 263-0910
                (Issuer's Telephone Number, Including Area Code)


       Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|

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

COMMON STOCK, PAR VALUE $0.01 PER SHARE            33,785,838 SHARES at 11/30/06



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                               PURCHASESOFT, INC.
                                   FORM 10-QSB
                         QUARTER ENDED NOVEMBER 30, 2006

                              CROSS REFERENCE SHEET

                         PART I - FINANCIAL INFORMATION

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

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

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

                           PART II - OTHER INFORMATION

Item 1    Legal Proceedings.................................................  14

Item 2    Changes in Securities and Use of Proceeds.........................  14

Item 3    Defaults Upon Senior Securities...................................  14

Item 4    Submission of Matters to a Vote of Security Holder................  14

Item 5    Other Information.................................................  14

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

Signatures





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                                PURCHASESOFT, INC
                                   FORM 10-QSB
                         QUARTER ENDED NOVEMBER 30, 2006
                                   (UNAUDITED)

                   ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX


Consolidated Balance Sheet                                                     4

Consolidated Statements of Income                                              5

Consolidated Statements of Cash Flows                                          6

Consolidated Notes to Financial Statements                                     7





                                       3



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<S>                                     <C>
                          ITEM I. FINANCIAL STATEMENTS


                               PURCHASESOFT, INC.
                           CONSOLIDATED BALANCE SHEET
                       NOVEMBER 30, 2006 AND MAY 31, 2006

                                  ASSETS
                                                                   UNAUDITED
                                                                   NOVEMBER 30,
                                                                       2006        MAY 31, 2006
                                                                   ------------    ------------
Current Assets
   Cash                                                            $    120,121    $     78,365

Accounts Receivable                                                      68,334          68,100
        Prepaid Licenses                                                  6,157              --
        Prepaid Expenses                                                  2,123           2,810
                                                                   ------------    ------------
  Total Current Assets                                                  196,735         149,275

Property and equipment, net                                               5,733           6,643
    Deposits                                                              4,839           4,839
                                                                   ------------    ------------
    Goodwill                                                             97,002          97,002
                                                                   ============    ============
        TOTAL ASSETS                                               $    304,309    $    257,759


                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
   Accounts payable & accrued expenses                             $    398,906    $    422,205
   Deferred maintenance revenues, current portion                       242,239         116,565
   Deferred software sales                                              140,966          95,024
   Shareholder Notes Payable                                             52,000         102,000
                                                                   ------------    ------------
     Total current liabilities                                          834,111         735,794

Long-term deferred maintenance revenues, net of current portion          14,809          14,809
                                                                   ------------    ------------
   Total Liabilities                                                    848,920         750,603
                                                                   ------------    ------------
Shareholders' Deficit
   Common stock, $0.01 par value, 100,000,000 shares authorized,
     33,785,838 shares issued and outstanding at
     November 30, 2006 and 24,674,338 at May 31, 2006.                  337,859         246,744
   Paid-in capital                                                   43,785,925      43,876,129
   Accumulated deficit                                              (44,579,363)    (44,526,685)
   Treasury stock (4,780 shares), at cost                               (89,032)        (89,032)
                                                                   ------------    ------------
     Total Stockholders' Deficit                                       (544,611)       (492,844)
                                                                   ------------    ------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $    304,309    $    257,759
                                                                   ============    ============


                    SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                                4


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                                          PURCHASESOFT, INC.
                                  STATEMENT OF OPERATIONS (UNAUDITED)
                      FOR THREE AND SIX MONTHS ENDING NOVEMBER 30, 2006 AND 2005

                                        SIX MONTHS       SIX MONTHS      THREE MONTHS    THREE MONTHS
                                            ENDED           ENDED           ENDED           ENDED
                                         NOVEMBER 30,    NOVEMBER 30,    NOVEMBER 30,    NOVEMBER 30,
                                             2006            2005            2006            2005
                                         ------------    ------------    ------------    ------------
REVENUE:
   Products                              $    129,763    $    257,284    $     51,124    $    142,146
   Services                                   150,401         120,824          73,539          71,662
                                         ------------    ------------    ------------    ------------
     Total Revenues                           280,164         378,108         124,663         213,808

OPERATING EXPENSES:
   Cost of revenue                            170,018         197,517          82,303          93,163
   General and Administrative                 160,539         148,270          85,130          82,988
                                         ------------    ------------    ------------    ------------
     Total Operating Expenses                 330,557         345,787         167,433         176,151
                                         ------------    ------------    ------------    ------------

     OPERATING PROFIT (LOSS)                  (50,393)         32,321         (42,770)         37,657
                                         ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)
   Interest Expense                            (2,285)         (3,970)         (1,064)         (1,923)
                                         ------------    ------------    ------------    ------------
     Total Other Expense                       (2,285)         (3,970)         (1,064)         (1,923)
                                         ------------    ------------    ------------    ------------

     NET INCOME (LOSS)                        (52,678)         28,351         (43,834)         35,734
                                         ============    ============    ============    ============

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

Weighted average number of shares          25,769,759      19,236,272      26,877,167      19,638,398




                       SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS


                                                   5


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                                                 PURCHASESOFT, INC.
                                         STATEMENT OF CASH FLOWS (UNAUDITED)
                             FOR THREE AND SIX MONTHS ENDING NOVEMBER 30, 2006 AND 2005

                                                           SIX MONTHS     SIX MONTHS    THREE MONTHS   THREE MONTHS
                                                              ENDED          ENDED          ENDED          ENDED
                                                           NOVEMBER 30,   NOVEMBER 30,   NOVEMBER 30,   NOVEMBER 30,
                                                              2006            2005          2006           2005
                                                           -----------    -----------    -----------    -----------
Cash Flows from Operating Activities:
   Net Income (loss)                                       $   (52,678)   $    28,351    $   (43,834)       $35,734
   Adjustments to reconcile net (loss)
   to net cash used in operating activities:
     Depreciation and amortization                               3,400          3,365          1,745          1,719
     Common Stock Issued for Services                              911             --            911             --
   Increase (decrease) in:
     Accounts receivable                                          (234)        (2,857)       (21,329)        27,220
     Prepaid licenses                                           (6,157)         1,570            721          1,570
     Prepaid expenses                                              687             --            343             --
     Accounts payable and accrued expenses                     (23,299)        62,802        (59,098)        31,851
     Deferred Revenue-Maintenance                              125,674         25,027         19,318         26,591
     Deferred Software Sales                                    45,942         25,027        140,966         26,591
                                                           -----------    -----------    -----------    -----------
     TOTAL ADJUSTMENTS                                         146,924         89,907         83,577         88,951
                                                           -----------    -----------    -----------    -----------
     NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES        94,246        118,258         39,743        124,685

CASH FLOWS (USED IN) INVESTING ACTIVITIES:
         Purchase of Property and Equipment                     (2,490)            --         (2,146)            --
                                                           -----------    -----------    -----------    -----------
         NET CASH USED IN INVESTING ACTIVITIES                  (2,490)            --         (2,146)            --

Cash Flows from Financing Activities:
   Repayment of related party notes                            (50,000)       (10,000)       (22,000)            --
                                                           -----------    -----------    -----------    -----------
     NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES            (50,000)       (10,000)       (22,000)            --
                                                           -----------    -----------    -----------    -----------
     NET INCREASE (DECREASE) IN CASH                            41,756        108,258         15,597        124,684
                                                           -----------    -----------    -----------    -----------
Cash balance at beginning of period                             78,365         45,967        104,524         29,541
                                                           -----------    -----------    -----------    -----------
CASH BALANCE AT END OF PERIOD                              $   120,121    $   154,225    $   120,121    $   154,225
                                                           ===========    ===========    ===========    ===========



                              SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                                          6
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               NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                   (UNAUDITED)


A. BUSINESS AND ORGANIZATION

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

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. These financial statements do no include any
adjustments that might result from this uncertainty.


B. ACCOUNTING METHOD

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

C. PROPERTY & EQUIPMENT

Property and equipment is recorded at cost. Major additions and improvements are
capitalized. The cost and related accumulated depreciation of equipment retired
or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as a gain or
loss on sale of equipment. Depreciation is computed using the straight-line
method over the estimated useful life of the assets.

D. CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares of
common stock at a par value of $0.01. At November 30, 2006 and May 31, 2006
there were 33,785,838 and 24,674,338 shares issued and outstanding,
respectively. All common stock shares are presented to reflect a 5 to 1 reverse
stock split approved by the Board of Directors on March 1, 2005.

During the quarter ended November 30, 2006, 9,000,000 common shares were issued
to Officers of the Company for services totaling $900 and 111,500 common shares
were issued to non-affiliation individuals for services totaling $11.

E. INCOME TAXES

The components of the deferred tax asset are as follows:

                                                 NOVEMBER 30,         MAY 31,
                                                    2006               2006
                                                 -----------        -----------
DEFERRED TAX ASSET:
Net Operating Loss Carryforward                  $ 6,477,148        $ 6,456,167

Valuation Allowance                               (6,477,148)        (6,456,167)
                                                 -----------        -----------
Net Deferred Tax Asset                           $        --        $        --
                                                 ===========        ===========

                                        7



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The company had available approximately $16,262,000 and $16,209,000 of unused
Federal and state net operating loss carryforwards at November 30, 2006 and May
31, 2006, respectively that may be applied against future taxable income. These
net operating loss carryforwards expire through 2022 and 2012 for federal and
state purposes, respectively. The State of California has suspended the use of
net operating losses for years ended May 31, 2004 and 2003. There is no
assurance that the Company will realize the benefit of the net operating loss
carryforwards.

Reconciliation of the differences between the statutory tax rate and the
effective income tax rate is as follows:

                                                 NOVEMBER 30,         MAY 31,
                                                    2006               2006
                                                 -----------        -----------

Statutory Federal Tax (Benefit) Rate               -34.00%             -34.00%
Statutory State Tax (Benefit) Rate                  -5.83%              -5.83%
                                                 -----------        -----------
Effective Tax (Benefit) Rate                       -39.83%             -39.83%
                                                 -----------        -----------

Valuation Allowance                                 39.83%              39.83%
                                                 -----------        -----------
Effective Income Tax                                 0.00%               0.00%
                                                 ===========        ===========

SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. At November 30, 2006 and May 31, 2006, valuation allowances for the
full amount of the net deferred tax asset were established due to the
uncertainties as to the amount of the taxable income that would be generated in
future years.

F. ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

G. REVENUE RECOGNITION

In December 1998, AcSEC issued SOP 98-9, Modification of SOP 97-2, "Software
Revenue Recognition, With Respect to Certain Transactions" (product no. 014920).
This SOP amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition,
to require recognition of revenue using the "residual method" when (1) there is
vendor-specific objective evidence of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting, (2) vendor-specific objective evidence of fair
value does not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than the
requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
the arrangement fee is recognized as follows: (1) the total fair value of the
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP 97-2 and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements.

Effective December 15, 1998, this SOP amends SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, "Software Revenue Recognition," to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999.

                                        8



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All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier adoption is permitted as of
the beginning of fiscal years or interim periods for which financial statements
or information have not been issued; retroactive application is prohibited.

Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" (SOP 98-9) was issued in
December 1998 and addresses software revenue recognition as it applies to
certain multiple-element arrangements. SOP 98-9 also amends Statement of
Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2", to
extend the deferral of application of certain passages of Statement of Position
97-2 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning in after March 15, 1999. We will comply with the requirements of
SOP 98-9 as they become effective and this is not expected to have significant
effect on our revenue recognition.

In accordance with SOP 97-2, as amended by SOP 98-4 and. SOP 98-9, revenue from
product licensing fees is recognized when the product is delivered, all
significant contractual obligations have been satisfied and the resulting
receivable is deemed collectible by management. Service revenue from software
maintenance agreements is recognized ratably over the maintenance period, which
in most instances is one year. Other service revenues, primarily consulting, are
generally recognized at the time the service is performed.

H. RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. The Company has evaluated the impact
of the adoption of SFAS 152, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.
"The amendments made by Statement 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished.


                                        9


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Opinion 29 provided an exception to its basic measurement principle (fair value)
for exchanges of similar productive assets. The Board believes that exception
required that some nonmonetary exchanges, although commercially substantive, be
recorded on a carryover basis. By focusing the exception on exchanges that lack
Board believes this Statement produces financial reporting that more faithfully
represents the economics of the transactions. The Statement is effective
commercial substance, the for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after the date
of issuance. The provisions of this Statement shall be applied prospectively.
The Company has evaluated the impact of the adoption of SFAS 153, and does not
believe the impact will be significant to the Company's overall results of
operations or financial position.

In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins
after June 15, 2005.

The Company adopted Statement 123(R) in December of 2005.

In December 2004, the Financial Accounting Standards Board issued two FASB Staff
Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. Neither of these affected the Company as it
does not participate in the related activities.

In March 2005, the SEC released Staff Accounting Bulletin No. 107, "Share-Based
Payment" ("SAB 107"), which provides interpretive guidance related to the
interaction between SFAS 123(R) and certain SEC rules and regulations. It also
provides the SEC staff's views regarding valuation of share-based payment
arrangements. In April 2005, the SEC amended the compliance dates for SFAS
123(R), to allow companies to implement the standard at the beginning of their
next fiscal year, instead of the next reporting period beginning after June 15,
2005. Management is currently evaluating the impact SAB 107 will have on our
consolidated financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance
relating to the identification of and financial reporting for legal obligations
to perform an asset retirement activity. The Interpretation requires recognition
of a liability for the fair value of a conditional asset retirement obligation
when incurred if the liability's fair value can be reasonably estimated. FIN 47
also defines when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The provision is
effective no later than the end of fiscal years ending after December 15, 2005.
The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006
and does not believe the adoption will have a material impact on its
consolidated financial position or results of operations or cash flows.


                                       10


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In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and
Error Corrections." This new standard replaces APB Opinion No. 20, "Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements," and represents another step in the FASB's goal to
converge its standards with those issued by the IASB. Among other changes,
Statement 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on
the new accounting principle, unless it is impracticable to do so. Statement 154
also provides that (1) a change in method of depreciating or amortizing a
long-lived non-financial asset be accounted for as a change in estimate
(prospectively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should be termed
a "restatement." The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005. The
Company has evaluated the impact of the adoption of Statement 154 and does not
believe the impact will be significant to the Company's overall results of
operations or financial position.

In February of 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments", which is intended to simplify the accounting and
improve the financial reporting of certain hybrid financial instruments (i.e.,
derivatives embedded in other financial instruments). The statement amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities--a replacement of FASB Statement No. 125." SFAS
No. 155 is effective for all financial instruments issued or acquired after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
The Company is currently evaluating the impact SFAS No. 155 will have on its
consolidated financial statements, if any.

The implementation of the provisions of these pronouncements are not expected to
have a significant effect on the Company's consolidated financial statement
presentation.

NOTE 2-PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                 NOVEMBER 30,         MAY 31,
                                                    2006               2006
                                                 -----------        -----------

Computer Equipment                               $    23,270        $    20,780

Less: Accumulated Depreciation                       (17,537)           (14,137)
                                                 -----------        -----------
Net Property & Equipment                         $     5,733        $     6,643
                                                 ===========        ===========


NOTE 3- SHAREHOLDER NOTE PAYABLE

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

As of May 31, 2006, the Company had a 6% interest bearing shareholder demand
note totaling $102,000. During the six months ended November 30, 2006 the
Company paid down its notes payable by $50,000 to $52,000.


                                       11


<page>


NOTE 4-COMMITMENTS AND CONTINGENCIES


                                 LEASE AGREEMENT

The Company has a one year lease on office space expiring on February 28, 2009
for a maximum of $40,308 annually.


                                   LITIGATION

The Company is not currently involved in any lawsuits or litigation.

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

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

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

                                    OVERVIEW

The financial results reflected are for the second quarter ended November 30,
2006. This financial statement should be read in conjunction with the Company's
Form 10-K as of May 31, 2006.

CURRENT OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES

Revenue. Year to date revenues for the six months ended November 30, 2006
decreased over 25% from the comparable period ended November 30, 2005. Product
sales for the six month period ended 2006 totaled $129,763 compared to $257,284
at November, 2005. In addition, within services revenues,


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<page>

consulting revenues comprised of both third-party consulting services and
charges for customization work of its core ImageLink product declined from
$32,311 at November, 2005 to $22,571 at November, 2006.

Maintenance revenues for the comparable periods has increased over 45%, from
$81,654 at November, 2005 to $118,994 at November of 2006, representing the
continued renewal of maintenance support for its core product sales.

For the three month period ended November 30, 2006 total revenues were $124,663
compared to $213,808 at November 30, 2005, a decline of $89,145, or nearly 40%,
with the predominance of this decline reflected in product sales which decreased
from $142,146 for the three month period ended November, 2005 to $51,124 at
November, 2006. Contributing to the overall decline in product sales is a change
in accounting policy with the adoption of SOP 97-2, as amended by SOP 98-4 and
SOP 98-9, revenue from product licenses fees is recognized when the product is
delivered, all significant contractual obligations have been satisfied and the
resulting receivable is deemed collectible by management. In prior fiscal
periods IMAGELINK sales and installations were contractually fulfilled within
several days upon receipt of payment. With the introduction of more complex
peripheral products such as Batch Processing, Bar Code and Work Flow,
installation time has increased from less than a week to upwards of two months.
If not for the incorporation of SOP 97-2, as amended by SOP 98-4 and SOP 98-9,
in fiscal year 2006, software sales would have been $101,000 higher for the six
month period ended November 30, 2006.

Operating Expenses. Operating expenses totaling $330,557 and $345,787
respectively, for the six months year-to-date November 30, 2006 and 2005 reflect
a moderate decline per full-time employee (FTE) as the company continues to
focus on cost containment.

Liquidity. The Company's cash balance is $120,121 at November 30, 2006 compared
to $154,225 for the comparable period ended November 30, 2005. The company for
the six month period ended November, 2006 relied on internally-generated funds
to support its operating activities with the repayment of shareholder notes of
$50,000 in the current period being the largest contributor to the decline in
cash at the quarter ending November 30, 2006.


ITEM 3: CONTROLS AND PROCEDURES

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

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


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<page>

                           PART II: OTHER INFORMATION

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



Exhibits

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

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

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

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





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<page>

SIGNATURES

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

                                            PurchaseSoft, Inc.
                                            (Issuer)


Date: February 15, 2008                     /s/ Steven A. Flagg
                                            -----------------------------------
                                            Steven A. Flagg
                                            President and CEO


Date: February 15, 2008                     /s/ Kevin A. Yanoscik
                                            -----------------------------------
                                            Kevin A. Yanoscik
                                            Secretary, Treasurer and CFO

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on February 15, 2008.

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

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

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



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