<PAGE>

================================================================================

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

                                   FORM 10-QSB

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

                 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 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                24,674,338 SHARES at 8/31/06
         PER SHARE

================================================================================


<PAGE>

                               PURCHASESOFT, INC.
                                   FORM 10-QSB
                          QUARTER ENDED AUGUST 31, 2006

                              CROSS REFERENCE SHEET

                         PART I - FINANCIAL INFORMATION


Item 1   Consolidated Financial Statements                                     4

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

Item 3   Controls and Procedures                                              13


                           PART II - OTHER INFORMATION

Item 1   Legal Proceedings                                                    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                                                                    15



<PAGE>


                               PURCHASESOFT, INC.
                                   FORM 10-QSB
                          QUARTER ENDED AUGUST 31, 2006
                                   (UNAUDITED)

                   ITEM I - CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                                      INDEX

Consolidated Balance Sheets                                                    4

Consolidated Statements of Income                                              5

Consolidated Statements of Cash Flows                                          6

Consolidated Notes to Financial Statements                                     7

                                        3

<PAGE>

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

                                       PURCHASESOFT, INC.
                                   CONSOLIDATED BALANCE SHEETS
                                AUGUST 31, 2006 AND MAY 31, 2006

=================================================================================================

                                             ASSETS
                                                                       UNAUDITED
                                                                    AUGUST 31, 2006  MAY 31, 2006
                                                                     ------------    ------------
Current Assets

   Cash                                                              $    104,705    $     78,365
   Accounts Receivable                                                     47,005          68,100
   Prepaid Licenses                                                         6,878              --
   Prepaid Expenses                                                         2,466           2,810
                                                                     ------------    ------------
          Total current assets                                            161,054         149,275

Property and equipment, net                                                 5,332           6,643
Other Assets
    Deposits                                                                4,839           4,839
    Goodwill                                                               97,002          97,002
                                                                     ------------    ------------
        TOTAL ASSETS                                                 $    268,227    $    257,759
                                                                     ============    ============

                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Accounts payable and accrued expenses                             $    445,751    $    422,205
   Deferred maintenance revenues, current portion                         222,921         211,589
   Shareholder Notes Payable                                               74,000         102,000
                                                                     ------------    ------------
     Total current liabilities                                            742,672         735,794

   Long-term deferred maintenance revenues, net of current portion         14,809          14,809
                                                                     ------------    ------------
          Total Liabilities                                               757,481         750,603
                                                                     ------------    ------------
Stockholders' Equity
   Common stock, $0.01 par value, 100,000,000 shares
     authorized with 24,674,338 shares issued and
     outstanding at August 31, 2006 and May 31, 2006                      246,744         246,744
   Additional paid-in capital                                          43,876,129      43,876,129
   Accumulated deficit                                                (44,523,095)    (44,526,685)
   Treasury stock (4,780 common shares), at cost                          (89,032)        (89,032)
                                                                     ------------    ------------
     Total stockholders' equity                                          (489,254)       (492,844)
                                                                     ------------    ------------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $    268,227    $    257,759
                                                                     ============    ============



                    SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                                4

<PAGE>

                               PURCHASESOFT, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                FOR THREE MONTHS ENDING AUGUST 31, 2006 AND 2005
                                    UNAUDITED

                                                     THREE MONTHS ENDED  THREE MONTHS ENDED
                                                       AUGUST 31, 2006    AUGUST 31, 2005
                                                       ---------------    ---------------
REVENUE:
   Products                                            $        93,559    $       115,138
   Services                                                     61,942             49,162
                                                       ---------------    ---------------
     Total Revenues                                            155,501            164,300
                                                       ---------------    ---------------

OPERATING EXPENSES:
    Costs of revenue                                            87,716            104,354
    General and Administrative                                  75,409             65,283

                                                       ---------------    ---------------
     Total Operating Expenses                                  163,125            169,637
                                                       ---------------    ---------------

     OPERATING (LOSS)                                           (7,624)            (5,337)
                                                       ---------------    ---------------

OTHER INCOME (EXPENSE)
                                                       ---------------    ---------------
   Interest Expense                                             (1,220)            (2,047)
                                                       ---------------    ---------------
     Total Other Expense                                        (1,220)            (2,047)
                                                       ---------------    ---------------

     NET (LOSS)                                        $        (8,844)   $        (7,384)
                                                       ===============    ===============

Net (loss) per share, basic and diluted                $         (0.00)   $         (0.00)
                                                       ===============    ===============

Weighted average number of shares, basic and diluted        24,674,387          6,657,453
                                                       ===============    ===============

            SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                        5


<PAGE>

                                       PURCHASESOFT, INC.
                              CONSOLIDATED STATEMENT OF CASH FLOWS
                        FOR THREE MONTHS ENDING AUGUST 31, 2006 AND 2005
                                            UNAUDITED

FOR THREE MONTHS ENDED                                          AUGUST 31, 2006       AUGUST 31, 2005
                                                               -----------------    -----------------
Cash Flows from Operating Activities:

   Net (loss)                                                  $          (8,844)   $          (7,384)
   Adjustments to reconcile net (loss) to net cash
   used in operating activities:
     Depreciation and amortization                                         1,655                1,646
   Increase (decrease) in:
     Accounts receivable                                                  21,095              (30,077)
     Prepaid licenses                                                     (6,878)                  --
     Prepaid expenses                                                        344                   --
     Accounts payable and accrued expenses                                26,992               30,953
     Deferred maintenance revenue                                         11,333               (1,564)
     Deferred Sales                                                        8,806                   --
                                                               -----------------    -----------------
     TOTAL ADJUSTMENTS                                                    63,347                  958
                                                               -----------------    -----------------
         NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES              54,503               (6,426)
                                                               -----------------    -----------------

        CASH FLOWS (USED IN) INVESTING ACTIVITIES
             Purchase of Property and Equipment                             (344)                  --

         NET CASH USED IN INVESTING ACTIVITIES                              (344)                  --

Cash Flows from Financing Activities:
    Repayment of related party notes                                     (28,000)             (10,000)
                                                               -----------------    -----------------
     NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES                      (28,000)             (10,000)
                                                               -----------------    -----------------

     NET INCREASE (DECREASE) IN CASH                                      26,159              (16,426)

Cash balance at beginning of period                                       78,546               45,967
                                                               -----------------    -----------------

CASH BALANCE AT END OF PERIOD                                  $         104,705    $          29,541
                                                               =================    =================

NON-CASH TRANSACTIONS
                                                               -----------------    -----------------

         TOTAL NON-CASH TRANSACTIONS                           $              --    $              --


                    SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                                6
</TABLE>

<PAGE>

                               PURCHASESOFT, INC.
               NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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
environment.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. These financial statements do not 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 August 31, 2006 and May 31, 2006 there
were 24,674,338 shares issued and outstanding. All common stock shares are
presented to reflect a 5 to 1 reverse stock split approved by the Board of
Directors on March 1, 2005.

E. INCOME TAXES

The components of the deferred tax asset are as follows:

                                                    AUGUST 31,          MAY 31,
                                                      2006               2006
                                                   -----------       -----------

DEFERRED TAX ASSET:
Net Operating Loss Carryforward                    $16,218,150       $16,209,306
Valuation Allowance                                 16,218,150        16,209,306
                                                   -----------       -----------
Net Deferred Tax Asset                             $        --       $        --
                                                   ===========       ===========


                                        7

<PAGE>

The Company had available approximately $16,218,150 and $16,209,306 of unused
Federal and state net operating loss carryforwards at August 31, 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.

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 May 31, 2004 and 2003, 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.


Reconciliation of the differences between the statutory tax rate and the
effective income tax rate is as follows:
                                                         AUGUST 31,     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%
                                                        ===========   ==========

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

<PAGE>

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. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.


                                        9

<PAGE>

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

<PAGE>

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:

                                                      AUGUST 31,        MAY 31,
                                                         2006            2006
                                                      --------         --------
Computer Equipment                                    $ 20,095         $ 20,780
Less: Accumulated Depreciation                         (14,763)         (14,137)
                                                      --------         --------
Net Property & Equipment                              $  5,332         $  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 three months ended August 31, 2006 the
Company paid down its notes payable by $28,000 to $74,000.


                                       11

<PAGE>

NOTE 4- STOCKHOLDERS' EQUITY

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

The Company issued no shares of common stock during the period.

NOTE 5-COMMITMENTS AND CONTIGENCIES

                                 LEASE AGREEMENT

The Company has a one year lease on office space expiring on February 28, 2008
for a maximum $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 first quarter ended August 31, 2006.
This financial statement should be read in conjunction with the Company's Form
10-K as of May 31, 2006.

                                       12

<PAGE>

CURRENT OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES

REVENUE. Revenues for the first quarter ended August 31, 2006 showed a modest
decline from the prior comparable period. At August 31, 2006 revenues were
$155,501 compared to $164,300 for 2005. Software sales were $93,559 compared to
$115,138 at August 31, 2006 and 2005, respectively. First quarter 2005 results
included a large sale to one client of its proprietary AP-Distar product that
comprised $36,000. Consulting revenues, both third-party and IMAGELINK related
increased from $5,275 to $14,921 between August, 2005 and 2006, respectively.
Significantly, maintenance revenues increased from $40,458 to $57,279 for the
comparable periods reflecting a growing customer base and minimal run-off of
existing customers as maintenance renewals were over 90% in the current quarter.

OPERATING EXPENSES. Cost of revenues totaling $87,716 reflect a $16,638 decrease
from the prior comparable period representing the continued lowering of overhead
expenses from the acquisition of CIE. General and administrative expenses
increased moderately, from $65,283 to $75,409 with moderate increases across
most expense categories.

LIQUIDITY. The Company's cash balance was $104,705 at August 31, 2006 compared
to $78,365 at May 31, 2006. Cash flow from operations at August 31, 2006 was
$54,503 versus a negative ($6,426) at August, 2005.


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.


                                       13


<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

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.

                                       14


<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: January 18, 2008                              /s/ Steven A. Flagg
                                                    ------------------------
                                                    Steven A. Flagg
                                                    President and CEO


Date: January 18, 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 January 18, 2008.

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

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

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

                                       15