<PAGE>

===============================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q
(Mark One)
[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the quarterly period ended          June 30, 2001
                               --------------------------------

                                       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: 0-26245
                                                 -------

                                  ESPS, Inc.
            (Exact name of registrant as specified in its charter)

               Delaware                               23-2762324
     -------------------------------              -------------------
     (State or other jurisdiction of              (I.R.S. Employer
     incorporation or organization)               Identification No.)

     1300 Virginia Drive, Suite 125, Ft. Washington, PA             19034
     ---------------------------------------------------          ----------
           (Address of principal executive offices)               (Zip Code)

      Registrant's telephone number, including area code: (215) 619-6000
                                                          --------------




                                     N/A
        ----------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                              since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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___
                                       -

As of August 9, 2001, 17,625,823 shares of the registrant's Common Stock, par
value $0.001 per share, were outstanding.
<PAGE>

                                  ESPS, INC.

                                   FORM 10-Q
                               QUARTERLY REPORT
                                     INDEX

<TABLE>
<CAPTION>
                                                                       Page No.
                                                                       --------
<S>                                                                    <C>
Facing Sheet                                                              1

Index                                                                     2

PART I - FINANCIAL INFORMATION
------------------------------

Item 1.     Financial Statements

            Consolidated Balance Sheets (Unaudited)                       3

            Consolidated Statements of Operations (Unaudited)             4

            Consolidated Statements of Cash Flows (Unaudited)             5

            Notes to Financial Statements (Unaudited)                     6

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                           7

Item 3.     Quantitative and Qualitative Disclosure About Market Risk    16

PART II - OTHER INFORMATION

Item 1.     Legal Proceedings                                            16

Item 2.     Changes in Securities and Use of Proceeds                    16

Item 3.     Defaults upon Senior Securities                              16

Item 4.     Submission of Matters to a Vote of Security Holders          17

Item 5.     Other Information                                            17

Item 6.     Exhibits and Reports on Form 8-K                             17

            Signatures                                                   18
</TABLE>

                                       2
<PAGE>

PART I - FINANCIAL INFORMATION
------------------------------
Item 1.  FINANCIAL STATEMENTS
-----------------------------

                                   ESPS, INC.
                                   ----------
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                            June 30, 2001            March 31, 2001
                                                                            -------------            --------------
                                                                             (Unaudited)
<S>                                                                         <C>                      <C>
Assets
Current assets:
    Cash and cash equivalents                                                 $  15,453                $ 19,511
    Accounts receivable, net of allowance of $288 for both periods                6,221                   6,343
    Other current assets                                                          1,308                     742
    Refundable income taxes                                                         348                     366
                                                                              ---------                --------
       Total current assets                                                      23,330                  26,962
Notes receivable                                                                  1,133                   1,124
Property and equipment, net                                                       4,418                   4,524
Capitalized software, net                                                         1,068                   1,131
Other assets                                                                        169                     169
                                                                              ---------                --------
Total assets                                                                  $  30,118                $ 33,910
                                                                              =========                ========

Liabilities and stockholders' equity
Current liabilities:
    Current portion of long-term debt                                         $     128                $    126
    Accounts payable                                                              1,304                     936
    Accrued expenses                                                              2,898                   3,635
    Installment obligation payable                                                  674                      --
    Deferred revenues                                                             5,436                   6,388
                                                                              ---------                --------
       Total current liabilities                                                 10,440                  11,085

Capital lease obligation                                                            276                     309

Stockholders' equity:
    Common stock, $0.001 par value: Authorized shares 50,000;
        issued and outstanding shares, 17,583 shares at June 30, 2001
        and 17,338 shares at March 31, 2001                                          18                      17
    Additional paid-in capital                                                   30,488                  30,467
    Retained deficit                                                            (11,100)                 (7,962)
    Deferred stock compensation                                                      (4)                     (6)
                                                                              ---------                --------
Stockholders' equity                                                             19,402                  22,516
                                                                              ---------                --------
Total liabilities and stockholders' equity                                    $  30,118                $ 33,910
                                                                              =========                ========
</TABLE>

           See accompanying notes to unaudited financial statements.

                                       3
<PAGE>

                                  ESPS, INC.
                                  ----------
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     -------------------------------------
                     (In thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three months ended
                                                                    ------------------
                                                                         June 30,
                                                                         --------
                                                                    2001          2000
                                                                    ----          ----
<S>                                                                <C>         <C>
Revenues:
   Software licenses                                               $   899     $ 3,868
   Professional services and support                                 3,643       2,417
                                                                   -------     -------
         Total revenues                                              4,542       6,285

Cost of revenues:
   Software licenses                                                   158          90
   Professional services and support                                 2,036       1,673
                                                                   -------     -------
         Total cost of revenues                                      2,194       1,763
                                                                   -------     -------

Gross profit                                                         2,348       4,522
Operating expenses:
   Research and development                                          1,394       1,344
   Sales and marketing                                               3,114       2,232
   General and administrative                                        1,272         982
                                                                   -------     -------
         Total operating expenses                                    5,780       4,558
                                                                   -------     -------

Loss from operations                                                (3,432)        (36)
Other income                                                           102          --
Interest, net                                                          192         336
                                                                   -------     -------
Income (loss) before income taxes                                   (3,138)        300
Income taxes
                                                                        --          --
                                                                   -------     -------
Net income (loss)                                                  $(3,138)    $   300
                                                                   =======     =======

Income (loss) per share:
         Basic                                                     $ (0.18)    $  0.02
                                                                   =======     =======
         Diluted                                                   $ (0.18)    $  0.02
                                                                   =======     =======
Shares used in computation of income/(loss) per share:
         Basic                                                      17,490      16,319
                                                                   =======     =======
         Diluted                                                    17,490      18,250
                                                                   =======     =======
</TABLE>

           See accompanying notes to unaudited financial statements.

                                       4
<PAGE>

                                  ESPS, INC.
                                  ----------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------
                                (In thousands)
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                                         Three months ended
                                                                                         ------------------
                                                                                              June 30,
                                                                                              --------
                                                                                         2001           2000
                                                                                         ----           ----
<S>                                                                                    <C>           <C>
Operating activities:
   Net income (loss)                                                                   $(3,138)      $   300
   Adjustments to reconcile net income to net cash provided in
        Operating activities:
           Depreciation                                                                    467           303
           Amortization:
               Marketable software                                                         116            --
               Deferred stock compensation                                                   2            10
           Changes in operating assets and liabilities:
               Accounts receivable                                                         122          (192)
               Other assets                                                               (575)          (45)
               Prepaid taxes                                                                18           727
               Other current liabilities                                                   305          (101)
               Deferred revenues                                                          (952)         (273)
                                                                                       -------       -------
   Net cash (used in) provided by operating activities                                  (3,635)          729
                                                                                       -------       -------
Investing Activities:
Purchases of property and equipment                                                       (361)         (215)
Investment in marketable software                                                          (53)           --
                                                                                       -------       -------
   Net cash used in investing activities                                                  (414)         (215)
                                                                                       -------       -------

Financing activities:
Repayments of capital lease obligation                                                     (31)          (28)
Proceeds from exercise of stock options and employee stock purchase plan                    22           236
                                                                                       -------       -------
   Net cash (used in) provided by financing activities                                      (9)          208

Net (decrease) increase in cash and cash equivalents                                    (4,058)          722
Cash and cash equivalents balance, beginning of period                                  19,511        22,593
                                                                                       -------       -------
Cash and cash equivalents balance, end of period                                       $15,453       $23,315
                                                                                       =======       =======

Supplemental cash flow disclosure:
   Interest paid                                                                            12            11
   Cash received for income taxes                                                           18            --
</TABLE>

           See accompanying notes to unaudited financial statements.

                                       5
<PAGE>

Item 1.   FINANCIAL STATEMENTS (Continued)
-------   --------------------------------

                                  ESPS, INC.
                                  ----------
                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------
                                  (Unaudited)

1.  Description of Business and Basis of Presentation
    -------------------------------------------------

ESPS, Inc. is a leading developer of publishing software solutions for
document-intensive industries. ESPS software and consulting solutions are
utilized by a majority of the world's top 20 pharmaceutical manufacturers and
serve a growing and diversified customer base requiring a robust publishing
initiative. ESPS' software solutions are recognized as best-of-breed and have
become the most widely used software solutions for regulatory and pre-market
approval initiatives.

On April 30, 2001, we announced that we adopted a new name, Liquent. We plan on
adopting an official corporate name change upon approval of such change by our
shareholders at our annual shareholders' meeting. Until that time, we will be
doing business as Liquent. Effective July 30, 2001, we are using the ticker
symbol "LQNT". For purposes of this report, the Company will be referred to
hereinafter as "Liquent," or the "Company."

The Liquent product suite currently consists of CoreDossierX(TM),
kPublisher(TM), kportal(TM), and Liquent xTent(TM). These products offer
customers flexible, scalable options for applying our proven technology to their
specific publishing needs. Our products integrate seamlessly with each other and
with most content management systems, enabling customers to maximize the value
of all their software investments. In addition to advanced technology, we
provide our customers with in-depth industry-specific compliance expertise that
allows us to better understand their publishing needs and requirements through
our consulting and software support services.

Interim Financial Information

The accompanying unaudited financial statements have been prepared in conformity
with accounting principles generally accepted in the United States for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In our opinion, the statements include all adjustments necessary
(which are of a normal and recurring nature except for the Xerox transaction
described in the notes) for the fair presentation of the results of the interim
periods presented. In the quarter ended March 31, 2001, as described in our
Annual Report on Form 10-K for the year ended March 31, 2001, the Company
restated prior 2001 and 2000 quarterly and annual financial statements. The
financial information in this Form 10-Q for the quarter ended June 30, 2000
reflects those restated amounts. The financial statements and footnotes included
in this Form 10-Q should be read in conjunction with our audited financial
statements for the fiscal year ended March 31, 2001, included in our Annual
Report on Form 10-K for the year ended March 31, 2001, filed with the Securities
and Exchange Commission.

Our results of operations for any interim period are not necessarily indicative
of the results of operations for any future interim period or for the full
fiscal year.

2.  Accounting Policies
    -------------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

3.  Net Income Per Common Share
    ---------------------------

Basic net income per common share is calculated by dividing the net income by
the weighted average number of common shares outstanding for the period.

                                       6
<PAGE>

Diluted net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable upon
the exercise of stock options using the treasury stock method. Common equivalent
shares are not included in the calculation for the quarter ended June 30, 2001
because the effect would be antidilutive.

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                            Three months ended
                                                            ------------------
                                                                 June 30,
                                                                 --------
                                                            2001          2000
                                                            ----          ----
<S>                                                      <C>           <C>
Net income (loss)                                        $(3,138)      $   300
                                                         =======       =======
Weighted average number of common shares outstanding      17,490        16,319
Effect of dilutive securities:
   Stock options                                              --         1,931
                                                         -------       -------
Adjusted weighted average shares outstanding              17,490        18,250
                                                         =======       =======
Earnings (loss) per share:
   Basic                                                 $ (0.18)      $  0.02
                                                         =======       =======
   Diluted                                               $ (0.18)      $  0.02
                                                         =======       =======
</TABLE>

4. Acquisition of Software
   -----------------------

On March 2, 2000, the Company acquired the XDP software product from Xerox
Corporation in exchange for 175,824 shares of common stock valued at $1.1
million plus acquisition costs of $100,000. Components of the software were used
by the Company to develop additional software products to add to the Company's
suite of products. The Company introduced the latest version of its technology
that reflected features and functionalities based on the purchased technology
during September 2000, and accordingly, commenced amortization of the purchased
software at that time. These costs are being amortized on a straight-line basis
over an estimated economic life of three years.

Additionally, the Company entered into a reseller agreement, whereby Xerox would
act as a non-exclusive reseller for all of the Company's products. Under the
terms of the agreement, Xerox was entitled to receive discounts off of the list
price of the products sold based on sales volume. As of March 31, 2000
(restated), the Company deferred the recognition of $773,000 in revenues under
the reseller agreement for products sold to Xerox that were not distributed to
end users.

In June 2001, the Company renegotiated the terms of a development and reseller
arrangement with Xerox Corporation. In connection with the renegotiations, the
Company obtained the exclusive right to sell certain of its products to a group
of customers and granted Xerox the right to utilize certain software purchased
from the Company under the original reseller agreement for Xerox's internal use.
The Company agreed to pay Xerox Corporation a fee of approximately $672,000 in
four equal quarterly installments with the first installment due in July 2001.
Under the terms of the new arrangement, Xerox is no longer permitted to resell
the Company's products, including the $773,000 previously purchased by Xerox
from the Company that was classified as deferred revenue in the Company's March
31, 2001 balance sheet. As a result, the Company reclassified an amount equal to
the future payment obligation to Xerox under the terms of the new agreement from
deferred revenue to installment obligation payable in its June 30, 2001 balance
sheet, and recorded the remaining amount of deferred revenue as other income
during the quarter ended June 30, 2001. Payments to Xerox under the new
arrangement will be reflected in future periods as reductions in the installment
obligation payable.

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

Certain statements in this Form 10-Q contain "forward-looking" information (as
defined in Section 27A of the Securities Act of 1933, as amended) that involves
risks and uncertainties that may cause actual results to differ materially from
those predicted in the forward-looking statements. If any of our assumptions on
which the statements are based prove incorrect or should unanticipated
circumstances arise, our actual results could materially differ from those
anticipated by such forward-looking statements. The differences could be caused
by a number of factors or combination of factors, including, but not limited to,
those listed under the caption "Factors Affecting

                                       7
<PAGE>

Operating Results" described herein and the Risk Factors set forth in our
filings with the Securities and Exchange Commission, including our Form 10-K for
the year ended March 31, 2001.

Overview
--------

ESPS, Inc. is a leading developer of publishing software solutions for
document-intensive industries. ESPS software and consulting solutions are
utilized by a majority of the world's top 20 pharmaceutical manufacturers and
serve a growing and diversified customer base requiring a robust publishing
initiative. ESPS' software solutions are recognized as best-of-breed and have
become the most widely used software solution for regulatory and pre-market
approval initiatives.

On April 30, 2001, we announced that we adopted a new name, Liquent. We plan to
adopt an official corporate name change upon approval of such change by our
shareholders at our annual shareholders' meeting. Until that time, we will be
doing business as Liquent. On July 30, 2001, we changed our ticker symbol to
"LQNT" to reflect our new name. For purposes of this report, the Company will be
referred to hereinafter as "Liquent," or the "Company."

Founded in 1994, Liquent is a leading provider of content assembly and
publishing solutions for the Life Sciences industry. Built on proven,
world-class rendering technology that transforms proprietary content into open
formats such as XML and PDF, Liquent software and services are used by a
majority of the top 20 global pharmaceutical companies.

Liquent's corporate headquarters is located at 1300 Virginia Drive, Fort
Washington, Pennsylvania, 19034 Telephone: (215) 619-6000. The Company was
incorporated in Delaware in April 1994 under the name Electronic Submission
Publishing Systems, Inc. The Company also maintains offices in the United
Kingdom, La Jolla, California, Latham, New York and Research Triangle Park,
North Carolina.

Results of Operations
---------------------

The following table presents statement of operations data as a percentage of
total revenues:

<TABLE>
<CAPTION>
                                                        Three months
                                                       Ended June 30,
                                                       --------------
                                                     2001          2000
                                                     ----          ----
<S>                                                  <C>          <C>
Statement of Operations Data:
     Revenues:
          Software license                           19.8%         61.5%
          Professional services and support          80.2          38.5
                                                    -----         -----
               Total revenues                       100.0         100.0
     Cost of revenues:
          Software licenses                           3.5           1.5
          Professional services and support          44.8          26.6
                                                    -----         -----
               Total cost of revenues                48.3          28.1
                                                    -----         -----
     Gross profit                                    51.7          71.9
     Operating expenses:
          Research and development                   30.7          21.4
          Sales and marketing                        68.6          35.5
          General and administrative                 28.0          15.6
                                                    -----         -----
               Total operating expenses             127.3          72.5
                                                    -----         -----
     Loss from operations                           (75.6)         (0.6)
     Other income                                     2.2            --
     Interest, net                                    4.2           5.3
                                                    -----         -----
     Income (loss) before income taxes              (69.2)          4.7
     Income taxes                                      --            --
                                                    -----         -----
     Net income (loss)                              (69.2)%         4.7%
                                                    =====         =====
</TABLE>

                                       8
<PAGE>

Comparison of Three Months Ended June 30, 2001 and 2000
-------------------------------------------------------

For the three months ended June 30, 2001, revenues were $4.5 million,
representing a decrease of 28% from the $6.3 million for the comparable period
in 2000. Net loss for the three months ended June 30, 2001, was $3.1 million, or
$0.18 per diluted share, compared to net income of $300,000, or $0.02 per
diluted share for the same period in 2000. Weighted average shares used in
computing diluted earnings per share in the first quarter of fiscal year 2002
were 17.5 million versus 18.3 million in the same period in the prior year.

Revenues

Total revenues consist of revenues from software licenses and professional
services and support. Professional services and support revenues include
professional consulting, training and customer support services.

Software licenses revenues decreased 77% to $899,000 for the three months ended
June 30, 2001, from $3.9 million for the quarter ended June 30, 2000. This
decrease was attributable to lengthening sales cycles, a general economic
slowdown and price sensitivity within our customer base.

Professional services and support revenues increased 51% to $3.6 million for the
three months ended June 30, 2001, from $2.4 million for the quarter ended June
30, 2000. This increase resulted primarily from an increase in customer support
revenues and an increase in consulting and training services revenue. These
increases were driven by an increase in our customer base as well as a general
increase in the number of installed licenses for which we currently provide
support. We expect the proportion of professional services and support revenues
to total revenues to fluctuate in the future, depending in part on our
customers' direct use of third-party consulting and implementation service
providers.

Revenues derived from international customers were $744,000 for the quarter
ended June 30, 2001, and $883,000 for the quarter ended June 30, 2000. The
decrease was primarily attributable to delays in the execution of certain
anticipated software license agreements with European customers. International
revenues accounted for 16% of total revenues in the quarter ended June 30, 2001,
and 14% in the quarter ended June 30, 2000. In order to expand international
sales, we have made significant investments in our European operations including
the hiring of new personnel, the relocation of our European office, and the
establishment of a European technical support call center. To the extent that we
are unable to achieve expected international revenue growth in a timely manner,
our business, operating results and financial condition could be seriously
harmed. We cannot guarantee that we will be able to maintain or increase
international market demand for our products. In some markets, localization of
our products is essential to achieve market penetration. We may incur
substantial costs and experience delays in localizing our products, and we
cannot guarantee that any localized product will ever generate significant
revenue.

Cost of Revenues

Cost of software licenses revenues consists primarily of royalties we pay to
third parties for the use of their technology incorporated into our CoreDossier
products and amortization of capitalized software costs. Cost of software
licenses revenues increased to $158,000 for the quarter ended June 30, 2001 from
$90,000 for the quarter ended June 30, 2000. Cost of software licenses revenues
as a percentage of software licenses revenues were 18.0% for the quarter ended
June 30, 2001 and 2.3% for the quarter ended June 30, 2000. The increase in cost
of software license revenues resulted primarily from the amortization of
purchased and capitalized software costs that commenced in September 2000.
During March 2000, we purchased third-party software that was used as the basis
for the design of features and functions in the latest version of CoreDossier,
which was released in September 2000. In September 2000, we commenced
amortization of this purchased software over an estimated economic life of three
years. During the fiscal year ended March 31, 2001, we also capitalized internal
costs related to the development of software to be licensed to third parties
amounting to approximately $200,000. Amortization of these capitalized costs
occurs generally on a straight-line basis over an estimated economic life of
three years.

We currently have a license agreement with Versant Object Technology Corporation
for the use of technology that is embedded in CoreDossier. Under the terms of
the license agreement, we have the right to use and copy Versant's software to
develop and combine Versant's technology with our software products to create
applications in exchange for royalties ranging from 1.7% to 2.5% of the sales of
certain products. The royalties are recorded as a cost

                                       9
<PAGE>

of software license revenue in the same period as the related software license
revenue. Our license is non-exclusive, non-transferable and non-assignable. In
September 1999, we prepaid royalty fees to Versant of $500,000. As of June 30,
2001, we have a remaining prepayment of approximately $178,000. We have no
contractual obligation for additional purchases from Versant.

Cost of professional services and support revenues consists primarily of
personnel costs related to professional services and customer support. Cost of
professional services and support revenues increased 22% to $2.0 million for the
quarter ended June 30, 2001, from $1.7 million for the quarter ended June 30,
2000. This increase resulted primarily from the hiring and training of 4
professional services and customer support personnel to support our increased
customer base. The number of our professional services and customer support
personnel increased to 57 at June 30, 2001, from 53 at June 30, 2000. Cost of
professional services and support revenues as a percentage of professional
services and support revenues was 56% for the quarter ended June 30, 2001 and
69% for quarter ended June 30, 2000. The cost of professional services and
support revenues as a percentage of professional services and support revenues
may vary among periods because of changes in the mix of services we provide
which have different revenue margins. The decrease in cost of professional
services and support revenues as a percentage of professional services and
support revenues resulted primarily from increased customer support revenues,
which have higher margins than other professional services. In order to attain
profitability, we believe that we need to achieve increases in the utilization
rates of our professional services personnel. In order to attain these
utilization improvements, we must continue to increase the amount of services
provided to our customers. We derive a significant portion of our professional
service revenue from the implementation of software licensed by our customers.
In the event that we are unable to achieve increases in software license
revenues, the growth, if any, in our professional service revenues may be
limited, and as a result, we may experience increased operating losses. In
addition, to the extent that we are unable to modify current personnel levels
rapidly in response to changes in demand for our services, our operating results
and financial condition could be seriously harmed.

Operating Expenses

Research and development. Research and development expenses consist primarily of
salaries, benefits and depreciation of equipment for: software developers;
quality assurance personnel; and program managers and technical writers.
Research and development expenses increased 4% to $1.4 million for the quarter
ended June 30, 2001, from $1.3 million for the quarter ended June 30, 2000.
Research and development expenses represented 31% of our total revenues for the
quarter ended June 30, 2001, and 21% of our total revenues for the quarter ended
June 30, 2000. During March 2001, we implemented a restructuring plan that
resulted in a reduction in the number of research and development personnel on
staff. We believe that our future revenue growth is dependent upon our ability
to introduce new products that meet the evolving needs of our customers. The
reduction in research and development personnel results in limitations in the
number and size of development projects that can occur, and therefore the
headcount reductions may result in delay or inability to introduce new products.
In the event that we are unable to introduce new products in a timely manner,
our financial conditions and operating results could be materially affected.

Sales and marketing. Sales and marketing expenses consist primarily of:
salaries, commissions and bonuses earned by sales and marketing personnel;
travel and promotional expenses; and communication costs related to direct sales
efforts. Sales and marketing expenses increased 40% to $3.1 million for the
quarter ended June 30, 2001 from $2.2 million for the quarter ended June 30,
2000. This increase resulted primarily from our increased investment in sales
and marketing infrastructure, both domestically and internationally. The
investments included increases in personnel-related expenses, recruiting fees,
travel and entertainment, and related facility and equipment costs. In addition,
we increased marketing activities, including trade shows, public relations,
direct mail campaigns and other promotional activities. Sales and marketing
expenses represented 69% of our total revenues for the quarter ended June 30,
2001 and 36% for the comparable quarter of 2000.

General and administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative and information services personnel. These expenses also include
fees for legal, accounting and consulting services. General and administrative
expenses increased 30% to $1.3 million for the three months ended June 30, 2001,
from $1 million for the quarter ended June 30, 2000. The number of our
executive, finance and administrative personnel grew to 25 at June 30, 2001,
from 22 at June 30, 2000. General and administrative expenses represented 28% of
our total revenues for the quarter ended June 30, 2001 and 16% for the

                                       10
<PAGE>

quarter ended June 30, 2000. The increase in general and administrative expenses
as a percentage of our sales was primarily due to increases in the number of
executives on staff, and administrative support personnel. We believe our
general and administrative expenses will continue to increase due to increases
in directors' and officers' liability insurance premiums, as well as anticipated
additional legal, accounting and consulting fees.

In March 2001, as a result of current economic factors as well as our outlook
and strategy for the fiscal year ended March 2002, we adopted a restructuring
plan that resulted in the termination of 33 employees. In connection with the
restructuring, involuntarily terminated employees were entitled to severance
benefits including cash compensation, continued benefits and outplacement
assistance. The total amount of severance benefits accrued and charged to
expense amounted to $489,000 and is reflected in general and administrative
expenses in our Statement of Operations for the fiscal year ended March 31,
2001. Almost none of these severance benefits was paid during the fiscal year
ended March 31, 2001, however, $368,000 of this amount was paid during the
quarter ended June 30, 2001.

The purpose of the restructuring plan was to reduce the number of non-sales and
marketing personnel, including the reduction of certain research and development
personnel, in order to provide short-term cost savings that could be redeployed
into specialized product development skills as well as expanding our sales and
marketing resources. We estimate that the reduction in annual operating expenses
will be approximately $3 million, however, a substantial portion of this
reduction will be offset by substantial recent increases in the number of sales
and marketing personnel. While we expect these increases in sales and marketing
efforts to result in increases in our software license revenue in the latter
half of the fiscal year ending March 31, 2002, we expect the increases to result
in a net operating loss in the first half of the fiscal year, and therefore a
reduction in available cash balances.

We are currently finalizing plans for an additional restructuring with a goal of
effecting an additional reduction in our operating expenses, and anticipate the
completion of these additional restructuring efforts within the next 30 days.

We have made substantial investments in our infrastructure in anticipation of
growth in our business. These investments include a significant increase in the
number of executives and related compensation, investments in internal
information technology systems and related support costs, and expansion of our
international facilities. In the event that we are unable to achieve planned
increases in revenue within a short time frame, our results of operations and
our financial position could be materially affected.

Deferred stock compensation expense was $2,000 for the quarter ended June 30,
2001 and $10,000 for the quarter ended June 30, 2000.

Other income, net. Other income was $102,000 for the quarter ended June 30, 2001
and zero for the quarter ended June 30, 2001. The other income recorded in the
quarter ended June 30, 2001 resulted from the renegotiation of a reseller
agreement with Xerox Corporation. We do not anticipate having additional other
income during this fiscal year.

On November 7, 2000, we entered into a convertible note agreement with a
technology company partially owned by an employee and shareholder of the
Company, who is a related party but is no longer an employee. Under the terms of
the agreement, we committed to loan the borrower $1,000,000 in two equal
installments. The first installment was paid upon execution of the agreement.
The remaining commitment of $500,000 was paid on February 8, 2001, upon the
borrower achieving certain milestones related to development of its technology.
The debenture is convertible in whole or in part, into stock of the borrower
either upon the borrower securing $3 million in additional financing, or upon a
change of control of the borrower. The note is due on July 31, 2002, and bears
interest at the rate of 7% annually. The borrower has sustained expected losses
in its early development stages, and has recently commenced sales efforts in
accordance with its internal business plan. If the borrower is unsuccessful in
its efforts to license its technology or is unable to obtain additional
financing, there is a risk that we will recognize a loss in future periods due
to the future impairment of the value of the note receivable.

Interest, net. Interest, net is derived from interest income earned on our cash
and cash equivalents. Interest income decreased 43% to $192,000 for the quarter
ended June 30, 2001 from $336,000 for the quarter ended June 30, 2000. This
decrease was primarily attributable to the decreases in interest bearing cash
and cash equivalent balances.

                                       11
<PAGE>

Income taxes. We had no income tax expense during either the quarter ended June
30, 2001 or June 30, 2000. As a result of the uncertainty regarding the
recoverability of historical net operating loss carryforwards, we have recorded
a 100% valuation allowance against our net deferred tax asset arising from
potential future tax benefits attributable to current and prior-year operating
losses.

Liquidity and Capital Resources
-------------------------------

As of June 30, 2001, we had cash and cash equivalents of $15.5 million, a
decrease of $4.0 million from cash and cash equivalents held at March 31, 2001.
Our working capital at June 30, 2001 was $12.9 million, compared to $15.9
million at March 31, 2001.

Net cash (used in) provided by operating activities was $(3.6 million) for the
quarter ended June 30, 2001, compared to $729,000 for the quarter ended June 30,
2000. This decrease resulted primarily from the addition of consulting personnel
due to increases in volume of consulting services, increases in administrative
personnel as a result of the hiring of new executives and related support
personnel, as well as the addition of research and development and sales and
marketing staff. Our total headcount increased to 186 as of June 30, 2001 from
169 as of June 30, 2000. The additional staff combined with increases in
compensation for existing personnel resulted in a substantial increase in our
operating expenses during the period from June 30, 2000 to June 30, 2001.

During the quarter ended June 30, 2001, we experienced a loss from operations of
approximately $3.4 million, with the loss being fueled in part by a reduction in
software license revenues. As a result of this decrease in software license
revenue, we estimate that we will experience an additional reduction in our
available cash balances of approximately $3.0 million to $4.0 million during the
quarter ended September 30, 2001. While we believe that this slowdown in
customer spending is temporary, in the event that customer demand for our
software products does not increase in the latter half of our fiscal year ending
March 31, 2002, our financial position and liquidity could be materially
affected.

Investing activities used cash of $414,000 for the quarter ended June 30, 2001,
and $215,000 for the quarter ended June 30, 2000, primarily due to the purchase
of property and equipment as well as leasehold improvements. During the quarter
ended June 30, 2001, we capitalized $53,000 of internally developed software.
There was no capitalization of internally developed software during the quarter
ended June 30, 2000.

In June 2001, we renegotiated the terms of a development and reseller
arrangement with Xerox Corporation. In connection with the renegotiation, we
obtained the exclusive right to sell certain of our products to a group of
customers, and granted Xerox the right to utilize certain software purchased
from us under the original reseller agreement for Xerox's internal use. Under
the terms of the agreement, we also agreed to pay Xerox Corporation a fee of
approximately $672,000 in four equal quarterly installments with the first
installment due in July 2001. In connection with a restatement of historical
results reported in our Annual Report on Form 10-K for the year ended March 31,
2001, we reversed revenue in the amount of approximately $773,000 related to
software previously sold to Xerox but not delivered by Xerox to end users. Under
the terms of the new arrangement, Xerox is no longer permitted to resell the
Company's products, including the $773,000 previously purchased by Xerox from
the Company that was classified as deferred revenue in the Company's March 31,
2001 balance sheet. As a result, the Company reclassified an amount equal to the
future payment obligation to Xerox under the terms of the new agreement from
deferred revenue to installment obligations payable in its June 30, 2001 balance
sheet, and recorded the remaining amount of deferred revenue as other income
during the quarter ended June 30, 2001. Payments to Xerox under the new
arrangement will be reflected in future periods as reductions of the installment
obligation payable.

Financing activities used cash of $9,000 during the quarter ended June 30, 2001,
and generated cash of $208,000 for the quarter ended June 30, 2000. The decrease
was attributable to a decrease in the number of stock options exercised during
the quarter ended June 30, 2001.

On March 30, 2001, we entered into a $5 million revolving credit agreement with
Mellon Bank, N.A. The initial term of the credit agreement extends until
February 28, 2003. Borrowings under this credit agreement accrue interest at a
rate of, at our option, either (1) 100 basis points below the prime rate charged
by Mellon Bank, N.A., or (2) the rate at which U.S. Dollar deposits are offered
to major banks in the London interbank Eurodollar market (as adjusted to satisfy
the reserve requirements of the Federal Reserve System) plus 100 basis points.
The credit agreement also contains representations, warranties, covenants and
other terms and conditions typical of credit facilities of such size,

                                       12
<PAGE>

including financial reporting requirements. Amounts outstanding under the
agreement are secured by certain cash balances and investments. We have the
option of converting amounts borrowed under the revolving facility into a term
loan payable over a five-year period. There were no amounts outstanding under
the agreement as of June 30, 2001.

We expect that our recent losses will result in a decrease in our cash balances
during the first half of the fiscal year ending March 31, 2002. However we
expect that our recent and planned additional restructuring efforts will result
in decreases to our operating expenses in the latter half of the fiscal year
ending March 31, 2002. Additionally, we expect that our recent sales and
marketing investments will result in an increase in revenues in the latter half
of the fiscal year ending March 31, 2002, and that these expected increased
revenue levels will be sufficient to fund a majority of our reduced operating
expenses. We believe that our existing cash and cash equivalents will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next twelve months.

Factors Affecting Operating Results
-----------------------------------

This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from
those discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, the following:

Significant Revenues from the Pharmaceutical and Biotechnology Industries

We have historically sold most of our products and services to businesses in the
pharmaceutical and biotechnology industries. Our business strategy includes
targeting smaller pharmaceutical and biotech companies as well as other FDA
regulated markets. Our financial performance and future growth will depend upon
our ability to continue to market our products successfully in the
pharmaceutical and biotechnology industries and to enhance and market
technologies for distribution through indirect sales channels to other
industries. We have made and will continue to make substantial product
development and distribution channel investments. We may not be able to continue
marketing our products successfully in the pharmaceutical and biotechnology
industries or successfully introduce new or existing products through direct and
indirect channels into other industries.

Technological Change

The software market in which we compete is characterized by rapid technological
change. Existing products become obsolete and unmarketable when products using
new technologies are introduced and new industry standards emerge. For example,
we may need to modify our products when third parties change software that we
integrate into our products. As a result, the lifecycles of our products are
difficult to estimate. To be successful, we must continue to enhance our current
product line and develop new products that successfully respond to such
developments. Our business, financial condition and operating results would be
materially adversely affected if we delay release of our products and product
enhancements or if these products and product enhancements fail to achieve
market acceptance when released.

Attraction and Retention of Technical Employees

We believe that our future success will depend in large part upon our ability to
attract, retain, and motivate highly skilled technical employees. The employees
that are in highest demand are software programmers, software developers,
application integrators and information technology consultants. These employees
are likely to remain a limited resource for the foreseeable future. We may not
be able to attract and retain sufficient numbers of highly skilled technical
employees. The loss of a significant number of our technical employees could
have a material adverse effect on the Company.

Attraction and Retention of Sales Personnel

To date, we have sold our products primarily through our direct sales force. Our
future revenue growth will depend in large part on recruiting and training
additional direct sales personnel. We have not experienced difficulty in
recruiting qualified sales personnel. We may not be able to successfully
maintain or expand our direct sales force or other distribution channels and any
such expansion may not result in increased revenues.

                                       13
<PAGE>

Revenue Outlook for the Fiscal Year Ending March 31, 2002

We have made substantial recent investments in sales and marketing personnel in
an effort to accelerate our revenue growth in the latter half of the fiscal year
ending March 31, 2002. There can be no assurance that these investments will
result in increases in revenue. If we are unable to achieve increases, the
additional sales and marketing expenses will result in material losses.

Limited Operating History

We commenced operations on April 29, 1994, and commercially released the initial
version of CoreDossier in November 1995. Accordingly, we have a limited
operating history, and we face all of the risks and uncertainties encountered by
early-stage companies. Our limited operating history makes it difficult to
forecast our future operating results. The new and evolving nature of the
electronic compliance market increases these risks and uncertainties. We expect
to continue to devote substantial resources to our product development, sales
and marketing, and customer support. As a result, we will need to generate
significant quarterly revenues to achieve and maintain profitability. Our
business strategies may not be successful, and we may not be profitable in any
future period.

Fluctuations in Operating Results

Our results fluctuate from quarter to quarter. In the past, the software
industry has experienced significant downturns, particularly when general
economic conditions decline and spending on management information systems
decreases. Our business, financial condition and operating results may fluctuate
substantially from quarter to quarter. It is particularly difficult to predict
our operating results because:

     .    Our sales cycles are lengthy and variable, typically ranging between
          six to nine months from our initial contact with a potential customer
          to the signing of a license agreement, although occasionally sales
          require substantially more time.

     .    The amount of unfulfilled orders for our products at the beginning of
          a quarter is small because our products are typically shipped shortly
          after orders are received.

     .    We recognize a substantial portion of our license revenues in the last
          month of a quarter, and often in the last weeks or days of a quarter.

     .    Changes in the global economic environment may have an unanticipated
          impact on the spending patterns of our global pharmaceutical
          customers.

     .    Fiscal or quarterly budget cycles of our customers can cause our
          revenues to fluctuate from quarter to quarter.

Nevertheless, we base our decisions regarding our operating expenses on
anticipated revenue trends. Because many of our expenses are relatively fixed, a
delay in recognizing revenue from a limited number of license transactions could
cause our operating results to vary significantly from quarter to quarter and
could result in operating losses. To the extent these expenses are not followed
by increased revenues, our operating results will suffer. As a result of all of
these factors, we believe that period-to-period comparisons of our operating
results are not meaningful, and you should not rely on such comparisons to
predict our future performance. Fluctuations in our operating results,
particularly compared to the expectations of market analysts or investors, could
cause volatility in the price of our common stock.

Competition

We may experience competition in markets for new products. We recently expanded
our products to include a new suite of XML-based solutions. There are a large
number of private and publicly held companies actively involved in the
development and sale of XML-based technologies. In addition, the pace of
technological change in this area is extremely rapid; and as a result, we may be
unsuccessful in developing new products or enhancing our existing products as
quickly as some of the competitors in this sector.

                                       14
<PAGE>

We may experience price erosion in markets for our existing products. There are
a small number of privately held competitors that have introduced streamlined
versions of regulatory publishing technologies. These products have been
introduced at lower prices than our current products, although these products
generally do not have the broad range of functionality of our products. While we
have not seen a significant loss of market share within the pharmaceutical
industry, these competitive offerings could result in the loss of customer
accounts or erosion in our pricing. If we are unable to compete successfully
against these new competitors, our business and results of operations would be
harmed.

Risk of Liability

Complex software products such as those offered by us can contain undetected
errors or performance problems. Such defects are most frequently found during
the period immediately following introduction of new products or enhancements to
existing products. Our products have from time to time contained software errors
that were discovered after commercial introduction. We may not discover
performance problems or errors in our products in the future. Any future
software defects discovered after shipment of our products, if material, could
result in loss of revenues, delays in customer acceptance or potential product
liability.

In addition, we provide outsourcing services that are critical to our clients'
businesses. Any delays or difficulties in connection with these assignments or
failure to meet clients' expectations could result in:

     .   delayed or lost client revenues;

     .   rendering additional services to a client at no charge;

     .   negative publicity regarding us and our services; and

     .   claims for substantial damages against us, regardless of fault.

The successful assertion of a large claim against us could seriously harm our
business, financial condition and operating results. Our contracts generally
limit our damages arising from negligent acts, errors, mistakes or omissions in
rendering services to our clients. However, these contractual provisions may not
protect us from liability for damages in the event we are sued. Our general
liability insurance coverage may not cover one or more large claims, or the
insurer may disclaim coverage as to any future claim. In addition, our general
liability insurance coverage may not continue to be available on reasonable
terms or at all.

Limited Protection of Intellectual Property Rights

We rely on a combination of copyright and trademark laws, employee and
third-party nondisclosure agreements, and other methods to protect its
proprietary rights. Despite these precautions, it may be possible for
unauthorized third-parties to copy certain portions of our products or to obtain
and use information that we regard as proprietary. There can be no assurance
that our efforts will provide meaningful protection for our proprietary
technology against others who independently develop or otherwise acquire
substantially equivalent techniques or gain access to, misappropriate, or
disclose our proprietary technology.

Dependence on Key Employees

We depend on certain key employees. Our future performance will also largely
depend on the efforts and abilities of our key technical, customer support,
sales and managerial personnel and on our ability to retain them. Our success
will depend on our ability to attract and retain such personnel in the future.
In addition, the loss of any of our executive officers could materially
adversely affect our business, financial condition and operating results.

International Expansion

We face risks from expansion of our international operations. We intend to
expand our international operations and may enter new international markets.
This expansion will require significant management attention and financial
resources. We may not be able to maintain or increase international market
demand for CoreDossier. We do not

                                       15
<PAGE>

currently engage in currency hedging activities, but we may do so in the future.
Increases in the value of the U.S. dollar relative to foreign currencies could
materially adversely affect our operating results.

Dependence on Service Revenues

We depend on service revenues. Professional services and support revenues
represented 80% of our total revenues for the first fiscal quarter of 2002 and
39% of our total revenues for first fiscal quarter of 2001. We anticipate that
service revenues will continue to represent a significant percentage of total
revenues. Because service revenues have lower gross margins than license
revenues, a continued increase in the percentage of total revenues represented
by service revenues resulting from increased professional services and support
revenues or a decrease in license revenues could have a detrimental impact on
overall gross margins and our operating results.

Credit Risk

We assume a certain level of credit risk with our clients in order to do
business. Conditions affecting any of our clients could cause them to become
unable or unwilling to pay us in a timely manner, or at all, for services we
have already provided them. If one or more of our clients fails or refuses to
pay us in a timely manner or at all, or if we are unable to collect a number of
large accounts receivable, it could have a material adverse effect on business,
operating results, and financial condition.

Utilization of Employee Resources

We generally establish our consulting and support personnel levels based on our
expectations of client demand. If we hire more employees than our engagements
require, or if we are unable to effectively deploy our employees from project to
project, our operating margins may decline and we may suffer losses. Personnel
costs and expenses constitute the substantial portion of our operating expenses.

Fixed Price Contracts

We occasionally enter into contracts with our clients on a fixed-fee,
fixed-timeframe basis. A miscalculation of the resources or time needed to
complete fixed-fee engagements could substantially reduce our profitability.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
-------   ---------------------------------------------------------

We are exposed to financial market risks, including changes in interest rates.
We typically do not attempt to reduce or eliminate our market exposures on our
investment securities because the majority of our investments are short-term. We
do not have any derivative instruments.

The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of our
investment portfolio. All of the potential changes noted above are based on
sensitivity analysis performed on our balances as of June 30, 2001.

PART II - OTHER INFORMATION
---------------------------

Item 1.     Legal Proceedings
-------     -----------------

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings, which would, in management's opinion,
have a material adverse effect on the Company's business or results of
operations.

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

none

Item 3.     Defaults Upon Senior Securities
-------     -------------------------------

none

                                       16
<PAGE>

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

(A)      Exhibits

none

(B)      Reports on Form 8-K

No reports on Form 8-K were filed during the quarter covered by this Form 10-Q.

                                       17
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 14th day of August
2001.

                                       ESPS, Inc.



                                       By: /s/ R. Richard Dool
                                           --------------------
                                           R. Richard Dool
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

                                       By: /s/ Christopher Meshginpoosh
                                           ----------------------------
                                           Christopher Meshginpoosh
                                           Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)

                                       18