<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, DC 20549

                                 FORM 10-KSB/A
                               AMENDMENT NUMBER 1
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

  [ X ]  Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the fiscal year ended May 31, 2000;

   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.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)


Delaware                                                              13-2897997
--------------------------------                           ---------------------
(State or Other Jurisdiction of                            (IRS Employer ID No.)
 Incorporation or Organization)

One Research Drive
Suite 100 B
Westborough, MA  01581                                                     01581
-------------------------------------------                           ----------
(Address of Principal Executive Offices)                              (Zip Code)

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

Securities Registered Under Section 12(b) of the Exchange Act:             None
Securities Registered Under Section 12(g) of the Exchange Act:

Title of Each Class
---------------------------------------
Common Stock, par value $0.01 per share

REASON FOR AMENDMENT

The Company has revised its financial statements for the years ended May 31,
2000 and 1999 to account for the beneficial conversion feature related to
certain convertible debt issued in fiscal 1998. See Note 1 to the Financial
Statements.

<PAGE>

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      [   ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year:   $337,898

The aggregate market value of the Common Stock, par value $0.01 per share
("Common Stock"), held by non-affiliates of the Registrant (totaling 3,708,473
shares) was $9,037,549 as of August 1, 2000 (based upon the closing bid of the
Registrant's Common Stock on the OTC Bulletin Board on August 1, 2000 of $2.437
per share). The term affiliates is deemed, for this purpose only, to refer only
to directors, officers, and principal stockholders of the Issuer.

State the number of shares outstanding in each of the issuer's classes of common
equity, as of August 1, 2000.

                CLASS                              OUTSTANDING
                -----                              -----------
       Common Stock, par value                  14,733,046 shares
       $0.01 per share



                       DOCUMENTS INCORPORATED BY REFERENCE

         No documents are incorporated by reference into this Annual Report on
Form 10-KSB.

<PAGE>

                               PURCHASESOFT, INC.
                          ANNUAL REPORT ON FORM 10-KSB
                                  MAY 31, 2000

                              CROSS REFERENCE SHEET



<TABLE>
<CAPTION>
                                             PART I                        PAGE
                                                                           ----
<S>                                                                        <C>
Item 1     Description of Business                                            2

Item 2     Description of Property                                           12

Item 3     Legal Proceedings                                                 13

Item 4     Submission of Matters to a Vote of Security Holders               13


                                          PART II

Item 5     Market for Common Equity and Related Stockholder Matters          13

Item 6     Management's Discussion and Analysis or Plan of Operations        15

Item 7     Financial Statements                                              21

Item 8     Changes in and Disagreements with Accountants on Accounting       21
           and Financial Disclosure

                                          PART III

Item 9     Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                 22

Item 10    Executive Compensation                                            24

Item 11    Security Ownership of Certain Beneficial Owners and
           Management                                                        28

Item 12    Certain Relationships and Related Transactions                    30

Item 13    Exhibits, List and Reports on Form 8-K                            31
</TABLE>

<PAGE>

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


PART I:

ITEM 1:   DESCRIPTION OF BUSINESS

OVERVIEW

         PurchaseSoft, Inc. (the "Company") is an emerging provider of
strategic e-Procurement and B2B solutions to medium and large organizations
worldwide. PurchaseSmart(TM), the Company's flagship e-Procurement product
enables organizations to automate their procurement processes thereby
reducing costs and improving productivity, while providing real-time decision
support information to management. The Company is aggressively marketing its
solutions throughout North America, Europe and Asia. The Company's principal
goals are twofold: to be the leader in the e-Procurement solutions
marketplace addressing organizational procurement needs; and to be the
preferred B2B exchange enabler for leading industry marketplaces. The Company
expects to achieve these objectives by continuing to offer the most
functional and easy to use leading edge, end-to-end software solutions and
unparalleled customer service.

         The Company's expertise in procurement comes from its extensive
experience in this area. The Company began operations as a management
consulting firm specializing in "best practices" for purchasing and materials
management in 1977. In 1985, the Company, then called Greentree Software,
Inc. sensed the market need for an automated purchasing software package and
introduced its first software product for purchasing materials management for
use on IBM compatible PCs. Since that time, the Company has continued to
offer leading edge software solutions by adapting the latest technology and
incorporating procurement best practices and knowledge gained from successful
customer implementations. In October 1999, the Company released its newest
Solution, PurchaseSmart(TM), SourceSmart(TM) and WebQuote(TM) a Web-based,
end-to-end software solution, written in JAVA and HTML, which provides
operational support for strategic procurement and e-commerce.

         One of the critical advantages of the solutions the Company provides
is the ability to customize the software to fit each customer's specific
needs. The Company expects that this flexibility will allow it to capitalize
on a developing market in business-to-business exchanges and portals. The
Company's solutions can easily be configured to be the e-Procurement engine
for business-to-business exchanges and portals. The Company believes that its
solutions offer the robustness and depth of functionality that such trading
communities demand. This is a new and important business opportunity for the
Company. It allows the Company to continue its evolution from a software
application vendor to a provider of vital infrastructure software to the new
Internet economy.

                                       2
<PAGE>

         Customers' expectations are evolving at the same pace as technology.
Today, e-Procurement customers expect ready-made catalog content from their
solution providers. To address this need for normalized data from suppliers,
the Company is developing its supplier exchange service offering. Through
this service, which will be hosted and managed by the Company, the Company
expects to continue to serve its clients' full value procurement needs.

THE PURCHASESOFT SOLUTION

         The PurchaseSoft solution (the "System") consists of three key
components - PurchaseSmart(TM), the core product designed for the purchasing
professional, SourceSmart(TM), the easy-to-use casual buyer front-end and
WebQuote(TM), which enables supplier participation in the procurement
process. The PurchaseSoft solution offers functionality in the areas of
Web-based procurement, transaction management, supply chain management and
planning & forecasting. The System covers all procurement needs from
requisitioning and purchasing through auctioning and advanced analysis.

         PURCHASESMART(TM): PurchaseSmart(TM) is an integrated suite of
software modules that provide Web-based, end-to-end operational support for
strategic procurement and e-Commerce. It enables organizations to reduce
processing costs and improve productivity, by automating the procurement
cycle, linking end-users throughout the organization with approvers and
financial systems. PurchaseSmart(TM) is designed to connect large numbers of
end users, approvers, and administrative personnel through Web based
applications that automate procurement and financial processes. The
functionality of PurchaseSmart(TM) is directed at the purchasing
professionals in an organization. It provides all the tools that are needed
by buyers and purchasing managers to effectively manage the procurement
process and supplier performance. PurchaseSmart(TM) features the following
functionality:

      ---------------------------------- --------------------------------------
      -  Requisitioning                  -  Electronic Cataloging
      ---------------------------------- --------------------------------------
      -  Purchase Order Management       -  Receiving
      ---------------------------------- --------------------------------------
      -  Request for Quotations (RFQs)   -  User Self Registration
      ---------------------------------- --------------------------------------
      -  Auctioning                      -  Advanced Analysis and Reporting
      ---------------------------------- --------------------------------------
      -  Quotations and Bid Analysis     -  Data Integration and Migration
      ---------------------------------- --------------------------------------

         Several additional powerful modules can be added to PurchaseSmart(TM)
allowing the customer to customize the System to match the needs of the
organization. These modules are Inventory, Asset Tracking, and Invoice Matching.

         SOURCESMART(TM): SourceSmart(TM) is an easy-to-use requisitioning
system for the casual user. Written in HTML, SourceSmart(TM) is accessed
using a Web browser. With SourceSmart(TM), users can scan catalogs, select
items, create requisitions and with proper authorization, approve
requisitions created by others. The requisitions, depending on business
rules, can be converted to purchase orders to be sent directly to suppliers
or sent to an approval workflow process as defined by the organization.
Information from SourceSmart(TM) is immediately available in
PurchaseSmart(TM) for analysis, so that total corporate spending can easily
be controlled and managed.

         WEBQUOTE(TM): WebQuote(TM) provides buyers with the ability to issue
pricing requests and/or initiate auctioning events over the Internet.
Suppliers can be specifically invited to participate by an email message
directing them to the organization's auction Web site through a hyperlink.
Using the Bid Analysis feature, the competing suppliers' bids can be analyzed
and purchase orders placed with selected suppliers. The auctioning feature
and the ability to analyze supplier bids allows for dynamic pricing and
reduction in cost of goods purchased.

                                       3
<PAGE>

         The PurchaseSoft solution was designed to meet the needs of
procurement professionals and the larger organizations within which they
work. The System meets these sometime competing needs by incorporating and
consistently employing the following key features:

         Easy-to-use Interfaces: All features of the PurchaseSoft solution
are accessed through a browser-based interface. The user interface is
designed to be intuitive and requires minimal training.

         E-mail enabled workflow: The system uses an organization's e-mail
infrastructure to implement a flexible workflow process linking
requisitioners, buyers, managers, and approvers.

         Powerful Analytics: The system actively tracks the procurement
activity in an organization. The data collected can be analyzed with the
built-in tools that include Buyer/Requisitioner Analysis, Supplier
Performance Analysis and Item/Commodity Analysis. These real-time analyses
help the key decision-makers make strategic sourcing decisions that result in
better control of procurement, improved supplier performance, reduction of
"maverick" buying and overall improvements to the full procurement cycle.

         Integration Capability: The system can be integrated to existing ERP
and legacy systems using the built-in Integration functionality.

         Multi-platform Architecture: Based on the SilverStream Application
Server platform, the system can be hosted on multiple hardware and software
configurations such as Microsoft Windows NT, Sun Solaris, AIX, and Linux on
the Intel and Sun architectures. The system supports robust industry standard
databases including Microsoft SQL Server and Oracle.

         The Company has always endeavored to incorporate the latest
technologies into its solution to keep its software on the cutting edge of
software design. The Company believes its solutions have historically
featured the most breadth and functionality available by continually
developing new features for its customers. The Company, in keeping with these
traditions, has the following upcoming features for its solution currently in
development:

         - Multi-lingual and multi-currency capability
         - P-Card integration
         - XML document exchange
         - Travel & Entertainment processing
         - Advanced workflow capabilities

         The Company has also begun development of an advanced, feature-rich
Supplier Exchange system. The Company's e-Procurement customers will be able
to subscribe to various levels of service on this exchange, allowing them
access to catalog content and to produce transactions with suppliers.
Suppliers participating in the exchange will be able to manage their content
and receive and respond to various types of transactions with customers.
Advanced features such as auctioning and reverse auctioning will also be
available within the exchange. The Company intends to position the exchange
as a convenient and cost effective content and transaction solution for its
customers, while also making it convenient and cost effective for suppliers
to participate in the exchange.

                                       4
<PAGE>

MARKETING

         The primary functions of our marketing efforts are to create market
awareness of our e-Commerce solutions, create new sales opportunities for
sales initiatives and to educate the marketplace regarding the capabilities
of our products. The Company expects to reach targeted markets through an
integrated marketing campaign consisting of direct mail, trade shows, public
relations, advertising, seminars, and through Web site programs. The
Company's marketing programs are targeted at the decision-makers within the
enterprise.

         The Company has increased its marketing staff and expects to incur
significant marketing expenses in the future. However, the market space in
which the Company competes is very competitive and the Company cannot assure
you that its marketing efforts will be successful.

DISTRIBUTION STRATEGY

         The Company intends to distribute its software solutions using
primarily an indirect sales organization consisting of strategic alliances
and partnerships and augmented by a small group of highly motivated direct
sales representatives. The Company plans to increase its direct sales force
while simultaneously stepping up its efforts to secure alliances with systems
integrators and other critical strategic relationships. Both the Company's
direct and indirect sales efforts will feature its full end-to-end solutions
that may be installed directly at the customer site or available as a hosted
application through its partnership with US internetworking (USi). In
addition, the Company intends to work closely with business-to-business
marketplace makers, to power their offerings with PurchaseSoft's
e-Procurement software.

         One of the principal benefits of the Company's partnership with USi
is that it can deploy its software virtually anywhere in the world via its
hosted application. The Company believes that considerable opportunity exists
for the sale of its products outside of the United States. The Company is
pursuing these worldwide initiatives via critical relationships with
strategic partners in these countries. The Company believes that these
strategic partnerships will assist it in the international distribution of
its software and will provide a critical component of its international
efforts. However, the competition for successful sales personnel as well as
strong technology partnerships is intense and there can be no guarantee that
the Company will be successful in recruiting this personnel or in developing
a strong alliance network. The Company intends to incur significant sales and
distribution expenses in future periods.

COMPETITION

         The market for the Company's solution is intensely competitive,
constantly evolving and subject to instant change brought on by changes in
technology and/or offerings of other participants in the industry. The
intensity of the competition increases each quarter and is likely to continue
at its current pace as new participants enter the industry and current
players expand their product offerings. The Company believes that its
principal source of competition is from independent software vendors with
whom it competes directly. Potential customers also compete with the Company
indirectly through internal development efforts as they continue to attempt
to develop new functionality for legacy systems. The Company's current and
potential competitors include Ariba, Commerce One, Clarus, Concur
Technologies, iPlanet, Intellysis, Oracle and I2. Some of the Company's
potential competitors are developing Web-based solutions designed to allow
their customers to buy more effectively from suppliers while other
competitors are attempting to add procurement applications to their existing
suite of products. Chief among this last group are the significant ERP
vendors such as SAP, PeopleSoft, and Oracle. These ERP vendors have a
substantial installed customer base into which to offer these products. In
addition, there are relatively low barriers to entry into this marketplace
and the Company expects additional competition to come from new and/or
emerging companies.

                                       5
<PAGE>

         The Company believes that the principal competitive factors
affecting its market include the breadth and depth of the solution, the
functionality of the solution and its ability to integrate easily with legacy
technology, customer satisfaction, the relative ease of use of the solution,
the ability to successfully implement the solution and the total cost of the
solution. The Company believes that it competes favorably with its
competition in these areas. However, this market is new and evolving
constantly and the Company may not be able to maintain its competitive
position against both its current and potential competitors, especially those
with greater resources.

         Many of the Company's competitors have longer operating histories,
larger customer bases, greater financial and technical resources and better
name recognition than the Company does. There is a significant potential that
some of the Company's competitors may establish strategic or other commercial
relationships or alliances that may enable them to compete more effectively
against it. It is therefore possible that these partnerships and alliances
could gain significant market share. Competitive pressures brought about by
new technologies and consolidations within the industry will continue to
escalate. The Company cannot assure you that it will be able to compete
against its current and future competitors.

RESEARCH AND DEVELOPMENT

         Since its inception, the Company has made substantial investments in
research and development. Research and development expenses were $860,012 and
$753,902 in fiscal 2000 and fiscal 1999, respectively. In October 1999, the
Company released its newest solution, consisting of PurchaseSmart(TM),
SourceSmart(TM) and WebQuote(TM). PurchaseSmart(TM) is a Web-based,
end-to-end software solution, written in JAVA, which provides operational
support for strategic procurement and e-Commerce. SourceSmart(TM) is an
easy-to-use requisitioning system, written in HTML and accessed using a Web
browser. WebQuote(TM) provides buyers with the ability to issue pricing
requests and/or initiate auctioning events over the Internet. The Company
intends to make continual and substantial investments in its research and
development activities to keep the Company's software solutions at the
leading edge of e-Procurement and e-Commerce offerings. The research and
development group currently has the following features in development:

         - Multi-lingual and multi-currency capability
         - P-Card integration
         - XML document exchange
         - Travel & Entertainment processing
         - Advanced workflow capabilities

         The Company has also begun development of an advanced, feature-rich
Supplier Exchange system. The Company's e-Procurement customers will be able
to subscribe to various levels of service on this exchange, allowing them
access to catalog content and to produce transactions with suppliers.
Suppliers participating in the exchange will be able to manage their content
and receive and respond to various types of transactions with customers.
Advanced features such as auctioning and reverse auctioning will also be
available within the exchange. The Company intends to position the exchange
as a convenient and cost effective content and transaction solution for its
customers, while also making it convenient and cost effective for suppliers
to participate in the exchange.

         The Company expects to develop enhancements and future products
primarily through internal resources. The Company also intends to license
third-party technology to integrate with its own software to take advantage
of the ever-increasing availability of new e-Commerce offerings, which can
shorten research to market time and provide functionality beyond the
Company's core competencies. The Company maintains a formal quality assurance
program to create versions of its software that are reliable and documented
before they are released for general distribution. The Company believes in
continuous product enhancement based on feedback from key customers,
prospects, analysts and other sources.

                                       6
<PAGE>

         The Company's development and QA (qualitative assurance) teams are
highly trained software professionals specializing in Internet technologies
including Java, HTML and XML. The Company expects to continue to recruit the
highest caliber software professionals to ensure its products provide customers
with state-of-the-art features and intuitive ease of use.


SOFTWARE MAINTENANCE

         Maintenance revenues for fiscal 2000 and fiscal 1999 were $159,826 and
$175,869, respectively, a decrease of $16,043, or 9.1%. During fiscal 2000, the
Company was supporting all three versions of its software as shown in the
following table:
<TABLE>
<CAPTION>
                             CAP           GTPP     PurchaseSoft      Total
                          ----------    ---------   ------------    ----------
      <S>                <C>           <C>            <C>          <C>
      FY 2000             $     350     $  87,223     $  72,253     $ 159,826
      FY 1999                 5,056     $ 145,942     $  24,871     $ 175,869

      Dollar change      ($   4,706)   ($  58,719)    $  47,382    ($  16,043)
      Percentage change      (93.1%)       (40.2%)        90.5%         (9.1%)
</TABLE>

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

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

PURCHASESOFT(TM) - Two-tier, 32-bit client server based system.

         In fiscal 2000, maintenance revenue associated with products that
were no longer being supported or being phased out was down $63,425 over the
prior period. In contrast, the Company's maintenance revenue on its
PurchaseSoft(TM) product increased by $47,382, or 90.5%, over the prior
period.

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

WARRANTIES

         The Company's standard license agreement for both PurchaseSoft(TM)
and PurchaseSmart(TM) software warrants that the software will be free from
defects in materials and workmanship for a period of 90 days following
delivery of the software to the customer. The Company's customers have the
option and are encouraged to purchase annual maintenance contracts for the
software. The Company's standard maintenance agreement for PurchaseSoft(TM)
and PurchaseSmart(TM) software provides that the Company will furnish such
services as are necessary to correct any malfunction in the software. Under
the terms of these agreements, if the Company is unable to correct a
malfunction by means of telephone or telecommunication assistance, repairs
may, at the customer's option, be performed on the premises where the
software is located. For such services rendered, the customer is obligated to
pay the Company fees at certain prescribed rates as set forth in the
agreement and to provide reimbursement for travel and other expenses. Such
services were not significant during fiscal 2000 or 1999.

                                       7
<PAGE>

COPYRIGHTS, TRADEMARKS, AND PATENTS

         The Company has registered with the United States Patent and
Trademark Office the trademark "PurchaseSoft(R)" for its purchasing and
materials management software product. The Company has applied for
registration for the marks "PurchaseSmart(TM)" and "SourceSmart(TM)" as well.
The Company has sought, and will continue to seek, the protection of all of
its software and documentation through a combination of contract, copyright,
trademark and trade secret laws, as appropriate. The Company will continue to
aggressively protect its trademark, copyright and proprietary rights against
any attempt by a competitor or any other person or entity to infringe or
interfere with such rights. However, litigation in this area is expensive and
the Company may not wish to commit funds to commence or pursue such
litigation, especially because the high costs could adversely affect its
operational results. Even if the Company commences litigation, there is no
assurance that it would prevail, or have adequate resources to fully pursue
any claims the Company may have or vigorously defend its position.

EMPLOYEES

         As of August 17, 2000, the Company had twenty-nine full-time employees
consisting of: five sales and marketing personnel; ten development personnel;
three customer support personnel and eleven administrative personnel. None of
the Company's employees is subject to a collective bargaining agreement. The
Company believes relations with its employees are good.


ENVIRONMENTAL REGULATIONS

         The Company believes that compliance with federal, state, and local
laws and regulations which have been enacted or adopted regulating the
discharge of materials into the environment have not had, or in the
foreseeable future, will not have any material adverse effect upon the
capital expenditures, earnings, or competitive position of the Company.

RISK FACTORS

         Stockholders and prospective purchasers of the Company's Common
Stock should carefully consider the following risk factors in addition to the
other information appearing in this Annual Report on Form 10-KSB.

History of Losses and Accumulated Deficit; Uncertainty of Future Profitability.

         The Company had a net loss of approximately $3.9 million for the
fiscal year ended on May 31, 2000 and had an accumulated deficit at May 31,
2000 of approximately $28.5 million. The Company has experienced ongoing
losses from operations and expects that such losses will continue for at
least some period until product sales may be generated in sufficient volume
to offset expenses. For the fiscal year ended May 31, 2000, the Company had
revenues of $337,898. For the fiscal year ended May 31, 1999, the Company had
revenues of $372,255. The Company does not expect to be profitable unless and
until such time as sales of its software products and services generate
sufficient revenue to fund its operations.

                                       8
<PAGE>

Capital Requirements.

         At May 31, 2000, the Company had a cash balance of approximately
$4,992,000. On March 23, 2000, the Company borrowed $5,000,000 from L-R
Global Partners, L.P. and signed a promissory demand note in exchange.
Subsequent to year end, L-R Global Partners, L.P. issued a letter to the
Company stating that it would not make a demand for repayment prior to June
15, 2001 and accordingly the Company has classified the note payable as
non-current on its balance sheet dated May 31, 2000. The Company believes
that its existing capital resources and revenue from future software sales
and services will be sufficient to fund its planned operating expenses and
capital requirements through the end of fiscal 2001, which is May 31, 2001.
At May 31, 2000, the Company's net equity was approximately $131,000. This
reflects the classification of the $5,000,000 investment by L-R Global
Partners, L.P. in March 2000 as long-term debt. The Company expects
continuing losses, which will cause the net equity of the Company to be
reflected as a deficit should the Company not raise new equity capital. The
Company recognizes that to be competitive it must raise additional equity
capital to accelerate its sales and marketing programs and to establish a
stronger financial position. The Company is pursuing two primary capital
raising strategies to raise this growth capital: In the short term, the
Company's strategy is to seek a strategic partnership with an established
technology company that could provide the necessary growth capital as well as
technology expertise, a reseller network and an installed customer base into
which the Company could market its products. As a strategy for the mid-term,
the Company might seek to raise additional funds through public or private
debt or equity financings, including, but not limited to, another rights
offering. In the event that the Company conducts another rights offering, L-R
Global Partners, L.P. has given the Company a written commitment to purchase
up to $5,000,000 of the Company's Common Stock in a rights offering and pay
for its purchase by canceling the debt that the Company owes to L-R Global
Partners, L.P. should other financing options not be available. The ability
of the Company to conduct any future financings is likely contingent upon the
Company's ability to demonstrate market acceptance of its PurchaseSmart(TM)
software solution as evidenced by revenue growth. There can be no assurances
that the Company will be able to demonstrate such market acceptance or
achieve any revenue growth. Furthermore, additional financings may not be
available on terms favorable to the Company, or at all. A failure to obtain
additional funding could have a material adverse effect on the Company's
ability to continue, maintain or grow its operations.

Uncertainty of Market Acceptance of the Company's Products.

         The Company has invested heavily in research for, and development
of, its core purchasing and materials management software system -
PurchaseSmart (TM). Although the Company feels its GT Purchase Pro(TM) and
PurchaseSoft(TM) products have been received favorably in the marketplace,
the Company cannot offer any assurance that its PurchaseSmart(TM) suite of
products will achieve market acceptance. The Company believes that its
history of poor financial performance has negatively affected its image in
the marketplace and that it may have forfeited business from potential
customers who expressed concerns about the Company's financial status and
ability to remain solvent. The Company believes that the commitment to an
indirect distribution strategy made in the third quarter of fiscal 2000 and
the costs savings to the Company that it represents will help position the
Company to overcome these past objections. The Company believes its largest
challenge is to gain widespread market acceptance of its PurchaseSmart(TM)
suite of products. The failure to obtain market acceptance would have a
material adverse effect on the Company's business.

                                       9
<PAGE>
New Management, Ability to Recruit Sales, Service, and Implementation Personnel.

         The Company's management team consists of three members who have less
than one year with the Company, one member who has been with the Company more
than two years, three members who have been with the Company more than three
years and one member who has been with the Company more than six years. As a
team, the Company's management has a very limited history in operating
PurchaseSoft, although they are experienced in managing companies facing
challenges similar to those being faced by PurchaseSoft. The Company cannot be
assured that its management will be successful in meeting planned objectives for
PurchaseSoft. The Company's ability to achieve anticipated revenues depends
substantially upon its ability to attract on a timely basis, and retain, skilled
personnel, especially key management, business development and sales and
marketing personnel. The Company believes that its future success will depend in
large part on its ability to attract and retain highly skilled technical,
managerial, marketing, and professional services personnel to ensure the high
quality of products and services the Company seeks to provide to its customers.
Competition for qualified personnel, in particular for product development,
business development and sales and marketing personnel, is intense, and the
Company competes in the marketplace against numerous companies, including
larger, more established companies with significantly greater financial
resources than the Company possesses. The Company cannot assure you that it will
be successful in attracting and retaining such skilled personnel. The Company's
inability to attract and retain qualified personnel would have a material
adverse effect on its business.


Intense Competition.

         The software products industry is intensely competitive. The Company
faces competition from many sources including independent software vendors such
as Ariba, Commerce One, Clarus, Concur Technologies, iPlanet, Intellysis, Oracle
and I2. These competitors all offer software products performing functions
similar to the Company's products. The Company also faces indirect competition
from its prospective customer base as these organizations go forward with
internal efforts to expand the capacity and functionality of legacy systems. The
market space in which the Company competes is experiencing tremendous growth and
this will invite new competitors. There can be no assurance that competitors do
not have or will not offer or develop products that are superior to the
Company's products or that achieve greater market acceptance. In addition,
suppliers of relational database management systems and companies that develop
management information software applications for large multinational
manufacturers have begun to target the Company's potential customers and offer
applications that compete in its markets. As a result, competition (including
pricing competition) may increase, which could result in price reductions and
loss of market share. There can be no assurance that the Company will be able to
compete successfully against its competitors or that the competitive pressures
faced by the Company will not adversely affect its financial performance. Many
of the Company's competitors have longer operating histories, larger customer
bases, greater financial and technical resources and better name recognition
than it does. There is a significant potential that some of the Company's
competitors may establish strategic or other commercial relationships or
alliances that may enable them to compete more effectively against it. It is
therefore possible that these partnerships and alliances could gain significant
market share. Competitive pressures brought about by new technologies and
consolidations within the industry will continue to escalate. The Company cannot
assure you that it will be able to compete against its current and future
competitors.

                                       10
<PAGE>

Rapid Technological Change and New Products.

         The market for the Company's software products is characterized by
rapid technological advances, constantly evolving industry standards, changing
end-user requirements, and frequent new product introductions and/or
enhancements. The introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing
products, and products currently under development, obsolete and unmarketable.
Accordingly, the Company's future success will depend upon its ability to
enhance its current products and develop and introduce new products that keep
pace with technological developments, satisfy varying end-user requirements, and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could severely damage
the Company's competitive position and have a material adverse effect on
revenues. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis
or that the Company will not experience significant delays in the future, which
could have a material adverse effect on the Company's results of operations. In
addition, there can be no assurance that new products or product enhancements
developed by the Company will achieve market acceptance.


Dependence on a Single Product-Line.

         Substantially all of the Company's revenues are expected to be derived
from the sale of its PurchaseSmart(TM) suite of software products and related
support services. Accordingly, any event that adversely affects revenue
generated from the sale of software or from the professional fees derived from
the installation or customization of such products, such as competition from
other products, significant flaws in the products, or incompatibility with
third-party hardware or software products, negative publicity or evaluation, or
obsolescence of the hardware platforms or software environments in which the
products run, could have a material adverse effect on the Company's results of
operations. The Company's future financial performance will depend on the
continued development and introduction of new and enhanced versions of
PurchaseSmart(TM) and other products and on customer acceptance of such new
enhanced products.


New Product Development.

         The Company's current products are developed in Java and HTML, and
these will be the Company's development tools of choice for the near to mid-term
future. In addition to continually enhancing the Company's core products, the
Company will be adding modules, and also releasing new products that would open
new markets for the Company. Most of the Company's working capital allocated to
research and product development is being channeled towards the design and
development of these new features, modules and products. The Company cannot be
assured that its design and development of these products will achieve the
desired results, nor can it assure you that it will be able to successfully
develop the products on a timely basis. Even if development is completed as
planned, the Company cannot be assured that it will be able to market new
products or new versions of products successfully. The failure of new products
to gain market acceptance, or the Company's inability to introduce products
compatible with ever-changing technology on a timely basis, would damage its
ability to compete in the marketplace and would have a material adverse effect
on its business and operations.

                                       11
<PAGE>

Fluctuation in Quarterly Operating Results.

         The Company's revenues and operating results can vary substantially
from quarter to quarter. Sales revenues in any quarter are substantially
dependent on aggregate contracting activity and the Company's ability to
recognize revenue in that quarter in accordance with its revenue recognition
policies and generally accepted accounting principles. Revenues may vary from
quarter to quarter due to variances in prior quarter contracting activity, which
impacts revenue on a lag and which may not reflect positively or adversely the
Company's future financial performance. The Company's sales cycle is relatively
long and variable. The Company's ability to increase revenue is dependent on its
ability to grow sales activity which provides opportunities for consulting,
training and subsequent maintenance revenues. Additionally the Company may not
be able to recruit, hire, and train sufficient numbers of qualified consultants
to perform such services. Due to the forgoing, it is likely that in one or more
future quarters the Company's operating results will be below expectations of
public securities market analysts and/or the Company's stockholders. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected.


Intellectual Property and Proprietary Rights.

         The Company relies on a combination of copyright, trademark and trade
secret laws, employee and third-party nondisclosure agreements, and other
industry standard methods for protecting ownership of its proprietary software
and business practices. There can be no assurance, however, that in spite of
these precautions, an unauthorized third party will not copy or reverse-engineer
certain portions of the Company's products or obtain and use information that
the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent, as
do the laws of the United States. There can be no assurance that the mechanisms
used by the Company to protect its software will be adequate or that the
Company's competition will not independently develop software products that are
substantially equivalent or superior to the Company's software products. The
Company expects that, as the number of competitors providing software products
in the industry increases and the functionality of these products further
overlaps, software products will increasingly be subject to claims of
infringement on third party proprietary rights. Any such claim, whether with or
without merit, could result in costly litigation and may require the Company to
enter into royalty or licensing arrangements with third parties. Such royalty or
license arrangements, if required, may not be available to the Company or may
not be available on acceptable terms.


ITEM 2:   DESCRIPTION OF PROPERTY

         In June 2000, the Company relocated its corporate office to One
Research Drive in Westborough, Massachusetts, where it currently occupies 10,320
sq. ft. under a lease that expires on May 31, 2007. In June 2000, the Company
opened its Client Care Facility at 101 Eisenhower Parkway in Roseland, New
Jersey, where it currently occupies 1,930 sq. ft. under a lease that expires on
July 31, 2005. The Company is intending to lease approximately 800 sq. ft. of
office space in Bloomington, Minnesota to replace is current office space that
expires on August 31, 2000.

                                       12
<PAGE>

ITEM 3:   LEGAL PROCEEDINGS

         The Company is not currently a party to any material litigation
proceedings.


ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the last
quarter of the fiscal year ended May 31, 2000.


PART II:

ITEM 5:   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         The Company's Common Stock is traded on the National Association of
Securities Dealers OTC Bulletin Board (Symbol: PURC). The following table sets
forth the range of high and low bid quotations of the Common Stock for each
quarterly period during the two fiscal years ended May 31, 2000 and May 31, 1999
as reported by the NASD OTC Bulletin Board. The quotations in the table and the
succeeding paragraph represent prices in the over-the-counter market between
dealers in securities, do not include retail markup, markdown, or commissions,
and may not necessarily represent actual transactions.
<TABLE>
                                                          BID
         PERIOD                                 HIGH                LOW
                                               ------              ------
<S>                                            <C>                 <C>
FISCAL YEAR ENDED:
         May 31, 2000
         First Quarter                         $0.937              $0.437
         Second Quarter                        $0.593              $0.320
         Third Quarter                         $9.750              $0.410
         Fourth Quarter                        $8.000              $2.062

FISCAL YEAR ENDED:
         May 31, 1999
         First Quarter                         $2.625              $1.031
         Second Quarter                        $1.750              $0.687
         Third Quarter                         $1.500              $0.687
         Fourth Quarter                        $1.375              $0.687
</TABLE>

         The closing bid price of the Common Stock on August 1, 2000 on the NASD
OTC Bulletin Board (as reported by the NASD) was $2.437 per share.


HOLDERS

         As of August 1, 2000, there were approximately 400 holders of record of
the Company's Common Stock. Management of the Company believes that, based on
the number of proxy materials distributed in connection with the Special Meeting
in Lieu of the 2000 Annual Meeting of Stockholders, that the number of
beneficial owners as of August 1, 2000 was approximately 2,000.

                                       13
<PAGE>

DIVIDENDS

         The Company has never paid cash dividends on its Common Stock nor does
the Board of Directors anticipate the Company paying cash dividends in the
foreseeable future because of the financial requirements necessary to develop
operations.


NASD REQUIREMENTS

         The Company's Common Stock is traded on the over-the-counter market and
reported in the NASD's OTC Bulletin Board or in the "pink sheets" as reported by
the National Quotation Bureau, Inc. However, because the bid price of the Common
Stock was below $5.00 per share when the Common Stock was delisted in 1995 from
the NASDAQ System, the Common Stock, when recommended by a broker-dealer, is
subject to the limitations of Rule 15g-9 under the Exchange Act, which Rule
imposes additional sales practices requirements on broker-dealers that sell the
Common Stock (1) to persons other than (a) existing customers with a previous
history of trading through such broker-dealer, (b) institutional accredited
investors (for example, a bank or savings and loan association), and (c) a
director and/or officer of the Company and/or the beneficial owner of 5% or more
of the Common Stock, or (2) in transactions not exempt by the Rule. For
transactions under Rule 15g-9, the broker-dealer must obtain written information
from the prospective purchaser as to his or her financial situation, investment
experience, and investment objectives, and based on such information, reasonably
determine that transactions in the security are suitable for that person and
that the prospective investor (or his or her independent advisor) has sufficient
knowledge and experience in financial matters so as to be reasonably expected to
be capable of evaluating the risks of transactions in such security. The
broker-dealer must also receive the purchaser's written agreement to the
transaction prior to the sale. Certain broker-dealers, particularly if they are
market makers in the Common Stock, will have to comply with the disclosure
requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5, and 15g-6 under the Exchange
Act. Consequently, Rule 15g-9 and these other Rules may adversely affect the
ability of broker-dealers to sell the Common Stock as a result of the delisting.


RECENT SALES OF UNREGISTERED SECURITIES

         On February 11, 2000, the Company issued a warrant to an employee to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$5.50 per share. This warrant has a five-year term and will expire on February
10, 2005. This warrant was granted as an inducement for this individual to join
the Company as an employee.

         On May 1, 2000, the Company issued 3,333 shares of the Company's Common
Stock upon the exercise of warrants held by a non-reporting person at an
exercise price of $1.26 per share, for the aggregate sum of $4,199. The issuance
of the Common Stock was made in reliance on Section 4(2) of the Securities Act
of 1933, as amended.

                                       14
<PAGE>

ITEM 6:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Financial Statements and Notes thereto and the other financial information
included elsewhere in this Annual Report on Form 10-KSB. This Management's
Discussion and Analysis of Financial Condition and Results of Operations section
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The discussion below and under the heading "Risk Factors" sets forth
certain factors the Company believes could cause actual results to differ
materially from those contemplated by the forward looking statements. The
Company undertakes no obligation to update the information contained in this
Item 6.


FISCAL YEAR ENDED MAY 31, 2000 VS. 1999

OVERVIEW

         The Company reported a net loss for the year of $3,899,987 on revenues
of $337,898 as compared to a net loss for the prior year of $4,469,376 on
revenues of $372,255.

         The Company experienced substantial turnover in the office of the CEO
during fiscal 2000. On September 9, 1999, the Company announced the resignation
of Michael G. Kerrison as CEO, Chairman of the Board and a Director, effective
September 10, 1999. Existing board member, J. Murray Logan, was elected acting
Chairman of the Board of Directors and was later elected the Chairman of the
Board of Directors at the Company's Special Meeting in Lieu of the 2000 Annual
Meeting of Stockholders held on January 25, 2000. Replacing Mr. Kerrison was
interim CEO Pamela Cabalka, who was also the Company's Vice President of Sales.
On December 9, 1999, the Company announced the restructuring of certain
positions within the Company and a redirection of its sales and marketing
efforts to give greater emphasis to the development of strategic partnerships
and alliances. At this time, the Company also announced that Ms. Cabalka had
tendered her resignation from the Company. The Company also announced that its
President, Jeffrey B. Pinkerton, would be the senior officer of the Company. On
March 7, 2000, the Company announced the appointment of Jeffrey B. Pinkerton as
CEO of the Company and that Mr. Pinkerton would continue to serve as the
Company's President. On August 14, 2000, subsequent to the year ended May 31,
2000, the Company announced the appointment of Mr. Pinkerton as Vice Chairman
and Chief Product Strategist and the appointment of existing board member,
Donald S. LaGuardia, as interim CEO and President. Mr. Pinkerton will focus on
product strategy and at the same time undertake a more active role in the
promotion of the Company's products and solutions. He has been associated with
PurchaseSoft and has held various positions within the Company since 1987, when
it first began marketing its computer-based purchasing system. Donald S.
LaGuardia is a member of L-R Managers LLC, the general partner of L-R Global
Partners, LP, the majority stockholder in PurchaseSoft. He has served as a
director of the Company since June 1998 and chairs the Company's audit
committee. Mr. LaGuardia was an auditor and then a consultant with
PricewaterhouseCoopers from 1987 to 1991. He joined BMW of North America, Inc.
in 1991 as a Financial Analyst and then became the Network Business Planning
Manager. He joined L-R Global Partners in 1997 as an equity analyst and is also
a member of L-R Managers LLC, the general partner of L-R Global Partners, L.P.

                                       15
<PAGE>

         In October 1999, the Company released its newest solution, consisting
of PurchaseSmart(TM), SourceSmart(TM) and WebQuote(TM). PurchaseSmart(TM) is a
Web-based, end-to-end software solution, written in JAVA, which provides
operational support for strategic procurement and e-Commerce. SourceSmart(TM) is
an easy-to-use requisitioning system, written in HTML and accessed using a Web
browser. WebQuote(TM) provides buyers with the ability to issue pricing requests
and/or initiate auctioning events over the Internet.

         On January 24, 2000, the Company announced its partnership with
Usinternetworking (USi) (NASDAQ: USIX), a leading Application Service Provider,
to provide PurchaseSmart(TM) and SourceSmart(TM) software as an Internet service
through USi's AppHost program. This agreement was entered into by PurchaseSoft
and USi to respond to the market need for affordable, fully featured, Web-based
procurement software. Under the agreement, USi will host PurchaseSoft's
business-to-business e-Commerce applications via its AppHost model.
PurchaseSoft's clients will be able to obtain and operate PurchaseSmart(TM) and
SourceSmart(TM) software as a subscription service over USi's network of
enterprise data centers, eliminating the need to build out additional in-house
infrastructure to support the application and speeding up the implementation
process.

         On January 31, 2000, the Company announced the hiring of Mr. P.
Gopalakrishnan as Senior Vice President of Business Development. He will be
responsible for building and expanding the Company's partnerships, alliance
networks, reseller programs and marketing efforts. Before joining PurchaseSoft,
he was a Principal Consultant for PricewaterhouseCoopers Management Consulting
Services specializing in e-Commerce best practices and major project
implementation and management. Mr. Gopalakrishnan has over eighteen years
experience in information technology. He has concentrated on design, development
and implementation for multinational and multi- location e-Commerce projects for
the last nine years. Mr. Gopalakrishnan received his BSc from the University of
Delhi, an FBA from the Canadian School of Management, Toronto, and an MBA from
City University, Seattle, WA.

         At May 31, 2000, the Company had a cash balance of approximately
$4,992,000. On March 23, 2000, the Company borrowed $5,000,000 from L-R Global
Partners, L.P. and signed a promissory demand note in exchange. Subsequent to
year end, L-R Global Partners, L.P. issued a letter to the Company stating that
it would not make a demand for repayment prior to June 15, 2001 and accordingly
the Company has classified the note payable as non-current on its balance sheet
dated May 31, 2000. The Company believes that its existing capital resources and
revenue from future software sales and services will be sufficient to fund its
planned operating expenses and capital requirements through the end of fiscal
2001, which is May 31, 2001. At May 31, 2000, the Company's net equity was
approximately $131,000. This reflects the classification of the $5,000,000
investment by L-R Global Partners, L.P. in March 2000 as long-term debt. The
Company expects continuing losses, which will cause the net equity of the
Company to be reflected as a deficit should the Company not raise new equity
capital. The Company recognizes that to be competitive it must raise additional
equity capital to accelerate its sales and marketing programs and to establish a
stronger financial position. The Company is pursuing two primary capital raising
strategies to raise this growth capital: In the short term, the Company's
strategy is to seek a strategic partnership with an established technology
company that could provide the necessary growth capital as well as technology
expertise, a reseller network and an installed customer base into which the
Company could market its products. As a strategy for the mid-term, the Company
might seek to raise additional funds through public or private debt or equity
financings, including, but not limited to, another rights offering. In the event
that the Company conducts another rights offering, L-R Global Partners, L.P. has
given the Company a written commitment to purchase up to $5,000,000 of the
Company's Common Stock in a rights offering and pay for its purchase by
canceling the debt that the Company owes to L-R Global Partners, L.P. should
other financing options not be available.

         The executive team and the Board of Directors acknowledge the
difficulties that the Company has faced in the past. We remain optimistic and
enthusiastic for the upcoming year and believe that the recently completed
restructuring of the office of CEO and the creation of the office of Vice
Chairman and Chief Product Strategist will position the Company to take
advantage of the strengths of Donald LaGuardia and Jeffrey Pinkerton. Fiscal
2001 represents a critical juncture in the Company's history. Fiscal 2001 must
begin to show substantial revenue growth and the Company's software products
must receive market acceptance. PurchaseSoft is firmly committed to achieving
these two goals in fiscal 2001 and we believe if we are able to do so,
stockholder value will be enhanced.

                                       16
<PAGE>

REVENUES

TOTAL REVENUE

         Total revenue, which includes product and service revenue, for fiscal
2000, was $337,898 compared to $372,255 for fiscal 1999, a decrease of $34,357,
or 9.2%.

PRODUCT REVENUE

         Product revenue for fiscal 2000 was $116,155 compared to $86,550 for
fiscal 1999, an increase of $29,605, or 34.2%. During fiscal 2000, the Company
added three new customers and delivered three PurchaseSoft(TM) software systems.
In fiscal 1999, the Company added two new customers and delivered three GT
PurchasePro(TM) software systems. During the first half of fiscal 2000, the
Company's only software product was PurchaseSoft(TM), a two-tier, 32-bit client
server based solution. The target market for this solution was the middle
market. During the second half of the year, the Company began marketing and
selling its new flagship product, PurchaseSmart(TM) / SourceSmart(TM), written
in Java and HTML. This new product was priced substantially higher than the
PurchaseSoft(TM) product and was being marketed into Fortune 2000 accounts. The
Company had no sales of PurchaseSmart(TM) / SourceSmart(TM) in fiscal 2000. At
this same time, the Company changed its distribution model from direct sales
based to one based on resellers and strategic partnerships. The Company believes
that this method of distribution will be successful but that it will take some
time to implement.

SERVICE REVENUE

         Professional service revenue for fiscal 2000 was $61,917 compared to
$109,836 for fiscal 1999, a decrease of $47,919, or 43.6%. This decrease is a
combination of two factors. The first factor is the relationship of service
revenue generated by product revenue, both in terms of absolute dollars and
percentages. In fiscal 2000, service revenues generated by product revenues were
$25,917, or 22.3%, of product revenues compared to $34,512 in service revenues,
or 39.9%, for fiscal 1999, a decrease of $8,595 or 24.9%. The second factor is
the service revenue generated from existing customers. In fiscal 2000, the
Company generated $36,000 in service revenues from existing customers compared
to $75,324 in service revenues from existing customers for fiscal 1999, a
decrease of $39,324, or 52.2%.

         Maintenance revenue for fiscal 2000 was $159,826 compared to $175,869
for fiscal 1999, a decrease of $16,043 or 9.1%. During fiscal 2000, the Company
was supporting all three versions of its software as shown in the following
table:
<TABLE>
                               CAP           GTPP     PURCHASESOFT      TOTAL
                            ---------     ---------   ------------    ---------
      <S>                  <C>           <C>           <C>           <C>
      FY 2000               $     350     $  87,223     $  72,253     $ 159,826
      FY 1999                   5,056     $ 145,942     $  24,871     $ 175,869

      Dollar change        ($  4,706)    ($  58,719)    $  47,382    ($  16,043)
      Percentage change       (93.1%)       (40.2%)         90.5%        (9.1%)
</TABLE>

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

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

PURCHASESOFT(TM) - Two-tier, 32-bit client server based system.

         In fiscal 2000, maintenance revenue associated with products that were
no longer being supported or being phased out was down $63,425 over the prior
period. In contrast, the Company's maintenance revenue on its PurchaseSoft(TM)
product increased by $47,382, or 90.5%, over the prior period.

                                       17
<PAGE>

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


COSTS AND EXPENSES

COST OF PRODUCT REVENUES

         Cost of product revenues for fiscal 2000 was $465 compared to $1,577 in
fiscal 1999, a decrease of $1,112 or 70.5%. These costs have been very
insignificant in comparison to product revenues.

COST OF SERVICE REVENUES

         Cost of service revenue for fiscal 2000 was $343,112 compared to
$171,696 in fiscal 1999, an increase of $171,416 or 99.8%. Compensation and
benefits increased $197,755 as the Company continued to build its customer
support infrastructure. Offsetting increased compensation costs was a decrease
in contract labor of $60,982, which resulted from converting contract labor to
employee headcount. In fiscal 2000, the headcount peaked at five personnel,
while in fiscal 1999, the Company hired its first customer support employee in
the last month of that fiscal year. Travel expenses increased $13,512 relating
to non-billable trips to visit customers and assess their level of satisfaction
with the Company's software as well as put on a user conference in New York.
Cost of service revenues, which increased 99.8%, did not move in the same
direction as service revenues, which decreased 22.3% for several reasons. The
Company expected fiscal 2000 revenues to show substantial growth and was
committed to building a better, more responsive customer support organization
and began staffing its customer support and professional services group
accordingly. Fiscal 2000 revenues were off projections, but the increased
compensation costs incurred were fixed over this period. The Company expects
that cost of service revenues will continue to increase in absolute dollars, and
that they are likely to grow in proportional terms, at a faster rate than the
related service revenue, until such time as revenues grow and reach full
utilization of the costs used to produce them.

SALES AND MARKETING.

         Sales and marketing expenses for fiscal 2000 were $1,255,424 compared
to $1,448,634 in fiscal 1999, a decrease of $193,210, or 13.3%. Sales expenses
decreased from $1,068,255 in fiscal 1999 to $574,079 in fiscal 2000, a decrease
of $494,176, or 46.3%. In December 1999, the Company restructured its primary
method of distribution from a direct sales force to an indirect sales force
using resellers and partners. Many of the direct sales positions were
eliminated. The significant items accounting for the decrease in sales expenses
were sales compensation and benefit expenses, which decreased by $328,007 and
travel expenses, which decreased by $118,708. Marketing expenses for fiscal 2000
were $681,345 compared to $380,379 in fiscal 1999, an increase of $300,966, or
79.1%. The Company ended fiscal 2000 with two employees dedicated to managing
the Company's marketing activities, which increased marketing expenses by
$103,456. In the prior year, there were no dedicated employees in the marketing
department. As a result of these new marketing employees, the Company eliminated
many of the outside consulting fees it had been contracting for and saved
$246,997. The Company also increased trade show expenses by $190,924 and
increased other initiatives including collateral materials, advertising, analyst
fees and other marketing expenses by $253,583. The Company expects to incur
significant sales and marketing expenses in future periods.

                                       18
<PAGE>

GENERAL AND ADMINISTRATIVE

         General and administrative expenses for fiscal 2000 were $1,849,116
compared to $1,911,309 in fiscal 1999, a decrease of $62,193, or 3.3%. Although
general and administrative expenses were flat for fiscal years 2000 and 1999,
there were several areas that had changes. Compensation and benefit expenses
increased $346,031, which included $144,758 in severance benefits and $201,273
in compensation to new employees and increases to existing employee
compensation. Travel costs increased $78,605 related to the Company's efforts to
develop a reseller organization and develop partnerships to increase the
promotion and distribution of the Company's software solution. Offsetting these
increases was a decrease in general expenses of $154,509, resulting from the
adjustment of certain accrued liabilities, which the Company provided for in
prior years. Legal Fees decreased $144,858 resulting from savings realized by
the creation of an internal General Counsel position, which eliminated many of
the outside legal costs the Company historically incurred. Recruiting fees
decreased $145,778 as the Company did not use any recruiters in fiscal 2000. In
fiscal 1999, the Company used recruiters to fill direct sales positions.

RESEARCH AND DEVELOPMENT

         Research and development expenses for fiscal 2000 were $860,012
compared to $753,902 in fiscal 1999, an increase of $106,110, or 14.1%.
Compensation and benefit expenses increased $177,289 and were offset in part by
a $71,516 decrease in contract labor that was eliminated. The average headcount
for research and development increased by two individuals for fiscal 2000 and
also included overtime payments and certain performance bonuses paid for meeting
aggressive development deadlines. The Company intends to make continual and
substantial investments in its research and development activities to keep the
Company's software solutions at the leading edge of e-Procurement and e-Commerce
offerings.

NET INTEREST INCOME

         Net interest income for fiscal 2000 was $70,244 compared to $55,940 for
fiscal 1999, an increase of $14,304, or 25.6%. This additional income resulted
from a higher average cash balance.


NET LOSS

         For fiscal 2000, the Company reported a net loss of $3,899,987 (or
$0.28 per share) as compared with a net loss of $4,469,376 (or $0.52 per share)
for fiscal 1999. The fiscal 2000 loss decreased over the fiscal 1999 loss by
$569,389 and this decrease is primarily attributable to the absence of a
restructuring charge in fiscal 2000, which accounted for $610,453 of expense in
fiscal 1999. The other components of costs and expenses, although they included
both increases and decreases, netted out to an increase of only $21,011. This
net increase of $21,011 in combination with the increase in net interest income
of $14,304, the decrease in revenues of $34,357, and the absence of $610,453 in
restructuring charges, accounts for the $569,389 decrease in the fiscal 2000 net
loss. The decrease in the loss per share results from a combination of both the
lower net loss in fiscal 2000 and an increase in the average outstanding shares
during fiscal 2000 to 14,088,270 from 8,553,362 for fiscal 1999.

                                       19

<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

         As of May 31, 2000, the Company had cash and cash equivalents totaling
$4,992,306 and working capital of $4,415,686. The Company used $4,274,462 of
cash in operating activities during fiscal 2000. The net loss for the period of
$3,899,987 represents the largest item of cash used in operating activities. The
other significant items of cash used in operating activities are a reduction of
$284,587 in accounts payable and a reduction of $220,767 in accrued severance
payments related to past restructuring charges and these items using cash were
offset in part by $131,339 of non cash charges, which increased cash and
represent primarily depreciation and amortization charges and stock issued for
services. The Company used $436,298 of cash in investing activities during
fiscal 2000 to acquire property and equipment and increase its security deposits
relating to the Company's new corporate headquarters in Westborough,
Massachusetts. The Company raised $5,878,561 of cash from financing activities
during fiscal 2000 of which $5,000,000 was a demand promissory note from L-R
Global Partners, LP, $941,351 was raised from the exercise of options and
warrants and $62,790 was used for capital lease payments.

         In March 2000, the Company borrowed $5,000,000 from L-R Global
Partners, LP and signed a demand promissory note in return. Under the terms of
this note, the Company must repay the principal and interest due at any time
upon the demand of L-R Global. Subsequently, L-R Global issued to the Company a
letter, which stated that they would not demand repayment prior to June 15,
2001. Accordingly, the Company has classified this note payable as non-current
in its balance sheet dated May 31, 2000. During fiscal 2000, the Company raised
gross proceeds of $941,351 from the exercise of stock options and warrants.
Proceeds from the demand promissory note and exercise of options and warrants
are being used to fund the Company's sales and marketing activities, product
development initiatives, customer support, and other general operating expenses.

         In connection with the resignation of Joseph D. Mooney, the Company is
obligated under an Agreement and General Release to continue to pay Mr. Mooney's
salary through January 31, 2001. The unpaid obligation as of May 31, 2000 was
$133,332 and is classified as a current liability. This obligation is payable in
equal installments on a semi-monthly basis.

         The Company made $254,854 in capital expenditures during fiscal 2000,
including assets acquired under capital leases as compared with $314,580 in
fiscal 1999. The Company had no significant commitments as of May 31, 2000 for
capital expenditures.

         At May 31, 2000, the Company had a cash balance of approximately
$4,992,000. On March 23, 2000, the Company borrowed $5,000,000 from L-R Global
Partners, L.P. and signed a promissory demand note in exchange. Subsequent to
year end, L-R Global Partners, L.P. issued a letter to the Company stating that
it would not make a demand for repayment prior to June 15, 2001 and accordingly
the Company has classified the note payable as non-current on its balance sheet
dated May 31, 2000. The Company believes that its existing capital resources and
revenue from future software sales and services will be sufficient to fund its
planned operating expenses and capital requirements through the end of fiscal
2001, which is May 31, 2001. At May 31, 2000, the Company's net equity was
approximately $131,000. This reflects the classification of the $5,000,000
investment by L-R Global Partners, L.P. in March 2000 as long-term debt. The
Company expects continuing losses, which will cause the net equity of the
Company to be reflected as a deficit should the Company not raise new equity
capital. The Company recognizes that to be competitive it must raise additional
equity capital to accelerate its sales and marketing programs and to establish a
stronger financial position. The Company is pursuing two primary capital raising
strategies to raise this growth capital: In the short term, the Company's
strategy is to seek a strategic partnership with an established technology
company that could provide the necessary growth capital as well as technology
expertise, a reseller network and an installed customer base into which the
Company could market its products. As a strategy for the mid-term, the Company
might seek to raise additional funds through public or private debt or equity
financings, including, but not limited to, another rights offering. In the event
that the Company conducts another rights offering, L-R Global Partners, L.P. has
given the Company a written commitment to purchase up to $5,000,000 of the
Company's Common Stock in a rights offering and pay for its purchase by
canceling the debt that the Company owes to L-R Global Partners, L.P. should
other financing options not be available.

                                       20
<PAGE>
ITEM 7:   FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                      <C>

Report of PricewaterhouseCoopers LLP                                      F-2

Balance Sheets at May 31, 2000 (Revised) and 1999 (Revised)               F-3

Statements of Operations For the Years Ended May 31, 2000 and 1999        F-4

Statements of Stockholders' Equity for the Years Ended May 31, 2000
(Revised) and 1999 (Revised)                                              F-5

Statements of Cash Flows for the Years Ended May 31, 2000 and 1999        F-6

Notes to Financial Statements (Revised)                                   F-7
</TABLE>

ITEM 8:   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

      Not applicable.

                                       21
<PAGE>

PART III:

ITEM 9:   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS AND DIRECTORS

As of August 17, 2000, the executive officers and directors of the Company were
as follows:

<TABLE>
<CAPTION>
                                                                    Year Became
                                                                     Officer or
            Name       Age            Position with Company           Director
---------------------  ----  ----------------------------------      -----------
 <S>                    <C>  <C>                                         <C>
 Donald S. LaGuardia    33   Chief Executive Officer,                    1998
                             President and Director

 Jeffrey B. Pinkerton   52   Vice Chairman, Chief Product                1994
                             Strategist and Director

 P. Gopalakrishnan      39   Senior Vice President,
                             Business Development                        2000

 Philip D. Wolf         48   Chief Financial Officer, Treasurer,         1998
                             and Assistant Secretary

 Terry J. Bartz         40   Vice President, General Counsel,            1999
                             and Secretary

 J. Murray Logan        65   Chairman of the Board                       1998

 Brad I. Markowitz      42   Director                                    1994
</TABLE>

         DONALD S. LAGUARDIA has served as President and Chief Executive Officer
of the Company since August 14, 2000 and as a member of the Board of Directors
since June 1998. From 1987 to 1991, Mr. LaGuardia served as an auditor and then
a consultant for PricewaterhouseCoopers. From 1991 to 1997, Mr. LaGuardia joined
BMW of North America, Inc. as a Financial Analyst and then became the Network
Business Planning Manager. In 1997, Mr. LaGuardia joined L-R Global Partners,
L.P. as an equity analyst and is a member of L-R Managers LLC, the general
partner of L-R Global Partners, LP, the majority stockholder in PurchaseSoft,
Inc. Mr. LaGuardia is a Certified Public Accountant and a candidate for the
Chartered Financial Analyst designation. Mr. LaGuardia received his B.A. in 1989
from Pace University and his MBA in International Finance from New York
University in 1997

         JEFFREY B. PINKERTON has served as Vice Chairman and Chief Product
Strategist of the Company since August 14, 2000 and as a member of the Board of
Directors since October 1995. He formerly served as President and Chief
Executive Officer from March 2000 to August 14, 2000 and as President from
August 1996 to March 2000. From 1987 to 1991 and from 1994 to July 1996, Mr.
Pinkerton served in various positions for the Company, including Executive Vice
President and Vice President-Product Development. From 1991 to 1994, Mr.
Pinkerton founded and operated Viewpoint Consulting, a reseller of the Company's
software products. Prior to joining the Company, Mr. Pinkerton was Director of
Purchasing for American-Standard, Inc. in New York. His industrial experience
includes both materials management and systems analysis. Mr. Pinkerton has
published numerous articles on Purchasing and Purchasing Applications, taught a
course on application design for procurement at Baruch College, NY, and
published two books. Mr. Pinkerton received a BSc in Mathematics and Statistics
from Sheffield University in England in 1970.

                                       22
<PAGE>

         P. GOPALAKRISHNAN has served as Senior Vice President, Business
Development of the Company since January 17, 2000. From August 1998 to January
2000, Mr. Gopalakrishnan was a Principal Consultant for the
PricewaterhouseCoopers Management Consulting Services specializing in e-Commerce
best practices and major project implementation and management. From 1994 to
1998, he was a Senior Consultant/Project Manager (EC Services) with ABB, Inc.
From 1989 to 1994, he was a Technical Consultant for Datronics, Inc. From 1987
to 1989, he was a Senior Consultant for Tata-Unisys Ltd. From 1986 to 1987, he
was an Analyst/Programmer with American Express Bank. From 1983 to 1986, he was
a Consultant with ORG Systems. From 1981 to 1983 he was a Programmer with ABC
Consultants. He has concentrated on design, development and implementation for
multinational and multi location e-Commerce projects for the last nine years.
Mr. Gopalakrishnan received his BSc in Science from the University of Delhi,
Delhi, India an FBA in Business Administration from the Canadian School of
Management, Toronto and an MBA in Management from City University, Seattle, WA.

         PHILIP D. WOLF joined the Company in October 1997 and has served as
Chief Financial Officer, Treasurer and Assistant Secretary since January 1998.
During 1997, Mr. Wolf served as a consultant to several start-up companies. From
1989 to 1997, Mr. Wolf was Vice President of Finance and CFO for Nice Man
Merchandising, a worldwide entertainment merchandising company. From 1987 to
1989, he was Chief Financial Officer for Benchmark Computer Systems, Inc., a
value-added reseller and software developer of integrated computer systems. From
1983 to 1987, Mr. Wolf was Vice President of Finance and Administration for
National Information Systems, Inc., which provided computer and information
services to the direct marketing industry. From 1974 to 1983, Mr. Wolf was staff
accountant and became the Controller for Patchin Appraisals, Inc., a national
valuation firm. Mr. Wolf received his BS Degree in Accounting from the
University of Minnesota in 1974.

         TERRY J. BARTZ began advising PurchaseSoft as outside counsel in 1996
and joined the Company in May 1999 as Vice President and General Counsel. Prior
to joining the Company, Mr. Bartz had a private law practice focused on serving
the needs of start-up, financially distressed and emerging businesses. Mr.
Bartz's law practice provided representation and advice on a wide variety of
general business and corporate law matters including litigation, corporate
governance, employment and executive compensation. Mr. Bartz received his B.A.
degree (with major in business) from Gustavus Adolphus College in 1982 and his
J.D. degree, cum laude, from Hamline University School of Law in 1985.

         J. MURRAY LOGAN has served as a member of the Board of Directors of the
Company since June 1998. Since 1975, Mr. Logan has served as a vice president,
portfolio manager, Chairman of Investment Policy of Rockefeller & Co., Inc., and
as a vice president of Rockefeller Gas & Oil Inc., general partner of various
Rockefeller partnerships. Mr. Logan is the Managing Partner of L-R Global
Partners, L.P. since its inception in 1997 and along with Rockefeller & Co.,
Inc., is a member of L-R Managers, LLC which is the management company for L-R
Global Partners, L.P. Mr. Logan is a director of The World Trust Fund, an
unaffiliated investment trust. Mr. Logan served as a trustee of the Johns
Hopkins University and chaired its Committee on Investments. Mr. Logan is also a
director of the Camphill Foundation, Camphill Village USA and the Berkshire
Opera Company. Mr. Logan received his B.A. from Johns Hopkins University in
1959.

         BRAD I. MARKOWITZ has served as a member of the Board of Directors of
the Company since February 1994. From February 1994 to June 1997, Mr. Markowitz
served as Chairman of the Board of Directors. Since 1995, Mr. Markowitz has
served as President and a member of the Board of Directors of Park Avenue Health
Care Management, Inc., a physician practice management company. From 1987 to
1995, Mr. Markowitz served as Vice President of the ADCO Group, a real estate,
banking and venture capital company.


FAMILY RELATIONSHIPS

         There are no family relationships among any of the directors or
executive officers.

                                       23
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
the Company's directors and certain of its officers and persons holding more
than ten percent of the Company's Common Stock are required to report their
ownership of the Common Stock and any changes in ownership to the Securities and
Exchange Commission and the Company. Specific due dates have been established
and the Company is required to report in this Form 10-KSB any failure to file by
these dates during the fiscal year ended May 31, 2000. Based on the Company's
review of copies of such reports, Michael Kerrison failed to file one Form 4,
Pamela Cabalka failed to file one Form 3 and one Form 4, Donald LaGuardia filed
one untimely Form 5, and P. Gopalakrishnan filed one untimely Form 3.


ITEM 10:   EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The table below sets forth certain compensation information for the
fiscal years ended May 31, 2000, 1999, and 1998 with respect to the Company's
Chief Executive Officers and each of the most highly compensated executive
officers whose compensation for fiscal 2000 exceeded $100,000.

<TABLE>
<CAPTION>
                                                                                LONG TERM
                                                   ANNUAL COMPENSATION         COMPENSATION
                                                 ------------------------         AWARDS              ALL OTHER
NAME AND PRINCIPAL POSITION        YEAR          SALARY ($)     BONUS ($)       OPTIONS (#)        COMPENSATION ($)
---------------------------        ----          ----------     ---------       -----------        ----------------
<S>                                <C>            <C>           <C>             <C>                <C>
Jeffrey B. Pinkerton               2000 (1)       $ 160,360        --            320,113           $  10,880 (4)
   President and Chief             1999           $ 160,000        --               --             $   7,800 (16)
   Executive Officer               1998           $ 125,000        --            304,166           $   9,750 (5)

Pamela Cabalka
   Chief Executive Officer         2000 (11)      $  82,227        --               --             $  75,188 (12)

Michael G. Kerrison                2000 (2)       $  42,045        --               --                     --
   Chairman and Chief              1999           $ 100,000        --            625,000           $  35,000 (6)
   Executive Officer

Joseph D. Mooney                   2000               --           --               --                     --
   Chairman and Chief              1999 (3)       $ 133,333        --               --             $ 445,200 (7)
   Executive Officer               1998           $ 200,000        --            366,666           $  68,083 (8)

Philip D. Wolf                     2000           $ 100,630        --               --             $   1,644 (9)
   Chief Financial Officer,        1999           $  88,717        --            139,000                   --
   Treasurer and                   1998 (14)      $  51,667        --               --                     --
   Ass't. Secretary

Terry J. Bartz                     2000           $ 100,150        --               --             $   1,630 (10)
   Vice President, General         1999 (15)      $   4,688        --            135,000           $  80,803 (13)
   Counsel and Secretary
</TABLE>

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

(1)      See the section "Executive Officers and Directors" for information as
         to the offices held by Mr. Pinkerton in fiscal 2000 and his subsequent
         appointment as Vice Chairman and Chief Product Strategist effective
         August 14, 2000. Mr. Donald LaGuardia succeeded Mr. Pinkerton in the
         offices of President and Chief Executive Officer effective August 14,
         2000.

(2)      Mr. Kerrison was appointed Chief Executive Officer by the Board of
         Directors on January 31, 1999 and resigned on September 9, 1999.

(3)      Mr. Mooney was appointed President and Chief Executive Officer by the
         Board of Directors on June 23, 1997 and resigned on January 31, 1999.

                                       24
<PAGE>

(4)      Represents a $7,800 automobile allowance and a $3,080 Company
         contribution to employee's 401K account.

(5)      Represents a $9,750 automobile allowance.

(6)      Represents $35,000 earned as an independent contractor.

(7)      Represents a $400,000 compensation charge under Mr. Mooney's
         termination agreement, of which $266,668 was paid as of May 31, 2000
         and the balance of $133,332 to be paid evenly over the next eight
         months, a $40,000 contract settlement payment, and a $5,200 automobile
         allowance.

(8)      Represents $58,333 in deferred compensation and a $9,750 automobile
         allowance.

(9)      Represents a $1,644 Company contribution to employee's 401K account.

(10)     Represents a $1,630 Company contribution to employee's 401K account.

(11)     Ms. Cabalka was appointed interim Chief Executive Officer by the Board
         of Directors on September 10, 1999 and resigned on December 8, 1999.

(12)     Represents a $75,000 accrued severance benefit of which $71,023 was
         paid as of May 31, 2000 and the balance of $3,977 was paid in June 2000
         and a $188 Company contribution to employee's 401K account.

(13)     Represents $80,803 earned as an independent contractor.

(14)     Mr. Wolf joined the Company in October 1997 and was appointed Chief
         Financial Officer in January 1998.

(15)     Mr. Bartz joined the Company in May 1999 as Vice President, General
         Counsel and Corporate Secretary.

(16)     Represents a $7,800 automobile allowance.

                                       25
<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>

                                                   INDIVIDUAL GRANT          EXERCISE
                              NUMBER OF           ------------------           PRICE           EXPIRATION
          NAME                SECURITIES          % OF TOTAL OPTIONS        ($ / SHARE)           DATE
          ----                UNDERLYING        GRANTED TO EMPLOYEES IN     ------------       ----------
                           OPTIONS GRANTED           FISCAL YEAR
                           ---------------           -----------
 <S>                          <C>                        <C>                 <C>          <C>
 Jeffrey B. Pinkerton         300,000 (1)                16.5%               $0.920       December 12, 2004
                                1,334 (2)                 0.1%               $0.937       October 14, 2003
                                1,483 (2)                 0.1%               $0.843       November 15, 2003
                                1,741 (2)                 0.1%               $0.718       December 14, 2003
                                  953 (2)                 0.1%               $1.312       January 14, 2004
                                1,177 (2)                 0.1%               $1.062       February 15, 2004
                                1,250 (2)                 0.1%               $1.000        March 14, 2004
                                1,483 (2)                 0.1%               $0.843        April 14, 2004
                                1,111 (2)                 0.1%               $1.125         May 13, 2004
                                1,483 (2)                 0.1%               $0.843         June 14, 2004
                                1,905 (2)                 0.1%               $0.656         July 14, 2004
                                2,860 (2)                 0.2%               $0.437        August 15, 2004
                                3,333 (2)                 0.2%               $0.375      September 14, 2004

 Pamela Cabalka                    --                      --                   --                --

 Michael G. Kerrison               --                      --                   --                --

 Joseph D. Mooney                  --                      --                   --                --

 Philip D. Wolf                    --                      --                   --                --

 Terry J. Bartz                    --                      --                   --                --
</TABLE>

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

(1)      Mr. Pinkerton was granted an incentive stock option exercisable for an
         aggregate of 300,000 shares of common stock of which 100,000 shares
         vested immediately, 100,000 will vest on December 13, 2000 and 100,000
         will vest on December 13, 2001.

(2)      Mr. Pinkerton was granted options, which were fully vested on the date
         of grant.

                                       26
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

         The following table sets forth information as to options exercised
during the fiscal year ended May 31, 2000, and unexercised options held at the
end of such fiscal year, by the individuals listed in the Summary Compensation
Table.
<TABLE>
<CAPTION>
                              SHARES                                                        VALUE OF UNEXERCISED
                              ACQUIRED                      NUMBERS OF UNEXERCISED          IN-THE-MONEY OPTIONS
                                 ON           VALUE           OPTIONS AT 5/31/00                 AT 5/31/00
          NAME             EXERCISE (#)   REALIZED ($)    EXERCISABLE/UNEXERCISABLE     EXERCISABLE/UNEXERCISABLE (1)
          ----             -------------  ------------    -------------------------     -----------------------------
 <S>                          <C>          <C>                    <C>                           <C>
 Jeffrey B. Pinkerton               0      $        0             424,279 / 200,000             $795,094 / $391,000
 Pamela Cabalka               150,000      $  604,641                   0 /       0             $      0 / $      0
 Michael G. Kerrison                0      $        0                   0 /       0             $      0 / $      0
 Joseph D. Mooney             366,666      $1,230,615                   0 /       0             $      0 / $      0
 Philip D. Wolf                     0      $        0             139,000 /       0             $261,885 / $      0
 Terry J. Bartz                     0      $        0             105,633 /  29,533             $192,894 / $ 52,877
</TABLE>
---------------------------

(1)   Value is based on the closing bid price supplied by the National
      Quotations Bureau in the Nasdaq System and reported by the NASD as of May
      31, 2000, the last trading date during fiscal 2000, which was $2.875 minus
      the exercise price.


EXECUTIVE EMPLOYMENT AGREEMENTS

         The Company entered into an employment agreement with Jeffrey B.
Pinkerton, the then President of the Company, effective as of December 15, 1996
for a five (5) year term from the effective date (the "Pinkerton Employment
Agreement"). Pursuant to the Pinkerton Employment Agreement, the Company agreed
to grant Mr. Pinkerton options exercisable for up to 200,000 shares of common
stock. Mr. Pinkerton's current annual base salary is $165,000, subject to annual
review and increase by the Board of Directors of the Company.

         If the Pinkerton Employment Agreement is terminated by the Company for
any reason other than cause, death, disability, mutual agreement or is
terminated by Mr. Pinkerton for good reason, the Company shall continue to pay
Mr. Pinkerton his base salary for twenty-four (24) months (or twelve (12) months
for termination as a result of good reason) and provide benefits, including but
not limited to, plan participation, vacation time, and office facilities for a
twelve (12) month period. In the event of a termination in connection with a
change in control of the Company (as defined in the Pinkerton Employment
Agreement), the Company shall pay a lump sum payment to Mr. Pinkerton equal to
2.99 times the sum of (i) his annual base salary and (ii) his earned executive
compensation plan benefits, which shall be "grossed-up" in the event of certain
excise tax charges. In addition the Company shall reimburse, for a twelve (12)
month period, Mr. Pinkerton's reasonable expenses while seeking employment. In
addition to compensatory provisions, the Pinkerton Employment Agreement also
contains certain confidentiality and non-competition provisions intended to
protect the Company.


DIRECTOR COMPENSATION

         At the current time, directors of the Company receive no cash
compensation for their service to the Company as directors.

                                       27
<PAGE>

ITEM 11:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information as of August 1,
2000, as reported to the Company, as to the beneficial ownership of the Common
Stock of the Company by each director, each named officer, by all directors and
executive officers as a group and each person known to the Company to be the
beneficial owner of more than 5% of the issued and outstanding common stock as
of August 1, 2000 or other date noted below. As of August 1, 2000, 14,733,046
shares of common stock were outstanding.
<TABLE>
<CAPTION>
                                                      AMOUNT AND NATURE OF               PERCENTAGE OF
  NAME AND ADDRESS                                    BENEFICIAL OWNERSHIP           OUTSTANDING SHARES OF
  OF BENEFICIAL OWNER                                 OF COMMON STOCK (1)            COMMON STOCK OWNED (2)
  -------------------                                 -------------------            ----------------------
  <S>                                                    <C>                                 <C>
  J. Murray Logan (3)
  c/o L-R Global Partners, L.P.
  30 Rockefeller Plaza, Room 5425
  New York, New York 10112                               10,152,947                          67.88%

  Donald S. LaGuardia (4)
  c/o L-R Global Partners, L.P.
  30 Rockefeller Plaza, Room 5425
  New York, New York 10112                                9,969,128                          66.21%

  L-R Global Partners, L.P. (5)
  c/o Rockefeller & Co., Inc.
  30 Rockefeller Plaza, Room 5425
  New York, New York 10112                                9,852,128                          65.87%

  Larry E. Jeddeloh (6)
  c/o T.I.S. Acquisition & Management Group,
  Inc.
  200 South Sixth Street, Suite 450
  Minneapolis, MN 55402                                   1,020,337                          6.92%

  T.I.S. Group, Inc. (7)
  c/o T.I.S. Acquisition & Management Group,
  Inc.
  200 South Sixth Street, Suite 450
  Minneapolis, MN 55402                                   1,019,504                          6.92%

  Jeffrey B. Pinkerton (8)                                  438,156                          2.89%

  Brad I. Markowitz (9)                                     130,820                          0.88%

  Philip D. Wolf (10)                                       174,000                          1.17%

  Terry J. Bartz (11)                                       105,633                          0.71%

  P. Gopalakrishnan (12)                                     41,667                          0.28%

  All current directors and executive                    11,160,223                          70.26%
  officers as a group (7 persons) (13)
</TABLE>

                                       28
<PAGE>

(1)      The shares owned, and the shares included in the total number of shares
         outstanding, have been adjusted, and the percentage owned has been
         computed, in accordance with Rule 13d-3(d)(1) under the Securities
         Exchange Act of 1934, as amended, and includes, options and warrants to
         the extent called for by such rule, with respect to shares of common
         stock, that can be exercised within 60 days. Except as set forth in the
         footnotes below, such shares are beneficially owned with sole
         investment and sole voting power.

(2)      The percent of class calculation is based on 14,733,046 shares of the
         Company's Common Stock being issued and outstanding as of August 1,
         2000 and effect being given, where appropriate, pursuant to Rule
         13d-3(d)(1)(i) under the Exchange Act, to any option or warrant then
         exercisable or exercisable within 60 days thereafter.

(3)      Includes 9,627,553 shares held by L-R Global Partners, L.P. Also
         includes 224,575 shares that L-R Global Partners, L.P. has the right to
         acquire within 60 days of August 1, 2000 upon the exercise of warrants.
         Mr. Logan, together with L-R Managers, LLC, Rockefeller & Co., Inc.,
         and Rockefeller Financial Services, Inc. share voting and investment
         control with respect to L-R Global Partners, L.P. Mr. Logan may be
         deemed the beneficial owner of shares held by L-R Global Partners, L.P.
         although he disclaims beneficial ownership to the extent of his
         purported ownership interest.

(4)      Includes 9,627,553 shares held by L-R Global Partners, L.P. Also
         includes 224,575 shares that L-R Global Partners, L.P. has the right to
         acquire within 60 days of August 1, 2000 upon the exercise of warrants.
         Mr. LaGuardia, together with L-R Managers, LLC, Rockefeller & Co.,
         Inc., and Rockefeller Financial Services, Inc. share voting and
         investment control with respect to L-R Global Partners, L.P. Mr.
         LaGuardia may be deemed the beneficial owner of shares held by L-R
         Global Partners, L.P. although he disclaims beneficial ownership to the
         extent of his purported ownership interest. Also includes 100,000
         shares that Mr. La Guardia has the right to acquire within 60 days of
         August 1, 2000 upon the exercise of stock options.

(5)      Includes 224,575 shares that L-R Global Partners, L.P. has the right to
         acquire within 60 days of August 1, 2000 upon the exercise of warrants.

(6)      Based upon information provided by Mr. Jeddeloh's Schedule 13D/A filed
         with the SEC as of January 13, 1999. By virtue of his positions with
         T.I.S. Acquisition and Management Group ("TIS Acquisition") and T.I.S.
         Group, Inc. ("TIS Group"), which owns a majority of the stock of and
         controls TIS Acquisition, Mr. Jeddeloh has the right to vote and
         dispose of the shares of common stock held by TIS Acquisition and TIS
         Group, respectively, and may be deemed the beneficial owner of such
         shares. Includes 193,888 shares held by TIS Acquisition, which may be
         deemed beneficially owned by TIS Group. Includes 820,616 shares held by
         TIS Group for client accounts managed by T.I.S. Group Managers. TIS
         Group has the right to dispose of the shares held by T.I.S. Group
         Managers and may be deemed the beneficial owner of such shares.
         Includes 833 shares held by Mr. Jeddeloh over which he has sole power
         to vote and power to dispose. Includes 5,000 shares that TIS Group has
         the right to acquire within 60 days of August 1, 2000 upon the exercise
         of a warrant.

(7)      Based upon information provided by Mr. Jeddeloh's Schedule 13D/A filed
         with the SEC as of January 13, 1999. See note (6) above.

(8)      Includes 424,279 shares issuable within 60 days of August 1, 2000 upon
         the exercise of stock options.

(9)      Includes 115,833 shares issuable within 60 days of August 1, 2000 upon
         exercise of stock options and 10,544 shares owned by Focus Capital
         Corp. Mr. Markowitz may be deemed the beneficial owner of shares held
         by Focus Capital Corp. although he disclaims beneficial ownership of
         such shares.

(10)     Includes 139,000 shares issuable within 60 days of August 1, 2000 upon
         the exercise of stock options.

(11)     Includes 105,633 shares issuable within 60 days of August 1, 2000 upon
         the exercise of stock options.

(12)     Includes 41,667 shares issuable within 60 days of August 1, 2000 upon
         the exercise of stock options.

(13)     Includes 926,412 shares issuable within 60 days of August 1, 2000 upon
         the exercise of stock options and 224,575 shares issuable within 60
         days upon the exercise of warrants.

                                       29
<PAGE>
ITEM 12:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On September 1, 1998, the Company issued 125,000 shares of its Common
Stock to TIS Group Managers, Inc. upon the exercise of a warrant held by TIS
Growth Fund at an exercise price of $1.14 per share, for an aggregate sum of
$142,500. The issuance of the Common Stock was made in reliance on Section 4(2)
of the Securities Act of 1933, as amended.

         On January 31, 1999, the Company entered into an Agreement and General
Release with Joseph D. Mooney, CEO and Chairman of the Board of the Company.
Under this agreement, the Company accepted the resignation of Mr. Mooney as
Chief Executive Officer, Chairman of the Board of Directors and as a Director of
the Company. Mr. Mooney was granted the following benefits under this agreement:
$400,000 gross salary continuation, payable in 48 equal installments beginning
February 15, 1999 and ending January 31, 2001 ($133,332 remaining to be paid as
of May 31, 2000); $60,000 representing the balance of Mr. Mooney's deferred
employment compensation; a $40,000 contract settlement payment; and continuation
of insurance benefits until January 31, 2000.

         On February 9, 1999, the Company received $2 million from L-R Global
Partners, L.P. and signed a demand promissory note in return. The note provided
for interest at 6% per annum. The note was cancelled as partial payment for the
common stock that L-R Global Partners, L.P. purchased in the rights offering in
May 1999.

         On May 5, 1999, the Corporation issued 5,605,173 shares of its Common
Stock for rights subscribed to in a rights offering and shares purchased on a
standby basis as part of the rights offering. These shares were purchased at
$0.90 per share and raised $5,044,655 in gross proceeds. L-R Global Partners,
L.P. purchased a total of 4,930,000 shares in the offering for $4,437,000 and
Michael G. Kerrison, CEO of the Company, purchased 111,111 shares in the
offering for $100,000. Expenses associated with the rights offering were
$119,052.

         On March 23, 2000, the Company borrowed $5,000,000 from L-R Global
Partners, L.P. and signed a demand promissory note in return. Under the terms of
this note, the Company must repay the principal and interest due at any time
upon the demand of L-R Global. Subsequent to year-end, L-R Global provided the
Company with a letter stating that they would not make a demand for repayment
prior to June 15, 2001. This note provided for interest at 6% per annum.

                                       30
<PAGE>

ITEM 13:   EXHIBITS, LIST AND REPORTS ON FORM 8-K

EXHIBITS

         The following exhibits, which are designated with a footnote reference
are incorporated by reference to a prior registration statement declared
effective under the Securities Act or a periodic report file pursuant to Section
13 of the Exchange Act. Exhibits which are designated with an asterisk were
filed with the original 10-KSB filing for the fiscal year ended May 31, 2000,
which was filed on August 29, 2000. Exhibits designated with a double asterisk
are filed with this report.

Number   Exhibit

2.1      Agreement and Plan of Merger, dated November 10, 1998, by and between
         PurchaseSoft, Inc., a Delaware corporation, and Greentree Software,
         Inc., a New York corporation. (1)

3.1      Certificate of Incorporation of the Company.  (1)

3.2      By-laws of the Company.  (1)

4.1      Specimen Certificate for Shares of Common Stock. (11)

10.1     The Company's Stock Option Plan of 1987.  (2)

10.2     The Company's Stock Option Plan of 1994.  (3)

10.3     The Company's 1997 Stock Option Plan.  (4)

10.4     Employment Agreement dated April 1, 1998 between the Company and
         Jeffrey B. Pinkerton. (5)

10.5     Registration Rights Agreement dated as of December 25, 1995 among the
         Company and certain of its Shareholders. (6)

10.6     Registration Rights Agreement dated as of April 23, 199_ among the
         Company and certain of its Shareholders. (6)

10.7     Lease between the Company and Fruitville-Tuttle, Ltd.  (7)

10.8     Lease between the Company and The Protective Group. (8)

10.9     Sub-lease between the Company and Racotek, Inc.  (9)

10.10    Registration Rights Agreement dated October 25, 1996 between the
         Company and certain of its Shareholders. (4)

10.11    Demand Promissory Note, dated February 9, 1999, of PurchaseSoft, Inc.
         to L-R Global Partners, L.P. (10)

10.12    Agreement and General Release, dated as of January 31, 1999, by and
         between Joseph D. Mooney and PurchaseSoft, Inc. (10)

10.13    Compensation Agreement, dated as of February 1, 1999, by and between
         Michael G. Kerrison and PurchaseSoft, Inc. (10)

                                       31
<PAGE>

10.14    Form of Warrant issued to Wm. Smith Securities & Gilmore & Co. (A
         substantial number of these warrants have been assigned to L-R Global
         Partners, L.P.) (6)

10.15    Form of Warrant issued to TIS Acquisitions and Management Group, Inc.,
         The Travelers Indemnity Company, and Mark Cahill, dated October 25,
         1996. (4)

10.16    Form of Warrant issued to Wm. Smith Securities, Inc., dated October 25,
         1996. (A substantial number of these warrants have been assigned to L-R
         Global Partners, L.P.) (4)

10.17    Form of Warrant issued to Wm. Smith Securities, Inc., dated October 25,
         1996. (A substantial number of these warrants have been assigned to L-R
         Global Partners, L.P.) (4)

10.18    Promissory note dated March 23, 2000, of PurchaseSoft, Inc. to L-R
         Global Partners, L.P. (12)

10.19    Lease agreement between the Company and Flanders Westborough Delaware,
         Inc. *

10.20    Lease agreement between the Company and Office Associates L.L.C. *

23.1     Consent of PricewaterhouseCoopers LLP **

27.1     Financial Data Schedule *


FOOTNOTES:

(1)   Incorporated herein by reference to the Company's Report on Form 8-K,
      filed on November 25, 1998.

(2)   Incorporated herein by reference to the Company's Annual Report on Form
      10-K for the fiscal year ended May 31, 1991.

(3)   Incorporated herein by reference to the Company's Annual Report on Form
      10-KSB for the fiscal year ended May 31, 1994.

(4)   Incorporated herein by reference to the Company's Annual Report on Form
      10-KSB for the fiscal year ended May 31, 1997.

(5)   Incorporated herein by reference to the Company's Quarterly Report on Form
      10-QSB/A for the quarter ended February 28, 1998.

(6)   Incorporated herein by reference to the Company's Registration Statement
      on Form S-1, File No. 333-45475.

(7)   Incorporated herein by reference to the Company's Annual Report on Form
      10-KSB for the fiscal year ended May 31, 1996.

(8)   Incorporated herein by reference to the Company's Annual Report on Form
      10-KSB for the fiscal year ended May 31, 1998.

(9)   Incorporated herein by reference to the Company's Quarterly Report on Form
      10-QSB for the quarter ended August 31, 1998.

(10)  Incorporated herein by reference from the Company's Form S-3 Registration
      Statement, File No.333-73209 filed on March 22, 1999.

(11)  Incorporated herein by reference from the Company's Annual Report of Form
      10-KSB for the fiscal year ended May 31, 1999.

(12)  Incorporated herein by reference from the Company's Quarterly Report on
      Form 10-QSB for the quarter ended February 29, 2000.



REPORTS ON FORM 8-K

         None

                                       32
<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:   April 5, 2001
                                /s/  Donald S. LaGuardia
                                ------------------------------------
                                Donald S. LaGuardia
                                President, Chief Executive Officer, and Director


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Issuer and in the capacities and on
April 5, 2001.

<TABLE>
<CAPTION>
                    Signature                           Title

<S>                                     <C>
/s/ Donald S. LaGuardia                 President, Chief Executive Officer
--------------------------------        and Director
Donald S. LaGuardia



/s/ Jeffrey B. Pinkerton                Vice Chairman, Chief Product Strategist
--------------------------------        and Director
Jeffrey B. Pinkerton



/s/ Philip D. Wolf                      Chief Financial Officer, Treasurer
---------------------------------       and Assistant Secretary
Philip D. Wolf



/s/ Terry J. Bartz                      VP, General Counsel, and  Secretary
---------------------------------
Terry J. Bartz



/s/ J. Murray Logan                     Chairman of the Board of Directors
---------------------------------
J. Murray Logan



/s/ Brad I. Markowitz                   Director
---------------------------------
Brad I. Markowitz
</TABLE>

                                       33
<PAGE>

                               PurchaseSoft, Inc.
                          Index to Financial Statements



<TABLE>
<CAPTION>

DESCRIPTION                                                                PAGE
-------------------------------------------------------------------------------
<S>                                                                         <C>
Report of PricewaterhouseCoopers LLP                                        F-2

Balance Sheets as of May 31, 2000 (Revised) and 1999 (Revised)              F-3

Statements of Operations for the years ended May 31, 2000 and 1999          F-4

Statements of Stockholders' Equity for the years ended May 31, 2000
(Revised) and 1999 (Revised)                                                F-5

Statements of Cash Flows for the years ended May 31, 2000 and 1999          F-6

Notes to Financial Statements (Revised)                                     F-7

</TABLE>

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS







To the Board of Directors
   and Stockholders of
   PurchaseSoft, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of PurchaseSoft, Inc. at May 31, 2000 and 1999,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

As discussed in Note 1, the Company has revised its 2000 and 1999 financial
statements to account for a beneficial conversion feature related to certain
convertible debt issued in 1998.



/s/ PricewaterhouseCoopers LLP

Minneapolis, Minnesota
June 30, 2000, except as to notes 1 and 9, which are as of April 4, 2001


                                       F-2

<PAGE>

                               PURCHASESOFT, INC.
                                 BALANCE SHEETS
                              MAY 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                           2000                         1999
                                                      ---------------               --------------
<S>                                                 <C>                           <C>
Assets                                                   (Revised)                     (Revised)

Current Assets
   Cash and cash equivalents                        $      4,992,306              $     3,824,505
   Accounts receivable, net                                   12,709                      115,927
   Prepaid expenses and other current assets                 149,940                      121,460
                                                      ---------------               --------------
Total Current Assets                                       5,154,955                    4,061,892
                                                      ---------------               --------------

Property and equipment, net                                  460,408                      304,614
                                                      ---------------               --------------

Security deposits                                            297,269                       38,879
                                                      ---------------               --------------

Total Assets                                        $      5,912,632              $     4,405,385
                                                      ===============               ==============



Liabilities and Stockholders' Equity

Current Liabilities
   Accounts payable                                 $        126,893              $       411,480
   Current obligations under capital leases                   50,002                       49,428
   Accrued expenses                                          509,493                      528,924
   Deferred revenues                                          52,881                      163,804
                                                      ---------------               --------------
Total Current Liabilities                                    739,269                    1,153,636
                                                      ---------------               --------------


Noncurrent Obligations
   Note payable with a related party                       5,000,000                           --
   Noncurrent obligations under capital leases                42,460                       28,878
   Noncurrent restructuring charges                               --                      133,332
                                                      ---------------               --------------
Total Noncurrent Obligations                               5,042,460                      162,210
                                                      ---------------               --------------


Commitments and Contingencies (Note 5)


Stockholders' Equity
Common stock, $0.01 par value, 25,000,000
   shares authorized, 14,730,549 and 13,807,015
   issued and outstanding, respectively                      147,305                      138,070
Additional paid-in-capital (Revised)                      28,575,283                   27,643,167
Accumulated deficit (Revised)                            (28,502,653)                 (24,602,666)
                                                      ---------------               --------------
                                                             219,935                    3,178,571
Less treasury stock (4,780 shares) at cost                   (89,032)                     (89,032)
                                                      ---------------               --------------
Total Stockholders' Equity                                   130,903                    3,089,539
                                                      ---------------               --------------

Total Liabilities and Stockholders' Equity          $      5,912,632              $     4,405,385
                                                      ===============               ==============
</TABLE>

                                       F-3
<PAGE>

                               PURCHASESOFT, INC.
                            STATEMENTS OF OPERATIONS
                        YEARS ENDED MAY 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                     2000                               1999
                                              --------------------               --------------------
<S>                                         <C>                                <C>
Revenues:
     Product                                $             116,155              $              86,550
     Services                                             221,743                            285,705
                                              --------------------               --------------------
Total revenues                                            337,898                            372,255
                                              --------------------               --------------------

Costs and expenses:
     Cost of product revenues                                 465                              1,577
     Cost of service revenues                             343,112                            171,696
     Sales and marketing                                1,255,424                          1,448,634
     General and administrative                         1,849,116                          1,911,309
     Research and development                             860,012                            753,902
     Restructuring charge                                      --                            610,453
                                              --------------------               --------------------
Total costs and expenses                                4,308,129                          4,897,571
                                              --------------------               --------------------

Operating loss                                         (3,970,231)                        (4,525,316)

Interest income, net                                       70,244                             55,940
                                              --------------------               --------------------

Net loss                                    $          (3,899,987)             $          (4,469,376)
                                              ====================               ====================


Net loss per common share                   $               (0.28)             $               (0.52)
                                              ====================               ====================
     (Basic and diluted)


Weighted average shares outstanding                    14,088,270                          8,553,362
                                              ====================               ====================
</TABLE>

                   See accompanying notes to financial statements
                                       F-4
<PAGE>

                               PURCHASESOFT, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
              YEARS ENDED MAY 31, 2000 (REVISED) AND 1999 (REVISED)
<TABLE>
<CAPTION>

                                                Common Stock                                                               Total
                                          ----------------------      Additional       Accumulated       Treasury     Stockholders'
                                            Shares      Amount     Paid-in-Capiltal       Deficit          Stock           Equity
                                          ----------   ---------   ----------------   --------------    ------------   -------------
<S>                                       <C>          <C>         <C>                <C>               <C>            <C>
Balance, May 31, 1998 (Revised)            8,029,761   $  80,298   $  22,521,482      $ (20,133,290)    $ (89,032)     $ 2,379,458


Common stock issued through rights
  offering net of expenses of $119,052     5,605,173      56,051       4,869,552                  -             -        4,925,603
Common stock issued for services              47,081         471          49,529                  -             -           50,000
Stock options issued for services                  -           -          61,354                  -             -           61,354
Common stock issued upon exercise
 of a warrant                                125,000       1,250         141,250                  -             -          142,500
Net loss                                           -           -               -         (4,469,376)            -       (4,469,376)
                                          ----------   ---------   -------------      --------------    ----------     -------------

Balance, May 31, 1999 (Revised)           13,807,015   $ 138,070   $  27,643,167      $ (24,602,666)    $ (89,032)     $ 3,089,539
                                          ==========   =========   =============      ==============    ==========     =============


Common stock issued upon exercise
 of stock options                            907,868       9,078         913,534                  -             -          922,612
Common stock issued upon exercise
 of a warrant                                 15,666         157          18,582                  -             -           18,739
Net loss                                           -           -               -         (3,899,987)            -       (3,899,987)
                                          ----------   ---------   -------------      --------------    ----------     -------------

Balance, May 31, 2000 (Revised)           14,730,549   $ 147,305   $  28,575,283      $ (28,502,653)    $ (89,032)     $   130,903
                                          ==========   =========   =============      ==============    ==========     =============
</TABLE>

                  See accompanying notes to financial statements
                                       F-5
<PAGE>

                               PURCHASESOFT, INC.
                            STATEMENTS OF CASH FLOWS
                        YEARS ENDED MAY 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                2000                      1999
                                                            -------------             --------------
<S>                                                       <C>                       <C>
Cash flows from operating activities:
      Net loss                                            $   (3,899,987)           $    (4,469,376)
      Adjustments to reconcile net loss to net cash
      used in operating activities:
            Depreciation and amortization                         99,060                     56,032
            Provision for bad debts                                2,279                     26,250
            Stock  issued for services                            30,000                     20,000
            Options granted for services                              --                     61,354
      Changes in operating assets and liabilities:
            Accounts receivable                                  100,939                    (39,032)
            Prepaid expenses and other assets                    (58,480)                   (86,415)
            Accounts payable and accrued expenses               (437,350)                   464,863
            Deferred revenue                                    (110,923)                    70,206
                                                            -------------             --------------
Net cash used in operating activities                         (4,274,462)                (3,896,118)
                                                            -------------             --------------


Cash flows from investing activities:
      Additions to property and equipment                       (177,908)                  (253,047)
      Additions to security deposits                            (258,390)                   (29,755)
                                                            -------------             --------------
Net cash used in investing activities                           (436,298)                  (282,802)
                                                            -------------             --------------


Cash flows from financing activities:
      Net proceeds from sale of common stock                          --                  4,925,603
      Net proceeds from exercise of options/warrants             941,351                    142,500
      Proceeds from financing equipment                               --                     50,508
      Proceeds form issuance of note payable                   5,000,000                         --
      Payment of capital leases                                  (62,790)                   (33,734)
                                                            -------------             --------------
Net cash provided by financing activities                      5,878,561                  5,084,877
                                                            -------------             --------------


Net increase in cash and cash equivalents                      1,167,801                    905,957
Cash and cash equivalents, beginning of year                   3,824,505                  2,918,548
                                                            -------------             --------------
Cash and cash equivalents, end of period                  $    4,992,306            $     3,824,505
                                                            =============             ==============


Supplemental disclosure of cash flow information:
      Cash paid for interest                              $       12,651            $        33,830
                                                            =============             ==============

Supplemental disclosure of non-cash transaction:
      Stock compensation award                                        --                     50,000
      Capital lease obligation incurred                   $       76,946            $        61,533
                                                            =============             ==============
</TABLE>
                 See accompanying notes to financial statements
                                       F-6
<PAGE>

                               PURCHASESOFT, INC.
                          NOTES TO FINANCIAL STATEMENTS
                              MAY 31, 2000 AND 1999



NOTE 1-GENERAL INFORMATION (REVISED)

         PurchaseSoft, Inc. (the "Company") is an emerging provider of strategic
e-Procurement and B2B solutions to medium and large organizations worldwide.
PurchaseSmart(TM), the Company's flagship e-Procurement product enables
organizations to automate their procurement processes thereby reducing costs and
improving productivity, while providing real-time decision support information
to management. The Company is aggressively marketing its solutions throughout
North America, Europe and Asia. The Company's principal goals are twofold: to be
the leader in the e-Procurement solutions marketplace addressing organizational
procurement needs; and to be the preferred B2B exchange enabler for leading
industry marketplaces. The Company expects to achieve these objectives by
continuing to offer the most functional and easy to use leading edge, end-to-end
software solutions and unparalleled customer service.

         The Company's expertise in procurement comes from its extensive
experience in this area. The Company began operations as a management consulting
firm specializing in "best practices" for purchasing and materials management in
1977. In 1985, the Company, then called Greentree Software, Inc. sensed the
market need for an automated purchasing software package and introduced its
first software product for purchasing materials management for use on IBM
compatible PCs. Since that time, the Company has continued to offer leading edge
software solutions by adapting the latest technology and incorporating
procurement best practices and knowledge gained from successful customer
implementations. In October 1999, the Company released its newest Solution,
PurchaseSmart(TM), SourceSmart(TM) and WebQuote(TM) a Web-based, end-to-end
software solution, written in JAVA and HTML, which provides operational support
for strategic procurement and e-Commerce.

         One of the critical advantages of the solutions the Company provides is
the ability to customize the software to fit each customer's specific needs. The
Company expects that this flexibility will allow it to capitalize on a
developing market in business-to-business exchanges and portals. The Company's
solutions can easily be configured to be the e-Procurement engine for
business-to-business exchanges and portals. The Company's solutions offer the
robustness and depth of functionality that such trading communities demand. This
is a new and important business opportunity for the Company. It allows the
Company to continue its evolution from a software application vendor to a
provider of vital infrastructure software to the new Internet economy.

         Customers' expectations are evolving at the same pace as technology.
Today, e-Procurement customers expect ready-made catalog content from their
solution providers. To address this need for normalized data from suppliers, the
Company is developing its supplier exchange service offering. Through this
service, which will be both hosted and managed by the Company, the Company
expects to continue to serve its clients' full value procurement needs.


                                       F-7

<PAGE>

         The Company believes that its existing capital resources and revenue
from future software sales and services will be sufficient to fund its planned
operating expenses and capital requirements through the end of fiscal 2001,
which is May 31, 2001. However, there can be no assurance that such funds will
be sufficient to meet the Company's operating expenses and capital requirements
during such period. The Company recognizes that to be competitive it must raise
additional equity capital to accelerate its sales and marketing programs and to
establish a stronger financial position. The Company is pursuing two primary
capital raising strategies to raise this growth capital: In the short term, the
Company's strategy is to seek a strategic partnership with an established
technology company that could provide the necessary growth capital as well as
technology expertise, a reseller network and an installed customer base into
which the Company could market its products. As a strategy for the mid-term, the
Company might seek to raise additional funds through public or private debt or
equity financings, including, but not limited to, another rights offering. At
May 31, 2000, the Company's net equity was approximately $131,000. This reflects
the classification of the $5,000,000 investment by L-R Global Partners, L.P. in
March 2000 as long-term debt. The Company expects continuing losses, which will
cause the net equity of the Company to be reflected as a deficit should the
Company not raise new equity capital. In the event that the Company conducts
another rights offering, L-R Global Partners, L.P. has given the Company a
written commitment to purchase up to $5,000,000 of the Company's Common Stock in
a rights offering and pay for its purchase by canceling the debt that the
Company owes to L-R Global Partners, L.P. should other financing options not be
available.

          The Company has revised the historical amounts of additional
paid-in-capital and accumulated deficit to reflect the beneficial conversion
feature associated with debt issued in fiscal 1998. The effect of the revision
was to increase additional paid-in-capital by $3,200,000, with an offsetting
increase in accumulated deficit. The adjustment had no effect on reported
earnings or earnings per share for fiscal 1999 or fiscal 2000, the periods
presented herein.

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      Use of Estimates

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

         (b)      Revenue Recognition and Accounts Receivable

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

         Accounts receivable is presented net of an allowance for uncollectible
accounts of $35,890 and $55,000 at May 31, 2000 and 1999, respectively. Bad debt
expense is recorded in general and administrative expenses.


                                       F-8

<PAGE>

         (c)      Research and Development

         The Company is engaged in research and development activities in the
area of computer software. In accordance with generally accepted accounting
principles, costs incurred prior to determination of technological feasibility
are considered research and development and expensed as incurred. Technological
feasibility is determined after a working model has been completed. Capitalized
costs are amortized over the shorter of an economic life of one to three years
or the proportion of current period product revenues to total expected product
revenues. During fiscal 2000, the Company's research and development costs
primarily relate to software development during the period prior to
technological feasibility and have been charged to expense as incurred. Costs
otherwise capitalizable after technological feasibility is achieved have also
been expensed because they have been insignificant.

         (d)      Cash and Cash Equivalents

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

         (e)      Property and Equipment

         Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operations over the estimated useful
lives of the related assets, generally 5 to 7 years, using the straight-line
method. Depreciation and amortization expense were $99,060 and $56,032 for the
years ended May 31, 2000 and 1999, respectively.

         (f)      Income Taxes

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

         (g)      Loss Per Common Share

         The Company accounts for income (loss) per share in accordance with
SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires dual presentation of
basic and diluted earnings per share for entities with complex capital
structures. Basic earnings per share includes no dilution and is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of Common Stock outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity. Diluted net loss per common share does not differ from
basic net loss per common share since potential shares of common stock from the
exercise of stock options and warrants are anti-dilutive for all periods
presented. Shares excluded from diluted earnings per share totaled 3,064,038 and
3,692,546 on May 31, 2000 and 1999, respectively.

         (h)      Stock-Based Compensation

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


                                       F-9

<PAGE>

         (i)      Recently Issued Accounting Standards

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

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


NOTE 3 - PROPERTY AND EQUIPMENT

At May 31, 2000 and 1999, property and equipment balances consisted of the
following:
<TABLE>
<CAPTION>
                                        2000          1999
                                        ----         -----
<S>                                  <C>           <C>
Property and equipment, at cost      1,073,694     $ 833,457
Less accumulated depreciation         (613,286)     (528,843)
                                     ----------    ----------

  Net property and equipment         $ 460,408     $ 304,614
                                     ==========    ==========
</TABLE>

NOTE 4 - INCOME TAXES

         The Company has available net operating loss carry forwards (NOLs) for
Federal income tax purposes of approximately $10,000,000 at May 31, 2000. The
NOLs expire at various times from 2001 through 2020. Future utilization of the
available net operating loss carry forwards may be limited under Internal
Revenue Code Section No. 382 as a result of future changes in ownership.

         No future tax benefit for the Company's NOLs and other cumulative
temporary differences has been recognized since utilization of the benefit is
not presently likely based on the weight of available information. The tax
effects of NOLs and other cumulative temporary differences that give rise to the
Company's deferred tax asset are presented below as of May 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                2000                   1999
                                                ----                   ----
<S>                                    <C>                   <C>
Deferred tax assets:
Net operating loss carryforwards              $4,940,000            $ 3,438,000
Other, net                                       130,000                 65,000
                                       -----------------      -----------------
Total gross deferred tax assets                5,070,000              3,503,000
Less valuation allowance                      (5,070,000)            (3,503,000)
                                       -----------------      -----------------
Net deferred tax asset                  $              0      $               0
                                       =================      =================
</TABLE>

                                      F-10

<PAGE>

NOTE 5 - COMMITMENTS AND CONTINGENCIES

         Operating Leases

         The Company leases office space in several locations under
non-cancelable operating leases, which expire on various dates through May 31,
2007. Rent expense amounted to $209,608 and $221,516 for the fiscal years ended
May 31, 2000 and 1999, respectively. Future minimum lease payments under the
non-cancelable operating leases as of May 31, 2000 are as follows:

<TABLE>
<CAPTION>

          Years
         Ending
         May 31               Commitment
         ------               ----------
          <C>                <C>
          2001               $  306,681
          2002                  258,000
          2003                  258,000
          2004                  258,000
          2005                  258,000
          2006                  268,320
          2007                  268,320
                                -------

          Total              $1,875,321
                             ==========
</TABLE>

         Capital Leases

         The Company leases certain computer and communication equipment under
non-cancelable capital leases, which expire on various dates through October 31,
2002. Future minimum lease payments under the non-cancelable financing leases as
of May 31, 2000 are as follows:
<TABLE>
<CAPTION>
          Years
         Ending
         May 31                                              Commitment
         ------                                              ----------
         <C>                                                 <C>
          2001                                               $  56,740
          2002                                                  32,982
          2003                                                  12,260
                                                             ----------
          Total minimum lease payments                       $ 101,982
           Less amount representing interest                    (9,520)
                                                             ----------
           Present value of net minimum lease payments          92,462
           Less current portion                                (50,002)
                                                             ----------
           Non-current portion                               $  42,460
</TABLE>

         Long Term Note Payable

         In March 2000, the Company borrowed $5,000,000 from L-R Global
Partners, LP and signed a demand promissory note in return. Under the terms of
this note, the Company must repay the principal and interest due at any time
upon the demand of L-R Global. Subsequently, L-R Global issued to the Company a
letter, which stated that they would not demand repayment prior to June 15,
2001. Accordingly, the Company has classified this note payable as non-current
in its balance sheet dated May 31, 2000.


                                      F-11

<PAGE>

         Contingencies

         The Company is involved in various contingent matters in the normal
course of business. Management is of the opinion that the outcome of such
matters will not have a significant adverse effect on the Company's
financial position or results of operations. The Company has entered into
various employment agreements with certain executives of the Company, which
provide for severance payments ranging from six to twenty-four months subject to
certain conditions.


NOTE 6 - STOCKHOLDERS' EQUITY

         During the fiscal year ended May 31, 2000 and 1999, the following
equity and convertible debt placements occurred:

         FISCAL YEAR ENDED MAY 31, 2000

         On February 9, 2000, the Company issued 8,333 shares of its Common
         Stock upon the exercise of a warrant, which raised an aggregate sum of
         $9,500 and had an exercise price of $1.14 per share.

         On February 9, 2000, the Company issued 4,000 shares of its Common
         Stock upon the exercise of a warrant, which raised an aggregate sum of
         $5,040 and had an exercise price of $1.26 per share.

         On February 11, 2000, the Company issued a warrant to purchase 25,000
         shares of Common Stock at an exercise price of $5.50 per share. This
         warrant has a five-year life and will expire on February 10, 2005.

         On May 1, 2000, the Company issued 3,333 shares of its Common Stock
         upon the exercise of a warrant, which raised an aggregate sum of $4,199
         and had an exercise price of $1.26 per share.



         FISCAL YEAR ENDED MAY 31, 1999

         On September 1, 1998, the Company issued 125,000 shares of its Common
         Stock upon the exercise of a warrant, which raised an aggregate sum of
         $142,500 and had an exercise price of $1.14 per share.

         On February 1, 1999, the Company issued 47,081 shares of its Common
         Stock at $1.062 per share to its CEO for services under a compensation
         agreement.

         On February 9, 1999, the Company received $2 million from L-R Global
         Partners, L.P. and signed a demand promissory note in return. The note
         provided for interest at 6% per annum. The note was cancelled as
         partial payment for the common stock that L-R Global Partners, L.P.
         purchased in the rights offering in May 1999.

         On May 5, 1999, the Company issued 5,605,173 shares of its Common Stock
         as part of a rights offering. These shares were purchased at $0.90 per
         share and raised $5,044,655 in gross proceeds. L-R Global Partners,
         L.P. purchased a total of 4,930,000 shares in the offering for
         $4,437,000 and Michael G. Kerrison, CEO of the Company purchased
         111,111 shares in the offering for $100,000. Expenses associated with
         the rights offering were $119,052.


                                      F-12

<PAGE>

Stock Options

         The Company maintains three Stock Option Plans, the 1997 Stock Option
Plan, the 1994 Stock Option Plan and the 1987 Stock Option Plan, under which
stock options can be granted to consultants, key employees, directors and
officers of the Company. Generally, options granted vest over a period of
between two to three years and expire five to ten years from the date of grant.
Options cancelled under the 1997 plan can be re-granted. At the Special Meeting
in Lieu of the 2000 Annual Meeting of Stockholders held on January 25, 2000,
stockholders approved an increase in the number of shares available to grant
under the 1997 Plan from 3,500,000 shares to 4,500,000 shares. As of May 31,
2000, there were 1,179,668 option shares under the 1997 Stock Option Plan, which
are available for future grant.


 The following summary of outstanding options and shares reserved under the plan
is as follows:
<TABLE>
<CAPTION>
                                                                                            Weighted
                                                                                            Average
                                1987 Plan    1994 Plan    1997 Plan        Total         Exercise Price
                                ---------    ---------    ---------     -----------      --------------
<S>                             <C>          <C>         <C>            <C>             <C>

Outstanding at May 31, 1998        8,333      45,883        862,046        916,212       $    1.42
         Granted                       0           0      2,304,162      2,304,162            1.03
         Exercised                     0           0              0              0               0
         Cancelled                     0           0       (146,943)      (146,943)          (1.15)
                                ---------    ---------    ----------    -----------      --------------

Outstanding at May 31, 1999        8,333      45,883      3,019,265      3,073,431            1.14
         Granted                       0           0      1,986,279      1,986,279            2.25
         Exercised                     0           0        907,868        907,868            1.02
         Cancelled                (8,333)    (12,500)    (1,685,212)    (1,706,045)          (1.20)
                                ---------    ---------    ----------    -----------       -------------

Outstanding at May 31, 2000            0      33,333      2,412,464      2,445,797        $   2.04
                                =========    =========    ==========    ===========       =============
</TABLE>

As of May 31, 2000 outstanding options covering 2,445,797 shares were
exercisable at prices ranging from $0.01 to $7.13 per share.
<TABLE>
<CAPTION>

                           Number           Average           Weighted
     Range of           Outstanding        Remaining           Average
 Exercise Prices        May 31,2000          Life          Exercise Price
----------------        -----------        ---------       --------------
<S>                     <C>                <C>             <C>
$  0.01  -   1.50         1,578,390           4.2                    $0.86
$  1.51  -   3.00           114,557           4.2                     2.71
$  3.01  -   5.00           477,850           4.6                     3.47
$  5.01  -   7.13           275,000           4.7                     6.07
-----------------       -----------        ---------       ---------------
$  0.01  -   7.13         2,445,797           4.3                    $2.04
=================       ===========        =========       ===============

</TABLE>

                                      F-13

<PAGE>

         The Company has adopted the disclosure-only provisions of SFAS No. 123.
For purposes of the pro forma disclosures below, the estimated fair value of
options has been calculated and is expensed over the options' vesting period.
Had compensation cost for the Company's stock options been recognized based on
the fair value at the date of grant consistent with the provisions of SFAS No.
123, the Company's net loss would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
                                                                  2000              1999
                                                                  ----              ----
<S>                                                            <C>              <C>
Net loss - as reported                                         $(3,899,987)     $(4,469,376)
Net loss - pro forma                                           $(4,269,155)     $(4,674,364)

Net loss per share - basic and diluted, as reported            $     (0.28)     $     (0.52)
Net loss per share - basic and diluted, pro forma              $     (0.30)     $     (0.55)
</TABLE>

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
                                                                  2000              1999
                                                                  ----              ----
         <S>                                                      <C>               <C>
         Dividend yield                                             0%                0%
         Risk-free interest rate                                  6.5%              6.2%
         Expected volatility                                       80%               60%
         Expected lives                                             4                 4

         Weighted-average fair value of options granted
         using the Black-Scholes option pricing model            $1.58             $0.53
</TABLE>

Warrants to Purchase Common Stock

         At May 31, 2000, the Company had a total of 618,241 outstanding
warrants for the purchase of the Company's common stock. Exercise prices ranged
from $1.03 to $5.50 per share, with the price and shares of certain warrants
subject to adjustment for anti-dilution provisions. Warrants expire at various
times from December 2000 through February 2005. These warrants have a
weighted-average exercise price of $1.32. In fiscal 2000, the Company issued a
warrant for 25,000 shares of Common Stock to an employee at $5.50, which was the
fair market value on the date of grant. There were no warrants issued in fiscal
1999.


                                      F-14

<PAGE>

NOTE 7 - SIGNIFICANT CUSTOMERS

         During the fiscal year ended May 31, 2000, three customers accounted
for $162,735 (48.2%) of total revenues.

                  Customer A   18.6%
                  Customer B   18.6%
                  Customer C   11.0%

 During the fiscal year ended May 31, 1999, two customers accounted for $110,544
(29.7%) of total revenues.

                  Customer D   17.8%
                  Customer E   11.9%


NOTE 8 - EXPORT SALES

         During the fiscal year ended May 31, 2000, export sales to customers in
Canada accounted for $87,063 (25.8%) of total revenues. During the fiscal year
ended May 31, 1999, export sales to customers in Canada accounted for $67,083
(18.0%) of total revenues.

NOTE 9 - SUBSEQUENT EVENT

         On January 30, 2001, the Company borrowed $5,000,000 from L-R Global
Partners, L.P. and signed a demand promissory note in return. Under the terms
of this note, the Company must repay the principal and interest due at any
time upon the demand of L-R Global. In April 2001, L-R Global issued to the
Company a letter, which states that they would not demand repayment of this
note prior to December 15, 2001.

                                      F-15