<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended February 28, 1999
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________________ to ______________________
Commission File Number 0-11791
PURCHASESOFT, INC.
------------------
(Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-2897997
- --------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
7301 OHMS LANE
SUITE 220
EDINA, MN 55439
----------------------------------------
(Address of Principal Executive Offices)
(612) 941-1500
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 13, 1999
- ----------------------------------- -----------------------------
COMMON STOCK, PAR VALUE 8,201,842 SHARES
$0.01 PER SHARE
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<PAGE>
PURCHASESOFT, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
- ------ ------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of February 28, 1999 and May 31, 1998............ 3
Statements of Operations for the three months ended
February 28, 1999 and 1998 and for the nine months ended
February 28, 1999 and 1998......................................... 4
Statements of Cash Flows for the nine months ended
February 28, 1999 and 1998......................................... 5
Notes to the Financial Statements.................................. 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation........................................... 9-15
PART II. OTHER INFORMATION
Item 2. Changes in Securities................................................. 16
Item 6. Exhibits and Reports on Form 8-K...................................... 16
Signatures ..................................................................... 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Company for which report is filed: PurchaseSoft, Inc.
(the "Company")
PURCHASESOFT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
February 28, 1999 May 31, 1998
----------------- -----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,975,567 $ 2,918,548
Accounts receivable, net 107,989 103,145
Prepaid expenses and other current assets 136,730 5,045
----------------- -----------------
Total Current Assets 2,220,286 3,026,738
----------------- -----------------
Property and equipment, net 272,799 46,067
----------------- -----------------
Other Assets
Security deposits 39,234 9,124
----------------- -----------------
Total Other Assets 39,234 9,124
----------------- -----------------
Total Assets $ 2,532,319 $ 3,081,929
----------------- -----------------
----------------- -----------------
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 228,161 $ 219,092
Note payable 2,000,000 --
Current obligations under capital leases 47,710 --
Accrued expenses 682,230 389,781
Deferred revenues 125,904 93,598
----------------- -----------------
Total Current Liabilities 3,084,005 702,471
----------------- -----------------
Noncurrent obligation under capital leases 225,231 --
----------------- -----------------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 25,000,000
shares authorized, 8,201,842 and 8,029,761
issued and outstanding respectively 82,019 80,298
Additional paid-in-capital 19,512,261 19,321,482
Accumulated deficit (20,282,165) (16,933,290)
----------------- -----------------
(687,885) 2,468,490
Less treasury stock (4,780 shares) at cost (89,032) (89,032)
----------------- -----------------
Total Stockholders' Equity (Deficit) (776,917) 2,379,458
----------------- -----------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,532,319 $ 3,081,929
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
PURCHASESOFT, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
February 28, February 28, February 28, February 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues
Product $ 3,000 $ 183,352 $ 76,750 $ 280,477
Services 45,680 51,488 212,229 143,115
------------ ------------ ------------ ------------
Total net revenues 48,680 234,840 288,979 423,592
------------ ------------ ------------ ------------
Costs and expenses:
Cost of revenues 43,604 154,743 121,843 436,212
Selling expenses 358,146 104,015 1,033,672 353,524
General and administrative 451,131 331,375 1,408,970 938,251
Research and development 235,592 62,894 511,027 148,173
Restructuring charge 610,453 -- 610,453 --
------------ ------------ ------------ ------------
Total costs and expenses 1,698,926 653,027 3,685,965 1,876,160
------------ ------------ ------------ ------------
Operating loss (1,650,246) (418,187) (3,396,986) (1,452,568)
Interest income (expense), net 862 (5,438) 48,111 (12,014)
------------ ------------ ------------ ------------
Net loss $ (1,649,384) $ (423,625) $ (3,348,875) $ (1,464,582)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per common share
(Basic and diluted) $ (0.20) $ (0.14) $ (0.41) $ (0.56)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average
shares outstanding 8,169,408 3,094,967 8,117,788 2,617,159
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
PURCHASESOFT, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
----------------------------------------
February 28, 1999 February 28, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,348,875) $ (1,464,582)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 50,661 28,580
Amortization of deferred software cost -- 370,010
Change in operating assets and liabilities:
Accounts receivable (9,870) 45,957
Prepaid expenses and other assets (76,659) 34,154
Accounts payable 9,069 169,730
Accrued expenses 475,782 187,328
Deferred revenue 32,306 12,838
------------ ------------
Net cash used in operating activities (2,867,586) (615,985)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (215,860) (7,940)
Increase in security deposits (30,110) --
Additions to capitalized software development costs -- (75,361)
------------ ------------
Net cash used in investing activities (245,970) (83,301)
------------ ------------
Cash flows from financing activities:
Net proceeds from private placement of common stock -- 385,389
Net proceeds from private placement of convertible note -- 50,000
Net proceeds from exercise of warrant 142,500
Proceeds from financing equipment 50,508
Proceeds from issuance of note payable 2,000,000 50,000
Repayment of capital leases (22,433)
Repayment of note payable -- (30,000)
------------ ------------
Net cash provided by financing activities 2,170,575 455,389
------------ ------------
Net decreases in cash and cash equivalents (942,981) (243,897)
Cash and cash equivalents, beginning of year 2,918,548 245,649
------------ ------------
Cash and cash equivalents, end of period $ 1,975,567 $ 1,752
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,349 $ 4,797
Cash paid for income taxes $ -- $ --
------------ ------------
------------ ------------
Supplemental disclosure of non-cash transaction:
Stock compensation award $ 50,000 $ --
Capital lease obligation incurred $ 61,533 $ --
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
PURCHASESOFT, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE 1. GENERAL INFORMATION:
In November 1998, the Company by way of a migratory merger, was
reincorporated in the State of Delaware and changed its corporate name to
PurchaseSoft, Inc. For further information concerning the reincorporation,
refer to the Company's Form 8-K filed on November 25, 1998.
The Financial Statements included herein have been prepared by the
Company without audit except the May 31, 1998 balance sheet, which was
audited. The Statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and reflect all
adjustments, consisting of only normal recurring accruals which are, in the
opinion of management, necessary for a fair statement of the results of
operations for the periods shown. These statements do not include all
information required by Generally Accepted Accounting Principles to be
included in a full set of Financial Statements. These Financial Statements
should be read in conjunction with the Financial Statements and notes thereto
included in the Company's latest report on Form 10-KSB, dated May 31, 1998.
The Company is considered a Small Business (SB) filer pursuant to
Securities and Exchange Commission (SEC) regulations. As such, the
accompanying financial statements, are not intended to, nor do they, include
all disclosures required by the SEC's Regulation S-X.
6
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:
(a) Accounting Estimates
Management is required to make estimates and assumptions during the
preparation of financial statements in conformity with Generally Accepted
Accounting Principles. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. They also affect the
reported amounts of net income (loss) during the period. Actual results could
differ materially from these estimates and assumptions.
(b) Revenue Recognition and Accounts Receivable
The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) No. 97-2, "Software Revenue Recognition." The
Company recognizes software license revenue at the time products are shipped
provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is deemed probable by management.
Insignificant obligations remaining at the time of shipment are accrued.
Revenues related to software licenses for which there are significant
remaining performance obligations are deferred and recognized once such
obligations are fulfilled.
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 12 months. Professional service revenue is
recognized as the services are performed.
Accounts receivable is presented net of an allowance for uncollectible
accounts of $28,750 and $30,000 at February 28, 1999, and May 31, 1998
respectively.
(c) Software Development Costs
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.
Once technological feasibility has been established, development costs are
capitalized and 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. Amortization charged to cost of revenues amounted
to $0 and $370,010 during the nine months ended February 28, 1999 and 1998,
respectively.
(d) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operations over the estimated useful
lives of the related assets, generally five to seven years, using the
straight-line method. Depreciation was $46,011 and $16,583 for the nine
months ended February 28, 1999 and 1998, respectively.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes.
7
<PAGE>
(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 follows the guidelines of the Financial Accounting Standards
Board Statement 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 shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted earnings
per share. Due to the Company's continued net losses there has been no impact
from unexercised stock options and warrants on diluted net loss per share as
the effect would be anti-dilutive.
(h) Reclassifications
Certain prior year balances have been reclassified to conform with
current year presentation. There was no impact on the prior year's net loss
or total stockholders' equity from the reclassification.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, this Quarterly
Report on Form 10-QSB may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including but not limited to (i) the
Company's belief in the growth of the purchasing and procurement systems
software market and (ii) expectations for the Company's strategy and future
performance. Investors are cautioned that forward-looking statements are
inherently uncertain. Actual performance and results of operations may differ
materially from those projected or suggested in the forward-looking
statements due to certain risks and uncertainties, including, but not limited
to, the following risks and uncertainties: (i) the Company's history of
losses and accumulated deficit, limited revenues and the uncertainty of
future profitability; (ii) the uncertainty of market acceptance of
PurchaseSoft software; (iii) new management and the need to recruit sales,
service, and implementation personnel; (iv) the intense competition in the
software field; (v) the dependence on one product and rapid technological
change in the industry; and (vi) fluctuations in quarterly operating results.
Additional information concerning certain risks and uncertainties that would
cause actual results to differ materially from those projected or suggested
in the forward-looking statements is contained in the Company's filings with
the Commission, including those risks and uncertainties discussed under the
caption "Risk Factors" in the Company's Annual Report on Form 10-KSB for the
year ended May 31, 1998 and also on the Company's Registration Statement on
Form S-3, File No. 333-73209. The forward-looking statements contained herein
represent the Company's judgment as of the date of this Quarterly Report on
Form 10-QSB, and the Company cautions readers not to place undue reliance on
such statements.
9
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
OVERVIEW
The Company reported a net loss for the quarter of $1,649,384. In a
press release dated, February 1, 1999, the Company announced the resignation
of Joseph D. Mooney as CEO, Chairman of the Board and a Director, effective
February 1, 1999. Michael G. Kerrison, who joined the Company as a Director
and Consultant in October 1998, was named CEO and Chairman of the Board. Mr.
Kerrison has considerable experience in the Software and IT Services
industries, having founded and run two successful software and services
companies over the last eighteen years.
The Company reported a restructuring charge of $610,453 in conjunction
with a reorganization of the Company's management and workforce and its plans
to refocus the Company on its core competencies, particularly its deep domain
expertise in end-to-end organizational procurement. The Company's revenues
have lagged expectations and the sales and marketing organization is
being restructured and rebuilt.
In order to obtain additional working capital to implement the Company's
reorganization and restructuring plans, the Company borrowed $2 million on
February 9, 1999 from L-R Global Partners, L.P. and signed a demand
promissory note in return. L-R Global has committed to exercise its basic
subscription privilege for at least $2,727,000 under the terms of a rights
offering the Company began on March 23, 1999 after the quarter had ended. L-R
Global intends to cancel the $2 million debt as partial payment for the
shares they purchase in the rights offering. L-R Global has also made a
stand-by commitment that if the rights offering is underscribed and, as a
result, the Company's proceeds from the rights offering are less than $5
million, L-R Global will purchase additional shares of common stock to make
up the shortfall, but only up to a total investment, in the offering, of $3.5
million.
REVENUES
Total revenues for the three months ended February 28, 1999 were $48,680
compared to revenue of $234,840 for the three months ended February 28, 1998,
a decrease of $186,160 or 79.3%. Product revenues for the three months ended
February 28, 1999, were $3,000 compared to revenues of $183,352 for the three
months ended February 28, 1998, a decrease of $180,352 or 98.4%. Service
revenues were $45,680 for the three months ended February 28, 1999, compared
to $51,488 for the three months ended February 28, 1998.
Total revenues for the nine months ended February 28, 1999 were $288,979
compared to revenue of $423,592 for the nine months ended February 28, 1998,
a decrease of $134,613 or 31.8%. Product revenues for the nine months ended
February 28, 1999, were $76,750 compared to revenues of $280,477 for the nine
months ended February 28, 1998, a decrease of $203,727 or 72.6%. Service
revenues were $212,229 for the nine months ended February 28, 1999, compared
to $143,115 for the nine months ended February 28, 1998, an increase of
$69,114 or 48.3%. Service revenue increases reflect growth in both
maintenance revenue and professional services performed as the Company
continues to emphasize these activities as value added services.
10
<PAGE>
EXPENSES
The cost of revenues for the three months ended February 28, 1999 was
$43,604 compared to $154,743 for the three months ended February 28, 1998, a
decrease of $111,139 or 71.8%. This decrease was due to expensing rather than
capitalizing software development costs during the quarter and was offset in
part by increased compensation costs of providing professional services and
customer support.
The cost of revenues for the nine months ended February 28, 1999 was
$121,843 compared to $436,212 for the nine months ended February 28, 1998, a
decrease of $314,369 or 72.1%. This decrease was due to expensing rather than
capitalizing software development costs during the nine months ended February
28, 1999 and was offset in part by increased compensation costs of providing
professional services and customer support.
Selling expense for the three months ended February 28, 1999 was
$358,146 compared to $104,015 for the three months ended February 28, 1998,
an increase of $254,131 or 244.3%. This increase was primarily due to the
addition of executive sales management, increased costs of sales personnel,
increased sales travel and increased marketing expenses.
Selling expense for the nine months ended February 28, 1999 was
$1,033,672 compared to $353,524 for the nine months ended February 28, 1998,
an increase of $680,148 or 192.4%. This increase was primarily due to the
addition of executive sales management, increased costs of sales personnel,
increased sales travel and increased marketing expenses.
General and administrative expense for the three months ended February
28, 1999 was $451,131 compared to $331,375 for the three months ended
February 28, 1998, an increase of $119,756 or 36.1%. This increase was
primarily due to increases in recruiting fees, increased occupancy costs in
connection with the Company's relocation of its corporate office from Eden
Prairie, MN to Edina, MN in August 1998, the addition of high speed
communications capabilities between the Company's offices and to the
internet, and increases in the areas of benefits and other general business
expenses.
General and administrative expense for the nine months ended February
28, 1999 was $1,408,970 compared to $938,251 for the nine months ended
February 28, 1998, an increase of $470,719 or 50.2%. This increase was
primarily due to increases in recruiting fees, legal fees associated with the
Company's reincorporation in the state of Delaware and other legal matters,
increased occupancy costs in connection with the Company's relocation of its
corporate office from Eden Prairie, MN to Edina, MN in August 1998, the
addition of high speed communications capabilities between the Company's
offices and to the internet, and increases in the areas of benefits and other
general business expenses.
Research and development expense for the three months ended February 28,
1999 was $235,592 compared to $62,894 for the three months ended February 28,
1998, an increase of $172,698 or 274.6%. This increase was primarily due to
the addition of an R&D manager, additional R&D personnel and higher
compensation costs for R&D personnel and as well as contract personnel.
Research and development expense for the nine months ended February 28,
1999 was $511,027 compared to $148,173 for the nine months ended February 28,
1998, an increase of $362,854 or 244.9%. This increase was primarily due to
the addition of an R&D manager, additional R&D personnel and higher
compensation costs for R&D personnel and contract personnel.
11
<PAGE>
A restructuring charge of $610,453 was taken in the three months ended
February 28, 1999 as the result of a reorganization of the Company's
executive management and workforce in order to refocus the Company on its
core competencies, particularly its deep domain expertise in end-to-end
organizational procurement. This charge covers severence pay and other
restructuring costs.
NET LOSS
For the three months ended February 28, 1999 the Company reported a net
loss of $1,649,384 (or $0.20 per share) as compared to a net loss of $423,625
(or $0.14 per share) for the three month period ended February 28, 1998. This
loss was caused by the continuation of low revenues which were not sufficient
to cover operating costs. The loss for the three months ended February 28,
1999 was worse than the loss for the same period ended February 28, 1998
primarily due to higher operating expenses, including a restructuring charge
of $610,453 as described in the discussion of expenses. The loss per share
increased as a result of the higher operating expenses and restructuring
charge and was offset in part due to an increase in the average outstanding
shares for the three months ended February 28, 1999 to 8,169,408 shares as
compared to average outstanding shares for the three months ended
February 28, 1998 of 3,094,967 shares.
For the nine months ended February 28, 1999, the Company reported a net
loss of $3,348,875 (or $0.41 per share) as compared to a net loss of
$1,464,582 (or $0.56 per share) for the nine month period ended February 28,
1998. This loss was caused by the continuation of low revenues which were not
sufficient to cover operating costs. The loss for the nine months ended
February 28, 1999 was worse than the loss for the same period ended February
28, 1998 primarily due to increased operating expenses, including a
restructuring charge of $610,453, as described in the discussion of expenses.
The decrease in the loss per share resulted from an increase in the average
outstanding shares for the nine months ended February 28, 1999 to 8,117,788
shares as compared to average outstanding shares for the nine months ended
February 28, 1998 of 2,617,159 shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $863,719 at February 28,
1999 as compared with working capital of $2,324,267 at May 31, 1998, a
decrease in working capital of $3,187,986. This decrease resulted primarily
from the loss for the nine month period of $3,348,875 and the use of working
capital to acquire property and equipment of $215,860 offset in part by the
proceeds received from the exercise of a warrant of $142,500 and proceeds of
$50,508 from financing of equipment. Cash decreased from $2,918,548 at May
31, 1998, to $1,975,567 at February 28, 1999, a decrease of $942,981.
In connection with the resignation of Joseph D. Mooney, the Company is
obligated under a termination agreement to continue to pay Mr. Mooney's
salary through January 31, 2001. The unpaid obligation as of February 28,
1999 was $383,333 of which $200,000 is classified as current and $183,333 is
classified as noncurrent.
The Company made $277,393 in capital expenditures during the nine month
period ended February 28, 1999 and $7,940 in the nine month period ended
February 28, 1998.
12
<PAGE>
On March 23, 1999, the Company began a rights offering whereby it has
distributed subscription rights to persons who owned shares of the Company's
common stock on March 22, 1999. During this rights offering, the Company may
issue up to 6,151,382 shares of common stock. The gross proceeds to the
Company will be $5,536,244 if all shares are subscribed for. The Company
expects to receive minimum proceeds of approximately $3.6 million, in light
of a stand-by commitment made by L-R Global Partners, L.P., as well as the
commitment of Michael G. Kerrison, CEO of PurchaseSoft to exercise his
subscription privileges for up to $100,000 of subscription rights, in each
case to the extent that available shares are not fully subscribed for by
other stockholders.
In order to obtain working capital to implement the Company's
reorganization and restructuring plans, the Company borrowed $2 million on
February 9, 1999 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. L-R Global has agreed to exercise its basic subscription privilege in
the rights offering for at least $2,727,000 and cancel the debt represented
by the note as part of the purchase price for shares purchased in the rights
offering. L-R Global has also made a stand-by commitment that if the rights
offering is undersubscribed and, as a result, the Company's proceeds from the
rights offering are less than $5,000,000, L-R Global will purchase additional
shares of common stock to make up the shortfall, but only up to a total
investment, in this offering, of $3,500,000. The Company believes that the
expected minimum proceeds from the rights offering of approximately $3.6
million, its existing capital resources, interest income, and revenue from
software sales and services will be sufficient to fund its planned operating
expenses and capital requirements for at least the next twelve months.
The Company cannot assure you, however, that its funds including any
funds raised in the rights offering will be sufficient to meet the Company's
operating expenses and capital requirements during such period. The Company's
actual cash requirements may vary materially from those now planned and will
depend upon numerous factors, including the results of the Company's software
development efforts, the level of resources the Company commits to marketing
and sales efforts, the ability of the Company to maintain existing customers
and develop new ones, and activities of competitors and other factors.
13
<PAGE>
YEAR 2000 READINESS DISCLOSURES
The statements in this section are "Year 2000 Readiness Disclosures" as
defined in the Year 2000 Information and Readiness Disclosure Act and are
subject to the terms thereof and are meant for information purposes and not
as a form of covenant, warranty, representation or guarantee of any kind.
The Year 2000 issue results from computer programs written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions
or engage in normal business activities.
The Company is engaged in an ongoing review of its computer systems,
software applications, and related equipment used in connection with its
internal operations for Year 2000 problems. Since the majority of the
computer programs used by the Company are off-the-shelf, recently developed
programs from third-party vendors, the Company believes such programs are
less likely to have Year 2000 problems. Although some vendors make verbal
assurances of Year 2000 compliance, there can be no certainty that the
systems used by the Company will not be affected. The Company intends to
continue monitoring, testing, replacing or enhancing its internal
applications to ensure that risks related to such systems are minimized. This
process is expected to be completed over the next several quarters.
In addition to computers and related systems, the Year 2000 problem may
affect the operation of office and facilities equipment, such as fax
machines, photocopiers, telephone switches, security systems, and other
common devices. The Company is currently assessing the potential effect of,
and costs of remediating, the Year 2000 problem on its office and facilities
equipment. The Company estimates the total cost to the Company of completing
any required modifications, upgrades, or replacements of these internal
systems will not have a material adverse effect on the Company's business or
results of operations and anticipates that this process will be completed
over the next several quarters. The estimated costs to bring internal
operations into compliance is approximately $20,000. These estimates are
being monitored and will be revised as additional information becomes
available.
The Company believes, based on an internal assessment, that Year 2000
issues will not affect the mission critical functionality of GT Purchase Pro
v6.1x and PurchaseSoft v5.x when used in accordance with their documentation,
all date data is entered properly, and all software and hardware used in
connection with the Company's products are fully Year 2000 compliant
including properly exchanging date data with the Company's software products.
The Company continues to test the current versions of its products for Year
2000 compliance, and in the event problems are discovered, the Company
intends to issue product updates to correct such anomalies. The Company's
research and development personnel's responsibilities include, among other
responsibilities, attention to Year 2000 compliance. The Company does not
separately track the internal costs incurred for Year 2000 projects, which
are principally related to payroll costs for such personnel.
The Company intends to review certain older versions of its products and
make a determination as to whether they are Year 2000 compliant. It will also
determine whether to make the necessary updates to these products to make
them Year 2000 compliant.
The Company's products are generally integrated with other systems its
customers may have, and such systems may not be Year 2000 compliant. Year
2000 problems in these systems might significantly limit the ability of the
Company's customers to realize the intended benefits offered by the Company's
products. The Company has no plans to ascertain whether the internal systems
of its customers are Year 2000 compliant.
14
<PAGE>
The Company monitors and reviews the communications of certain
significant third party vendors with which it does business to evaluate their
Year 2000 compliance plans and state of readiness in order to determine the
extent to which the Company's systems and products may be affected by the
failure of others to remediate their own Year 2000 issues. The Company has
not independently confirmed such information received from other parties with
respect to Year 2000 issues. As such, there can be no assurance that such
other parties will complete their Year 2000 conversion in a timely fashion or
will not suffer a Year 2000 business disruption that may adversely affect the
Company's financial condition and results of operations.
Year 2000 issues may affect the purchasing patterns of customers and
potential customers in a variety of ways. Many companies are expending
significant resources to replace or remedy their current hardware and
software systems to achieve Year 2000 compliance. These expenditures may
result in reduced funds available to purchase software products such as those
offered by the Company. The Company does not believe that there is any
practical way to ascertain the extent of, and has no plan to address problems
associated with, such a reduction in purchasing resources of its customers.
Any such reduction could, however, result in a material adverse effect on the
Company's business, operating results and financial condition.
The Year 2000 problem is pervasive and complex, as virtually every
computer operation will be affected in some way. Although the Company does
not believe that any additional Year 2000 compliance-related costs will be
significant, there can be no assurance that costs incurred to address
unanticipated issues would not have a material adverse effect on the
Company's business, operating results and financial conditions. Any failure
of third-party equipment or software comprising any part of the Company's
systems to operate properly with regard to Year 2000 and thereafter could
require the Company to incur unanticipated expenses to address associated
problems, which could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company may in the future be subject to claims based on Year 2000
problems in others' products or issues arising from the integration of
multiple products within an overall system. Although the Company has not been
involved in any litigation or proceeding to date involving its products or
services related to Year 2000 issues, there can be no assurance that the
Company will not in the future be required to defend its products or services
or to negotiate resolutions of claims based on Year 2000 issues. The costs of
defending and resolving Year 2000-related disputes, and any liabilities of
the Company for Year 2000-related damages, including consequential damages,
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company does not have any specific contingency plans if any Year
2000 problems develop with respect to the Company, its embedded systems or
systems acquired from vendors. Contingency plans will be developed if it
appears the Company or its key vendors will not be Year 2000 compliant and
additionally if such noncompliance is expected to have a material adverse
impact on the Company's operations. The cost of developing and implementing
such plans may itself be material.
The discussion above contains certain forward-looking statements. The
costs of the Year 2000 conversion, and possible risks associated with the
Year 2000 issue are based on the Company's current estimates and are subject
to various uncertainties that could cause the actual results to differ
materially from the Company's expectations. Such uncertainties include, among
others, the success of the Company in identifying systems that are not Year
2000 compliant, the nature and amount of programming required to upgrade or
replace any affected systems, the availability of qualified personnel,
consultants and other resources, and the success of the Year 2000 conversion
efforts of others.
15
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On February 1, 1999, the Company issued 47,081 shares of its
common stock to Michael G. Kerrison, its CEO under a compensation
agreement. The issuance of the common stock was made in reliance
on Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Demand Promissory Note, dated February 9, 1999, of
PurchaseSoft, Inc. to L-R Global Partners, L.P.*
10.2 Agreement and General Release, dated as of January 31, 1999,
by and between Joseph D. Mooney and PurchaseSoft, Inc.*
10.3 Compensation Agreement, dated as of February 1, 1999, by and
between Michael G. Kerrison and PurchaseSoft, Inc.*
FOOTNOTES:
* Incorporated herein by reference from the Company's Form S-3
Registration Statement, File #333-73209 filed on March 22, 1999.
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PURCHASESOFT, INC.
Date: April 14, 1999 By: /s/ Michael G. Kerrison
-----------------------------------------
Name: Michael G. Kerrison
Title: Chairman of the Board of Directors
and Chief Executive Officer
Date: April 14, 1999 By: /s/ Philip D. Wolf
------------------------------------------
Name: Philip D. Wolf
Title: Treasurer and Chief Financial
Officer
17
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