<PAGE>
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 November 30, 2000
/ / 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)
ONE RESEARCH DRIVE
SUITE 100 B
WESTBOROUGH, MA 01581
------------------------------------
(Address of Principal Executive Offices)
(508) 599-1300
--------------
(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 JANUARY 8, 2000
------------------------------------ ------------------------------
COMMON STOCK, PAR VALUE 14,894,060 SHARES
$0.01 PER SHARE
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PURCHASESOFT, INC.
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
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PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of November 30, 2000 and May 31, 2000............................. 3
Statements of Operations for the three and six months ended
November 30, 2000 and November 30, 1999............................................. 4
Statements of Cash Flows for the three and six months ended
November 30, 2000 and November 30, 1999............................................. 5
Notes to the Financial Statements................................................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................................... 9-18
PART II. OTHER INFORMATION
Item 2. Changes in Securities................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders..................................... 19
Item 6. Exhibits and Reports on Form 8-K ....................................................... 19
Signatures .................................................................................... 20
</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)
November 30, 2000 May 31, 2000
---------------------------- ---------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 2,065,838 $ 4,992,306
Accounts receivable, net 99,919 12,709
Prepaid expenses and other current assets 424,629 149,940
------------------- -----------------
Total Current Assets 2,590,386 5,154,955
------------------- -----------------
Property and equipment, net 841,996 460,408
------------------- -----------------
Other Assets
Security deposits 267,361 297,269
------------------- -----------------
Total Other Assets 267,361 297,269
------------------- -----------------
Total Assets $ 3,699,743 $ 5,912,632
=================== =================
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable $ 295,388 $ 126,893
Current obligations under capital leases 117,723 50,002
Accrued expenses 713,327 509,493
Deferred revenues 59,706 52,881
------------------- -----------------
Total Current Liabilities 1,186,144 739,269
------------------- -----------------
Noncurrent Obligations
Note payable with a related party 5,000,000 5,000,000
Noncurrent obligations under capital leases 166,599 42,460
------------------- -----------------
Total Noncurrent Obligations 5,166,599 5,042,460
------------------- -----------------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Common stock, $0.01 par value, 50,000,000
shares authorized, 14,784,046 and 14,730,549
issued and outstanding respectively 147,840 147,305
Additional paid-in-capital * 28,924,448 28,575,283
Accumulated deficit * (31,636,256) (28,502,653)
------------------- -----------------
(2,563,968) 219,935
Less treasury stock (4,780 shares) at cost (89,032) (89,032)
------------------- -----------------
Total Stockholders' Equity (Deficit) (2,653,000) 130,903
------------------- -----------------
Total Liabilities and Stockholders' Equity (Deficit) $ 3,699,743 $ 5,912,632
=================== =================
</TABLE>
* Equity elements have been revised to reflect the beneficial conversion
feature associated with debt issued in fiscal 1998; see note 1.
See accompanying notes to financial statements
3
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PURCHASESOFT, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
--------------------------------------- -------------------------------------
November 30, November 30, November 30, November 30,
2000 1999 2000 1999
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net revenues:
Product $ 26,060 $ 71,180 $ 51,060 $ 111,155
Services 76,291 67,178 114,467 130,041
------------- ------------- ------------- -------------
Total net revenues 102,351 138,358 165,527 241,196
------------- ------------- ------------- -------------
Costs and expenses:
Cost of product revenues 7,000 432 14,000 465
Cost of service revenues 123,332 93,614 188,504 176,692
Sales and marketing 292,653 419,104 510,625 739,336
General and administrative 813,849 428,372 1,528,255 914,331
Research and development 722,728 228,427 1,002,624 475,130
------------- ------------- ------------- -------------
Total costs and expenses 1,959,562 1,169,949 3,244,008 2,305,954
------------- ------------- ------------- -------------
Operating loss (1,857,211) (1,031,591) (3,078,481) (2,064,758)
Interest income (expense) (37,996) 21,315 (55,122) 58,999
------------- ------------- ------------- -------------
Net loss $ (1,895,207) $ (1,010,276) $ (3,133,603) $ (2,005,759)
============= ============= ============= =============
Net loss per common share
(Basic and diluted) $ (0.13) $ (0.07) $ (0.21) $ (0.15)
============= ============= ============= =============
Weighted average
shares outstanding 14,768,826 13,807,015 14,750,183 13,807,015
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
4
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PURCHASESOFT, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------------------
November 30, 2000 November 30, 1999
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,133,603) $ (2,005,759)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 77,272 42,757
Provision for bad debts 3,311 4,823
(Gain)/Loss on Asset Disposition 1,277 - -
Stock issued for services - - 30,000
Options granted for services 165,119 - -
Stock to be issued for services 45,000 - -
Changes in operating assets and liabilities:
Accounts receivable (90,521) 42,077
Prepaid expenses and other assets (156,747) 23,417
Accounts payable 168,495 (100,691)
Accrued expenses 158,834 (127,035)
Deferred revenue 6,825 (17,675)
------------ --------------
Net cash used in operating activities (2,754,738) (2,108,086)
------------ --------------
Cash flows from investing activities:
Additions to property and equipment (212,108) (113,701)
Proceeds from disposition of assets 1,800 - -
(Increase)/decrease in security deposits 29,908 (390)
------------ --------------
Net cash used in investing activities (180,400) (114,091)
------------ --------------
Cash flows from financing activities:
Net proceeds from exercise of options/warrants 66,639 - -
Payment of capital leases (57,969) (25,705)
------------ --------------
Net cash used in financing activities 8,670 (25,705)
------------ --------------
Net decreases in cash and cash equivalents (2,926,468) (2,247,882)
Cash and cash equivalents, beginning of year 4,992,306 3,824,505
------------ --------------
Cash and cash equivalents, end of period $ 2,065,838 $ 1,576,623
============ ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 14,438 $ 6,369
============ ==============
Supplemental disclosure of non-cash transaction:
Capital lease obligation incurred $ 249,829 $ 76,946
============ ==============
</TABLE>
See accompanying notes to financial statements
5
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PURCHASESOFT, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2000
-----------------
NOTE 1. GENERAL INFORMATION:
The Financial Statements included herein have been prepared by the
Company without audit except the May 31, 2000 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. 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, fiscal 2000 or the periods presented herein. 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 May 31, 2000
Financial Statements and notes thereto included in the Company's latest
report on Form 10-KSB.
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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES:
(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 the
reported amounts of net income (loss) during the period. Actual results could
differ materially from these estimates and assumptions.
6
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(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 or 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. In multiple-element software arrangements where
there is no vendor-specific objective evidence of fair value for the
undelivered elements, the entire arrangement is recognized as the undelivered
elements are delivered. 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 generally recognized as the services are performed.
Accounts receivable is presented net of an allowance for uncollectible
accounts of $39,201 and $35,890 at November 30, 2000 and May 31, 2000,
respectively. Bad debt expense is recorded in general and administrative
expenses.
(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 the first half of fiscal 2001, 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 investments 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 five to seven years, using the
straight-line method. Depreciation and amortization expense was $77,272 and
$42,757 for the six months ended November 30, 2000 and 1999, respectively.
7
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(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 3,476,324 and
4,106,621 on November 30, 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."
(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 are both effective for
the Company on June 1, 2001, are 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.
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 e-Procurement and e-Commerce systems software and services
market, (ii) expectations for the Company's strategy and future performance, and
(iii) the Company's expectation of additional funding. 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) 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.
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
Securities and Exchange 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, 2000. 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.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
OVERVIEW
The Company reported a net loss for the quarter of $1,895,207.
On October 31, 2000, the Company announced its first major UK customer
win for its Enterprise E-Procurement solution. The Company has signed a contract
to implement its software at the RHM Partnership Division group of companies,
part of the Rank Hovis McDougall, Ltd. ("RHM") organization. RHM is a milling
and prepared foods conglomerate with annual sales of L1.7 billion. The Company
is working jointly with IBM Global Services (United Kingdom) Limited ("IBM") to
deliver this solution to RHM. IBM Principals and Senior Systems Professionals
will assist PurchaseSoft's project team in this implementation and will manage
the strategic sourcing, business process improvement, supplier adoption,
technology management and training phases of the project. PurchaseSoft will
provide overall project management, installation and implementation assistance
and ongoing maintenance and support.
On November 7, 2000, the Company announced the signing of an agreement
with Origin Consulting Services, Inc. ("OCS"), an e-business consulting firm,
headquartered in South Korea making OCS the official distribution partner in
South Korea for the Company's e-procurement solutions. Under the terms of the
agreement, OCS will exclusively market PurchaseSoft's e-procurement solutions
and provide support and services to the South Korean market.
9
<PAGE>
On January 10, 2001, subsequent to the end of the quarter, the
Company received a commitment letter from L-R Global Partners, L.P. to
provide bridge financing of $5 million on or before January 31, 2001. This
bridge financing will be in the form of a demand promissory note bearing
interest at 6% per annum.
REVENUES
TOTAL REVENUES
Total revenues, which includes product and service revenues, for the
three months ended November 30, 2000, was $102,351 compared to $138,358 for the
three months ended November 30, 1999, a decrease of $36,007, or 26.0%.
Total revenues, which includes product and service revenues, for the
six months ended November 30, 2000, was $165,527 compared to $241,196 for the
six months ended November 30, 1999, a decrease of $75,669, or 31.4%.
PRODUCT REVENUES
Product revenues for the three months ended November 30, 2000 were
$26,060 compared to $71,180 for the three months ended November 30, 1999, a
decrease of $45,120, or 63.4%. During the three months ended November 30,
2000, the Company added one new customer and delivered its first
PurchaseSmart-TM- software system, which is written in JAVA and HTML. The
terms of this sale calls for the software license and maintenance agreement
to be paid in twelve installments, one each month and professional services
to be paid in six installments, one each month. As such, this arrangement is
deemed to have extended payment terms and is being accounted for on a ratable
basis. In the three months ended November 30, 1999, the Company added two new
customers and delivered two PurchaseSoft-TM- software systems.
Product revenues for the six months ended November 30, 2000 was
$51,060 compared to $111,155 for the six months ended November 30, 1999, a
decrease of $60,095, or 54.1%. During the six months ended November 30, 2000,
the Company added two new customers and delivered one PurchaseSoft-TM-
software system and also delivered its first PurchaseSmart-TM- software
system, which is written in JAVA and HTML. The terms of the PurchaseSmart-TM-
sale calls for the software license and maintenance agreement to be paid in
twelve installments, one each month and professional services to be paid in
six installments, one each month. As such, this arrangement is deemed to have
extended payment terms and is being accounted for on a ratable basis. In the
six months ended November 30, 1999, the Company added three new customers and
delivered three PurchaseSoft-TM- software systems.
10
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SERVICE REVENUES
Professional service revenues for the three months ended November 30,
2000 were $39,996 compared to $24,592 for the three months ended November 30,
1999, an increase of $15,404, or 62.6%. This increase results from a combination
of two factors. The first factor is the relationship of service revenues
generated by product revenues, both in terms of absolute dollars and
percentages. In the three months ended November 30, 2000, service revenues
generated by product revenues were $35,046, or 134.5% of product revenues,
compared to $4,467 in service revenues, or 6.3% of product revenues, for the
three months ended November 30, 1999, an increase of $30,579 or 684.5%. The
second factor is the service revenues generated from existing customers. In the
three months ended November 30, 2000, the Company generated $4,950 of service
revenues from existing customers whereas it generated $20,125 in service
revenues from existing customers for the three months ended November 30, 1999, a
decrease of $15,175, or 75.4%.
Maintenance revenues for the three months ended November 30, 2000 were
$36,295 compared to $42,586 for the three months ended November 30, 1999, a
decrease of $6,291 or 14.8%. The following table shows maintenance revenues
generated for each of the products being supported during the period noted:
<TABLE>
<CAPTION>
CAP &
GTPP PURCHASESOFT PURCHASESMART TOTAL
----- ------------ ------------- -----
<S> <C> <C> <C> <C>
Three months ended 11/30/00 $ 4,831 $ 24,778 $ 6,686 $36,295
Three months ended 11/30/99 $24,101 $ 18,485 $ 0 $42,586
Dollar change ($19,270) $ 6,293 $ 6,686 ($ 6,291)
Percentage change ( 80.0%) 34.0% n/a (14.8%)
</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.
PURCHASESMART-TM- - JAVA/HTML based system.
In the three months ended November 30, 2000, maintenance revenues
associated with the CAP and GTPP products that were no longer being supported or
being phased out were down $19,270 as compared to the three month period ended
November 30, 1999. In contrast, the Company's maintenance revenues on its
PurchaseSoft-TM- product increased by $6,293, or 34.0%, over the three months
ended November 30, 1999. Maintenance on the Company's newest product,
PurchaseSmart-TM- was $6,686 during the three months ended November 30, 2000.
There was no maintenance revenue for the PurchaseSmart-TM- product for the three
months ended November 30, 1999.
11
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Professional service revenues for the six months ended November 30,
2000 were $46,496 compared to $52,367 for the six months ended November 30,
1999, a decrease of $5,871, or 11.2%. This decrease results from a combination
of two factors. The first factor is the relationship of service revenues
generated by product revenues, both in terms of absolute dollars and
percentages. In the six months ended November 30, 2000, service revenues
generated by product revenues were $41,546, or 81.4% of product revenues,
compared to $19,467 in service revenues, or 17.5% of product revenues, for the
six months ended November 30, 1999, an increase of $22,079 or 113.4%. The second
factor is the service revenues generated from existing customers. In the six
months ended November 30, 2000, the Company generated $4,950 of service revenues
from existing customers whereas it generated $32,900 in service revenues from
existing customers for the six months ended November 30, 1999, a decrease of
$27,950, or 85.0%.
Maintenance revenues for the six months ended November 30, 2000 were
$67,971 compared to $77,674 for the six months ended November 30, 1999, a
decrease of $9,703 or 12.5%. The following table shows maintenance revenues
generated for each of the products being supported during the period noted:
<TABLE>
<CAPTION>
CAP &
GTPP PURCHASESOFT PURCHASESMART TOTAL
----- ------------ ------------- ------
<S> <C> <C> <C> <C>
Six months ended 11/30/00 $12,572 $ 48,713 $ 6,686 $ 67,971
Six months ended 11/30/99 $51,871 $ 25,803 $ 0 $ 77,674
Dollar change ($39,299) $ 22,910 $ 6,686 ($ 9,703)
Percentage change ( 75.8%) 88.8% n/a (12.5%)
</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.
PURCHASESMART-TM- - JAVA/HTML based system.
In the six months ended November 30, 2000, maintenance revenues
associated with the CAP and GTPP products that were no longer being supported or
being phased out were down $39,299 as compared to the six month period ended
November 30, 1999. In contrast, the Company's maintenance revenues on its
PurchaseSoft-TM- product increased by $22,910, or 88.8%, over the six months
ended November 30, 1999. Maintenance on the Company's newest product,
PurchaseSmart-TM- was $6,686 during the six months ended November 30, 2000.
There was no maintenance revenue for the PurchaseSmart-TM- product for the six
months ended November 30, 1999.
Maintenance contracts for the GT PurchasePro-TM- and PurchaseSoft-TM-
software products have been generally sold to customers for 15% of the software
product list price for a one-year renewable term. Maintenance contracts for the
PurchaseSmart-TM- software product are generally being sold to customers for 18%
of the software 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
12
<PAGE>
COSTS AND EXPENSES
COST OF PRODUCT REVENUES
Cost of product revenues for the three months ended November 30, 2000
was $7,000 compared to $432 for the three months ended November 30, 1999, an
increase of $6,568, or 1520.4%. The PurchaseSmart-TM- system sold in the three
months ended August 31, 2000 included third party software, which the Company
licenses. The $7,000 incurred in this current period is the royalty due for
third party software. The cost of product revenues has generally been
insignificant in relation to product revenues. In the event that the Company
relies on third party software as an increasing component of its total software
solution, royalties and other costs associated with the licensing of this third
party software may become significant. There were no third party royalties in
the three months ended November 30, 1999.
Cost of product revenues for the six months ended November 30, 2000 was
$14,000 compared to $465 for the six months ended November 30, 1999, an increase
of $13,535, or 2910.8%. The $14,000 incurred in the six month period ended
November 30, 2000 is the royalty payments due for third party software. The cost
of product revenues has generally been insignificant in relation to product
revenues. In the event that the Company relies on third party software as an
increasing component of its total software solution, royalties and other costs
associated with the licensing of this third party software may become
significant. There were no third party royalties in the six months ended
November 30, 1999.
COST OF SERVICE REVENUES
Cost of service revenues for the three months ended November 30, 2000
were $123,332 compared to $93,614 for the three months ended November 30, 1999,
an increase of $29,718, or 31.7%. Compensation and benefit expenses increased
$35,470 resulting from an increase of approximately two additional personnel
during the three months ended November 30, 2000 as compared to the three months
ended November 30, 1999. Travel expenses increased $11,836. Technical consulting
fees decreased $19,376. The Company intends to continue to build its customer
support infrastructure in order to offer its customers timely, thorough and
accurate support and professional services. Most of these costs are fixed and
therefore may bear no variable relationship to service revenues in the short
term. 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.
Cost of service revenues for the six months ended November 30, 2000
were $188,504 compared to $176,692 for the six months ended November 30, 1999,
an increase of $11,812, or 6.7%. Compensation and benefit expenses increased
$22,414 resulting from an increase of approximately one additional person during
the six months ended November 30, 2000 as compared to the six months ended
November 30, 1999. Travel expenses increased $20,284. Technical consulting fees
decreased $36,796. The Company intends to continue to build its customer support
infrastructure in order to offer its customers timely, thorough and accurate
support and professional services. Most of these costs are fixed and therefore
may bear no variable relationship to service revenues in the short term. 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.
13
<PAGE>
SALES AND MARKETING.
Sales and marketing expenses for the three months ended November 30,
2000 were $292,653 compared to $419,104 for the three months ended November 30,
1999, a decrease of $126,451, or 30.2%.
Sales expenses decreased from $214,825 for the three months ended
November 30, 1999 to $81,616 for the three months ended November 30, 2000, a
decrease of $133,209, or 62.0%. Compensation and benefit expenses decreased
$122,160 resulting from the restructuring of the Company's primary method of
distribution in December 1999 from a direct sales force to an indirect sales
force using resellers and partners, which resulted in many of the direct sales
positions being eliminated. During the three months ended November 30, 2000, the
Company had an average of three fewer sales personnel as compared to the three
month period ended November 30, 1999. In the three month period ended November
30, 2000, travel expenses declined $6,350 over the prior period, an independent
salesperson under contract was eliminated, saving $26,356 and recruiting fees
were reduced by $8,176. Offsetting these decreases in part was an increase of
$32,694 in connection with hosting fees the Company pays to provide product
demonstrations to prospects.
Marketing expenses increased slightly from $204,279 for the three
months ended November 30, 1999 to $211,037 for the three months ended November
30, 2000, an increase of $6,758, or 3.3%. Compensation and benefit expenses
increased $46,327 resulting from an average of approximately three additional
marketing personnel for the three months ended November 30, 2000 as compared to
the three months ended November 30, 1999. Offsetting this increase in part was a
decrease of $43,883 in marketing consulting fees, advertising and promotion
expenses. The Company expects to incur significant sales and marketing expenses
in future periods.
Sales and marketing expenses for the six months ended November 30, 2000
were $510,625 compared to $739,336 for the six months ended November 30, 1999, a
decrease of $228,711, or 30.9%.
Sales expenses decreased from $418,089 for the six months ended
November 30, 1999 to $168,726 for the six months ended November 30, 2000, a
decrease of $249,363, or 59.6%. Compensation and benefit expenses decreased
$244,628 resulting from the restructuring of the Company's primary method of
distribution in December 1999 from a direct sales force to an indirect sales
force using resellers and partners, which resulted in many of the direct sales
positions being eliminated. During the six months ended November 30, 2000, the
Company had an average of four fewer sales personnel as compared to the six
month period ended November 30, 1999. In the six month period ended November 30,
2000, travel expenses declined $9,928 over the prior period, an independent
salesperson under contract was eliminated, saving $43,900 and recruiting fees
were reduced by $7,901. Offsetting these decreases in part was an increase of
$65,388 in connection with hosting fees the Company pays to provide product
demonstrations to prospects.
Marketing expenses increased slightly from $321,247 for the six months
ended November 30, 1999 to $341,899 for the six months ended November 30, 2000,
an increase of $20,652, or 6.4%. Compensation and benefit expenses increased
$70,560 resulting from an average of approximately three additional marketing
personnel for the six months ended November 30, 2000 as compared to the six
months ended November 30, 1999. Offsetting this increase in part was a decrease
of $54,147 in marketing consulting fees, advertising and promotion expenses. The
Company expects to incur significant sales and marketing expenses in future
periods.
14
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended
November 30, 2000 were $813,849 compared to $428,372 for the three months
ended November 30, 1999, an increase of $385,477, or 90.0%. Travel expenses
increased $87,587 in the three months ended November 30, 2000 over the three
months ended November 30, 1999 reflecting trips made by executives in
developing its indirect distribution network of resellers, alliance partners
and key prospects. Also increasing in this three months ended November 30,
2000 were relocation expenses associated with moving several employees from
remote offices to the new corporate headquarters in Westborough,
Massachusetts as well as moving and reinstalling equipment from the old
offices to the new corporate headquarters, which totaled $12,014.
Depreciation expense also increased $9,201 resulting from new capital
additions. General expenses increased $8,926 in the three months ended
November 30, 2000 as compared to the three months ended November 30, 1999.
Consulting compensation costs associated with a non-statutory option granted
to Donald S. LaGuardia, the Company's recently appointed CEO was $165,119 in
the three month period ended November 30, 2000. Legal and accounting fees
increased $37,480 for the three months ended November 30, 2000 as compared to
the three months ended November 30, 1999. Occupancy costs increased $31,365
for the three months ended November 30, 2000 resulting from increased rent
associated with the new corporate headquarters in Westborough, Massachusetts
and the Company's new facility in Roseland, New Jersey. Costs of the annual
meeting of stockholders and other filing costs increased $22,274 in the three
months ended November 30, 2000 primarily due to the timing of the annual
meeting for the prior year, which was held in the third quarter of last
fiscal year.
General and administrative expenses for the six months ended
November 30, 2000 were $1,528,255 compared to $914,331 for the six months
ended November 30, 1999, an increase of $613,924, or 67.1%. Benefit expenses
associated with the Company's 401K plan increased $10,251 in the six months
ended November 30, 2000 reflecting six months participation as compared to
one month participation for the six months ended November 30, 1999. The
Company began the 401K plan in November 1999. Travel expenses increased
$152,039 in the six months ended November 30, 2000 over the six months ended
November 30, 1999 reflecting trips made by executives in developing its
indirect distribution network of resellers, alliance partners and key
prospects. Also increasing in the six months ended November 30, 2000 were
relocation expenses associated with moving several employees from remote
offices to the new corporate headquarters in Westborough, Massachusetts as
well as moving and reinstalling equipment from the old offices to the new
corporate headquarters, which totaled $51,969. Depreciation expense also
increased $21,195 resulting from new capital additions. General expenses
increased $16,804 in the six months ended November 30, 2000 as compared to
the six months ended November 30, 1999. Telephone and communication expenses
increased $11,085 in the six months ended November 30, 2000 as compared to
the six months ended November 30, 1999. Consulting compensation costs
associated with a non-statutory option granted to Donald S. LaGuardia, the
Company's recently appointed CEO was $165,119 in the six month period ended
November 30, 2000. Legal and accounting fees increased $42,072 for the six
months ended November 30, 2000 as compared to the six months ended November
30, 1999. Occupancy costs increased $96,185 for the six months ended November
30, 2000 resulting from increased rent associated with the new corporate
headquarters in Westborough, Massachusetts and the Company's new facility in
Roseland, New Jersey. The Company experienced duplicate rent for the three
months ended August 31, 2000 as it had employees at both the new and former
corporate headquarters during this period. The lease on the former corporate
headquarters in Edina, Minnesota expired on August 31, 2000 and the Company
entered into a one year lease for approximately 800 square feet of office
space for three employees who remain in Minnesota. Costs of the annual
meeting of stockholders and other filing costs increased $25,158 in the six
months ended November 30, 2000 primarily due to the timing of the annual
meeting for the prior year, which was held in the third quarter of last
fiscal year.
15
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended November
30, 2000 were $722,728 compared to $228,427 for the three months ended November
30, 1999, an increase of $494,301, or 216.4%. Compensation and benefit expenses
increased $54,714 resulting from an average of approximately two additional R &
D personnel for the three months ended November 30, 2000 as compared to the
three months ended November 30, 1999 as well as higher average salaries during
this same period. Amortization expense of $6,684 was incurred in the three
months ended November 30, 2000 relating to purchased software being used in the
development of the Company's supplier exchange service. Hosting fees of $17,832
were incurred in the three months ended November 30, 2000 as the feasibility of
offering its products as an ASP (Application Service Provider) solution was
explored. The Company incurred $103,700 in recruiting fees in the three months
ended November 30, 2000 in connection with the hiring of four additional
developers. The Company increased its use of specialized and highly skilled
technical consultants in the three months ended November 30, 2000 by $305,309
over the three months ended November 30, 1999. 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.
Research and development expenses for the six months ended November
30, 2000 were $1,002,624 compared to $475,130 for the six months ended
November 30, 1999, an increase of $527,494, or 111.0%. Compensation and
benefit expenses increased $51,619 resulting from an average of approximately
one additional R & D person for the six months ended November 30, 2000 as
compared to the six months ended November 30, 1999 as well as higher average
salaries during this same period. Amortization expense of $13,367 was
incurred in the six months ended November 30, 2000 relating to purchased
software being used in the development of the Company's supplier exchange
service. Hosting fees of $17,832 were incurred in the six months ended
November 30, 2000 as the feasibility of offering its products as an ASP
(Application Service Provider) solution was explored. The Company incurred
$103,700 in recruiting fees in the six months ended November 30, 2000 in
connection with the hiring of four additional developers. The Company
increased its use of specialized and highly skilled technical consultants in
the six months ended November 30, 2000 by $330,787 over the six months ended
November 30, 1999. 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/EXPENSE
Net interest income for the three months ended November 30, 1999 was
$21,315 compared to net interest expense of $37,996 for the three months ended
November 30, 2000, a decrease of $59,311. Interest expense increased $79,081
primarily due to the interest accrued to L-R Global Partners, L.P. on their
demand promissory note. Interest income increased $19,770 due to average higher
cash balances.
Net interest income for the six months ended November 30, 1999 was
$58,999 compared to net interest expense of $55,122 for the six months ended
November 30, 2000, a decrease of $114,121. Interest expense increased $158,519
primarily due to the interest accrued to L-R Global Partners, L.P. on their
demand promissory note. Interest income increased $44,398 due to average higher
cash balances.
16
<PAGE>
NET LOSS
For the three months ended November 30, 2000, the Company reported a
net loss of $1,895,207 (or $0.13 per share) as compared with a net loss of
$1,010,276 (or $0.07 per share) for the three months ended November 30, 1999.
The loss for the three months ended November 30, 2000 increased over the loss
for the three months ended November 30, 1999, by $884,931. This increased loss
is primarily attributable to increased costs of product and service revenues of
$36,286, an increase in general and administrative expenses of $385,477, an
increase in research and development expenses of $494,301, a decrease in net
interest income of $59,311 and a decrease in revenues of $36,007, which were
offset in part by a decrease in sales and marketing expenses of $126,451. The
increase in the loss per share results from the higher net loss of $884,931 in
the three months ended November 30, 2000 and was offset in part by an increase
in the average outstanding shares during the three months ended November 30,
2000 to 14,768,826 from 13,807,015 for the three months ended November 30, 1999.
For the six months ended November 30, 2000, the Company reported a net
loss of $3,133,603 (or $0.21 per share) as compared with a net loss of
$2,005,759 (or $0.15 per share) for the six months ended November 30, 1999. The
loss for the six months ended November 30, 2000 increased over the loss for the
six months ended November 30, 1999, by $1,127,844. This increased loss is
primarily attributable to increased costs of product and service revenues of
$25,347, an increase in general and administrative expenses of $613,924, an
increase in research and development expenses of $527,494, a decrease in net
interest income of $114,121 and a decrease in revenues of $75,669, which were
offset in part by a decrease in sales and marketing expenses of $228,711. The
increase in the loss per share results from the higher net loss of $1,127,844 in
the six months ended November 30, 2000 and was offset in part by an increase in
the average outstanding shares during the six months ended November 30, 2000 to
14,750,183 from 13,807,015 for the six months ended November 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2000, the Company had cash and cash equivalents
totaling $2,065,838 and working capital of $1,404,242. The Company used
$2,754,738 of cash in operating activities during the six months ended
November 30, 2000 of which $3,133,603 was the net loss for the period.
Reducing the net loss was $291,979 of non-cash expenses consisting of
depreciation, amortization, options and stock granted for services. Further
reducing the net loss was a net increase in operating liabilities over
operating assets of $86,886 primarily attributable to increases in accounts
payable and accrued expenses. The Company used $180,400 of cash in investing
activities during the six months ended November 30, 2000 to acquire property
and equipment totaling $212,108 and was offset by a net decrease of $29,908
in security deposits primarily resulting from a refund relating to the
expiration of its leased office space in Edina, Minnesota and proceeds of
$1,800 relating to the disposition of certain assets. The Company generated
$8,670 of cash in financing activities during the six months ended November
30, 2000 through the exercise of stock options, which totaled $66,639 and was
offset in part by capital lease payments of $57,969.
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 December 15,
2001. Accordingly, the Company has classified this note payable as non-current
in its balance sheet dated November 30, 2000. Proceeds from the demand
promissory note are being used to fund the Company's sales and marketing
activities, product development initiatives, customer support, and other general
operating expenses.
17
<PAGE>
The Company made $461,937 in capital expenditures during the six months
ended November 30, 2000, including assets acquired under capital leases as
compared with $190,647 in the six months ended November 30, 1999. The most
significant asset acquired was a software license the Company is using in
building its supplier exchange solution. The cost of this license was $267,309,
of which the Company paid $17,480 in cash and entered into a capital lease for
the balance of $249,829. The terms of this lease require the Company to pay
$8,053 per month for thirty-six months at an effective interest rate of
approximately 9.9%. The Company had no significant commitments as of November
30, 2000 for capital expenditures.
On January 10, 2001, the Company received a commitment letter from
L-R Global Partners, L.P. to provide bridge financing of $5 million on or
before January 31, 2001. This bridge financing will be in the form of a
demand promissory note bearing interest at 6% per annum. The Company believes
that its existing capital resources, revenue from future software sales and
services and the $5 million new proceeds to be received from L-R Global by
January 31, 2001 will be sufficient to fund its planned operating expenses
and capital requirements until such time as it has raised additional growth
capital as contemplated below, provided however, that L-R Global does not demand
repayment of the bridge financing during this period.
At November 30, 2000, the Company reported a Stockholders' deficit
of $2,653,000. 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 deficit equity to continue to
grow should the Company not raise new equity capital. The Company recognizes
that to be competitive it must raise additional growth capital to accelerate
its sales and marketing programs and to establish a stronger financial
position.
In the short term, the Company is pursuing two primary capital
raising strategies to raise this growth capital and to enable it to repay the
bridge financing it received from L-R Global in January 2001. 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.
under a demand promissory note dated March 23, 2000 should other financing
options not be available. Secondly, the Company will continue 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. Although historically the Company has been successful in
raising new capital when needed, the Company cannot make assurances that it
will be successful in raising additional debt or equity capital.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On November 3, 2000 and November 27, 2000, the Company issued
a total of 11,000 shares of the Company's Common Stock under a net
exercise issue provision of a warrant held by a non-reporting person at
an exercise price of $1.03 per share. These shares were paid for by
surrendering a total of 5,582 additional shares of stock covered by
this warrant and the subsequent cancellation of these shares in
exchange for the issuance of the 11,000 shares acquired. The issuance
of the Common Stock was made in reliance on Section 4(2) of the
Securities Act of 1933, as amended.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 17, 2000, the Company held its 2001
Annual Meeting of Stockholders. At this meeting, the
stockholders re-elected Jeffrey B. Pinkerton, J. Murray Logan,
Donald S. LaGuardia and Brad I. Markowitz as directors of the
Company to serve until the next annual meeting of
stockholders. In addition, the stockholders voted upon and
approved a proposal to increase the maximum number of shares
that may be made available upon exercise of stock options
under the PurchaseSoft, Inc. 1997 Stock Option Plan from
4,500,000 to 6,000,000 shares and further voted upon and
approved a proposal to increase the authorized capital of the
Company from 25,000,000 to 50,000,000 shares.
At the meeting, a total of 11,509,526 shares were
present or represented by proxy, which represented 77.9% of
the shares qualified to vote. The tabulation of the voting for
the matters submitted for a vote was as follows:
<TABLE>
<CAPTION>
Votes Cast For Against Abstain
--------- --- ------- -------
<S> <C> <C> <C> <C>
1. To elect directors:
LaGuardia 11,509,526 11,505,625 3,901 --
Logan 11,509,526 11,440,625 68,901 --
Markowitz 11,509,526 11,006,842 502,684 --
Pinkerton 11,509,526 11,505,625 3,901 --
2. To approve an increase
in the Company's 1997
Stock Option Plan
from 4,500,000 to
6,000,000 shares. 11,509,526 11,455,950 48,823 4,753
3. To approve an increase
in the Company's
authorized capital
from 25,000,000 to
50,000,000 shares. 11,509,526 11,480,755 11,018 17,753
</TABLE>
The proposals are described in greater detail in the Company's
Definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders held on November 17, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amendment to Certificate of Incorporation
(b) Reports on Form 8-K
None
19
<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: January 16, 2001 By: /s/ Donald S. LaGuardia
--------------------------------------
Name: Donald S. LaGuardia
Title: President and Chief Executive Officer
Date: January 16, 2001 By: /s/ Philip D. Wolf
--------------------------------------
Name: Philip D. Wolf
Title: Treasurer, Chief Financial Officer
and Assistant Secretary
20
