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U.S. SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C. 20549





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FORM 10-QSB





|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
|- |  | -------------------------------------------------------------------------------------------------------------------------------




| ̈ |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------




FOR THE TRANSITION PERIOD FROM              TO





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Commission File Number: 000-27693





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PCSupport.com, Inc.


(Exact name of small business issuer as specified in its charter)





Nevada

98-0211769(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification
No.)





Suite 300, 3605 Gilmore Way


Burnaby, British Columbia, Canada V5G 4X5


(Address of principal executive offices) (Zip Code)





Issuers Telephone Number:


(604) 419-4490





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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  ̈





There were 24,103,326 shares of the Companys common stock outstanding on May 15, 2002.





Transitional Small Business Disclosure Format (check one): YES  ̈ NO  x


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TABLE OF CONTENTS





PagePART IFINANCIAL INFORMATIONITEM 1FINANCIAL STATEMENTS

1ITEM 2MANAGEMENTS DISCUSSION AND ANALYSIS

11PART IIOTHER INFORMATIONITEM 1LEGAL PROCEEDINGS

21ITEM 2CHANGES IN SECURITIES AND USE OF PROCEEDS

21ITEM 3DEFAULTS UPON SENIOR SECURITIES

21ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

21ITEM 5OTHER INFORMATION

21ITEM 6EXHIBITS AND REPORTS ON FORM 8-K

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PART IFINANCIAL INFORMATION





ITEM 1FINANCIAL STATEMENTS





PCSUPPORT.COM, INC. AND SUBSIDIARY





Prepared by management with no independent review (Note 1)


Interim Consolidated Balance Sheets


(Expressed in U.S. Dollars)





March 31, 2002


June 30, 2001(unaudited)


(audited)AssetsCurrent assets:Cash and cash equivalents

$
17,517


$
486,533Trade accounts receivable, net of allowance for doubtful accounts of $98,369 (June 30, 2001 $41,741)


223,298



165,629Other accounts receivable


36,723



73,004Prepaid expenses and deposits


154,586



150,120Total current assets


432,124



875,286Restricted Cash (note 4)


116,597



220,000Property and equipment


411,253



730,463Intangible assets


606,672



990,674$
1,566,646


$
2,816,423Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities

$
729,553


$
897,404Deferred revenue


860,538



253,373Total current liabilities


1,590,091



1,150,777Convertible debenture (note 3(b))


136,154



Stockholders equity (note 3):Common stock, $0.001 par value, authorized 100,000,000 shares; issued 23,318,326 shares at March 31, 2002 and 15,736,662
shares at June 30, 2001; being net of 285,000 treasury shares at March 31, 2002 and June 30, 2001


23,604



16,022Contingent common stock to be issued (note 3(e))


625,000



625,000Additional paid-in capital


19,583,150



18,625,839Deferred stock compensation


(37,346
)


(61,905
)Deficit


(20,354,007
)


(17,539,310
)Total stockholders equity


(159,599
)


1,665,646$
1,566,646


$
2,816,423Commitments and contingencies (note 4)





See accompanying notes to interim consolidated financial statements.




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PCSUPPORT.COM, INC. AND SUBSIDIARY





Prepared by management with no independent review (Note 1)


Interim Consolidated Statements of Operations


(Expressed in U.S. Dollars)





Nine months ended March 31,


Three months ended March 31,2002


2001


2002


2001(unaudited)


(unaudited)Revenue:Service contracts

$
2,004,536


$
502,912


$
431,168


$
103,263Sub-lease and other


73,370



133,663



19,027



104,0832,077,906



636,575



450,195



207,346Costs and expenses:Cost of license fees and services


1,757,366



1,222,259



335,625



421,546Development costs


411,068



1,223,749



94,290



431,563Marketing and promotion


622,866



1,873,200



214,418



538,161Amortization and write-down


718,562



2,663,119



234,987



2,401,737General and administrative


1,345,439



1,851,497



283,083



730,6174,855,301



8,833,824



1,162,403



4,523,624Loss from operations


(2,777,395
)


(8,197,249
)


(712,208
)


(4,316,278
)Interest income (expense), net


(37,302
)


189,426



325



31,329Loss for the period

$
(2,814,697
)

$
(8,007,823
)

$
(711,883
)

$
(4,284,949
)Loss per common share, basic and diluted

$
(0.17
)

$
(0.65
)

$
(0.04
)

$
(0.28
)Weighted average common shares outstanding, basic and diluted


16,790,488



12,245,640



16,183,279



15,077,773





See accompanying notes to interim consolidated financial statements.




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PCSUPPORT.COM, INC. AND SUBSIDIARY





Interim Consolidated Statements of Stockholders Equity


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)


Nine months ended March 31, 2002 (unaudited)





Common shares

Common stock to be issued and common share subscriptions

Additional paid-in capital

Deferred stock compensation


Deficit


Total stockholders EquityShares

AmountBalance, June 30, 2001, brought forward

15,736,662

$
16,022

$
625,000

$
18,625,839

$
(61,905
)

$
(17,539,310
)

$
1,665,646Fair value of warrants issued in conjunction with Convertible debenture (note 3(b))










21,967










21,967Amortization of deferred stock compensation













112,848







112,848Sale of common stock at $0.12, net of cash and non-cash financing costs of $476,864 (note 3(d))

7,566,664


7,567





796,111










803,678Fair value of warrants issued in conjunction with loan agreements (note 3(c))










39,341










39,341Issuance of common stock in exchange for services

15,000


15





3,435










3,450Fair value of options issued to employees and consultants










96,457


(88,289
)






8,168Net loss

















(2,814,697
)


(2,814,697
)Balance, March 31, 2002

23,318,326

$
23,604

$
625,000

$
19,583,150

$
(37,346
)

$
(20,354,007
)

$
(159,599
)




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PCSUPPORT.COM, INC. AND SUBSIDIARY





Interim Consolidated Statements of Cash Flows


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March 31,2002


2001(unaudited)


(unaudited)Cash flows from operating activities:Loss for the period

$
(2,814,697
)

$
(8,007,823
)Items not affecting cash:Depreciation and amortization


718,562



2,663,119Amortization of deferred stock compensation


62,216



188,918Amortization of discount on convertible debenture


7,110



Fair value of warrants issued on bridge loan


39,341



Intangible assets in exchange for services






22,000Loss on asset disposals, bad debts and debt extinguishments






46,131Fair value of options issued to contractor


8,168



Unrealized foreign exchange gain


20,391



Changes in operating assets and liabilities:Trade receivables


(57,670
)


(332,848
)Other receivables


86,281



101,383Prepaid expenses


(4,466
)


138,466Deposits






133,171Accounts payable and accrued liabilities


(167,851
)


(284,675
)Deferred revenue


607,165



150,332Net cash used in operating activities


(1,495,450
)


(5,181,826
)Cash flows from investing activities:Purchase of property and equipment


(15,350
)


(443,240
)Deferred Acquisition and acquisition cash costs






Purchase of intangible assets






(1,505,962
)Net cash used in investing activities


(15,350
)


(1,949,202
)Cash flows from financing activities:Cash acquired in acquisition






84,654Bridge financing received


150,000



Repayment of bridge financing


(150,000
)


Proceeds from exercise of stock options






44,000Convertible debenture


155,199



Net proceeds from sale of common stock


803,680



3,317,191Cash released from reserve


82,905



Net cash provided by financing activities


1,041,784



3,445,845Net increase (decrease) in cash and cash equivalents


(469,016
)


(3,685,183
)Cash and cash equivalents at beginning of period


486,533



5,149,290Cash and cash equivalents at end of period

$
17,517


$
1,464,107




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PCSUPPORT.COM, INC. AND SUBSIDIARY





Interim Consolidated Statements of Cash Flows (continued)


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March
31,2002


2001(unaudited)


(unaudited)Supplemental disclosureCash paid for interest

$



$
4,290Cash paid for taxes






Non-cash activities:Deferred stock compensation on grant of employee options


(88,289
)


230,836Cancellation of deferred stock compensation






(356,696
)Common stock issued for acquisition of license






175,000Common stock issued on acquisitions






1,365,346Common stock issued in exchange for note receivable






261,800Contingent common stock to be issued






625,000Fair value of warrants allocated as discount on convertible debenture (note 3(b))


21,967



Fair value of warrants issued in conjunction with loan agreements (note 3(c))


39,341



Fair value of warrants issued or amended in conjunction with sale of common shares (note 3(d))


372,542












See accompanying notes to interim
consolidated financial statements.




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PCSUPPORT.COM, INC. AND SUBSIDIARY





Notes to Interim Consolidated Financial Statements


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March 31, 2002 (unaudited)





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1.    Nature of business:





These interim consolidated financial statements have been prepared by management, and have not been reviewed in any way by the
auditors for the Company, KPMG LLP (KPMG). Due to a lack of working capital, the Company was unable to engage KPMG for the required review of these financial statements. While management believes that these financial statements fairly
represent the financial results and condition of the Company, the financial statements should be read with an understanding of the above noted deficiency. A review will be conducted by KPMG as soon as it is financially feasible, and if necessary an
amended filing would be prepared at that time. Management do not anticipate any material changes that may result from the subsequent review.





These interim consolidated financial statements have been prepared on a going concern basis in accordance with United States generally accepted accounting principles. The going concern basis of presentation assumes the Company will
continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Certain conditions, as discussed below, currently exist which suggest that this
is not a valid assumption. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





Operations have primarily been financed through the issuance of equity instruments and debt. The Company as of the date of this filing does not have sufficient working capital to continue its operations or to meet financial
commitments to its creditors and vendors. Additional financing is required immediately in order to sustain the operations of the Company. The Company does not have any commitments from third parties to provide additional financing beyond those
described in Note 5(e), and further financings may not be available or may not be available on reasonable terms or on a timely basis. If additional working capital is unavailable, the Company will be required to discontinue operations immediately.
Should the Company secure immediate financing, the future operations of the Company will be dependent upon the markets acceptance of its services and the Companys ability to provide the contracted services in a cost effective manner.
There can be no assurance that the Companys services will be able to secure market acceptance or that cost effective operations will exist, continue to exist, or that the Company will become profitable.







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PCSUPPORT.COM, INC. AND SUBSIDIARY





Notes to Interim Consolidated Financial Statements


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March 31, 2002 (unaudited)





---









2.    Significant accounting
policies:





| | (a) |  | Basis of presentation:
| | --- |  | ----------------------




These interim consolidated financial statements have been prepared using generally accepted accounting principles in the United States. The interim financial statements include the accounts of the Company and its wholly
owned subsidiary, Reconnaissance International Ltd., and reflect all adjustments, consisting solely of normal recurring adjustments, which, in managements opinion, are necessary for a fair presentation of the financial results for the interim
periods. The financial statements have been prepared on a basis consistent with the accounting policies described in the Companys Annual Report on Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended June 30,
2001, and should be read in conjunction therewith. Certain comparative figures have been reclassified to conform to the presentation adopted in the current period.





| | (b) |  | Use of estimates:
| | --- |  | -----------------




The preparation of interim consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported revenues and expenses for the reporting periods. Actual results may significantly differ from these estimates.





| | (c) |  | Intangible assets:
| | --- |  | ------------------




Intangible assets are carried at cost less accumulated amortization, which is calculated on a straight-line basis over the estimated useful lives of the assets which management estimates to be three years.





| | (d) |  | Net loss per share:
| | --- |  | -------------------




Basic loss per share is computed using the weighted average number of shares of common stock outstanding during the periods. Diluted loss per share is computed using the weighted average number of shares of common and potentially
dilutive common stock outstanding during the period. As the Company has a net loss in each of the periods presented, basic and diluted net loss per share is the same.





Excluded from the computation of diluted loss per share for the periods ended March 31, 2002 are warrants to purchase 3,790,088 (March 31, 2001  3,332,838) shares of
common stock and options to purchase 3,072,422 (March 31, 2001  2,308,513) shares of common stock because their effects would be anti-dilutive.







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PCSUPPORT.COM, INC. AND SUBSIDIARY





Notes to Interim Consolidated Financial Statements


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March 31, 2002 (unaudited)





---









3.    Stockholders
equity:





| | (a) |  | Stock options and stock-based compensation:
| | --- |  | -------------------------------------------




During the nine months ended March 31, 2002, the Company granted 1,083,000 stock options with exercise prices per share ranging from $0.11 to $0.13 and vesting from immediate up to 36 months
(200112,181,359 with exercise prices per share ranging from $0.69 to $3.44 and vesting from immediate up to 36 months). During the nine months ended March 31, 2002, 354,549 stock options expired (2001nil). Stock compensation expense for
the nine months ended March 31, 2002 totaling $62,216 (2001$188,918) has been allocated $nil (2001$4,562) to Cost of license fees and services, $nil (2001$114,333) to Development costs, $nil (2001$27,371) to Marketing and
promotion costs, and $62,216 (2001$42,652) to General and administrative costs.





(b) Common shares and share
purchase options and warrants:





During July and August 2001, pursuant to a June 2001 private placement offering,
the Company sold 50 units at a price of Cdn. $5,000 per unit. Each unit consisted of one Cdn. $5,000 principal amount 12% convertible subordinated debenture and 3,500 common share purchase warrants. Each whole warrant entitles the holder to purchase
one common share of the Company for a period of twelve months from the date of closing at a price of U.S. $0.75 per share. The debentures mature on June 22, 2003, are unsecured and rank pari passu with other Canadian debentures and other unsecured
subordinated indebtedness and liabilities of the Company. The principal amount of the debenture is convertible at the option of the holder at any time prior to maturity into common shares at a price of Cdn$0.71428571 for each common share. The
debentures may be converted prior to maturity on the same basis at the option of the Company if, over a period of 20 consecutive trading days during which at least 500,000 common shares of the Company have traded in aggregate and the average closing
price of the Companys common shares exceeded $1.00 per share.





The beneficial conversion feature, equal to
the intrinsic value of the conversion option, was determined to be nil. The estimated fair value of the common share purchase warrants of $21,967 has been recognized as a deduction from the carrying value of the convertible debt on the issuance
date, and the convertible debt is presented at the net amount. The discount related to the common share purchase warrant is amortized from the date of issuance to the maturity date on June 22, 2003 of the debentures.





| | (c) |  | Loan agreements and related share purchase warrants:
| | --- |  | ----------------------------------------------------




In October 2001 the Company entered into two separate loan agreements for a total of $150,000, each bearing interest at a rate of 10% annually. Under the terms of the agreements, the Company issued to
the lenders warrants with an estimated fair value of $39,341 to purchase a total of 240,000 common shares of the Company at a price of $0.20 for a period of two years. The fair value of the warrants over the term to maturity of the loans and was
determined using a pricing model with the following weighted average assumptions; volatility of 154%, risk-free interest rate of 2.73%, and dividends rate of 0%. Both of these loans were repaid in cash in October 2001.




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PCSUPPORT.COM, INC. AND SUBSIDIARY





Notes to Interim Consolidated Financial Statements


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March 31, 2002 (unaudited)





---









3.    Stockholders
equity (continued):





| | (d) |  | Common stock issued
| | --- |  | -------------------




During the nine months ended March 31, 2002, the Company sold 7,566,661 shares of common stock at a price of $0.12 per share in a private placement, for gross cash proceeds to the Company of $908,000. Under the terms of this
offering, the Company paid cash finders fees of $79,980 and further issued as finders fees 378,000 common share purchase warrants with an exercise price of $0.20 per share and an expiry date of December 31, 2003 and 378,000 common share
purchase warrants with an exercise price of $0.40 per share and an expiry date of December 31, 2004. The fair value of these warrants was estimated to be $124,841 in the quarter ended December 31, 2001. Also as a finders fee, the Company
reduced the exercise price and extended the expiry date of 1,500,000 previously issued and outstanding common share purchase warrants. The estimated incremental value of these modified warrants is $247,701. The Company realized net proceeds from the
offering of $803,680 after allowing for the aforementioned fees and $24,340 of expenses related to the offering.





The fair value of the warrants granted or amended as a finders fee were determined using a pricing model with the following weighted average assumptions; volatility of 152%, risk-free interest rate of 3.11%, and dividends rate
of 0%.





| | (e) |  | Contingent common stock
| | --- |  | -----------------------




Pursuant to the Companys November 27, 2000 MyHelpDesk, Inc. acquisition the Company was obligated to issue a further 500,000 common shares on November 27, 2001. These shares were issued subsequent to March 31, 2002.







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PCSUPPORT.COM, INC. AND SUBSIDIARY





Notes to Interim Consolidated Financial Statements


(Expressed in U.S. Dollars)


Prepared by management with no independent review (Note 1)





Nine months ended March 31, 2002 (unaudited)





---






4.    Commitments and contingencies:





| | (a) |  | In May 2000 the Company entered into a lease of office premises for a 5-year term, commencing in September 2000. From time to time the Company has entered into
partial sublease agreements of these premises. In August 2001, the sub-lessee under a partial sublease filed for bankruptcy, and the Company assumed the entire operating commitments for the premises as follows after March 31, 2002 and during the
Companys fiscal years ending:
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




2002

$67,5002003

270,0002004

270,0002005

270,0002006

45,000





| | (b) |  | As at March 31, 2002, the Company had issued letters of credit totaling $137,005 to a lessor and other service providers. Funds totaling $137,095 are held in
term deposits to secure these letters of credit and are disclosed as restricted cash.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




5.    Subsequent events:





| | (a) |  | Subsequent to March 31, 2002 the Company granted 2,000 stock options with an exercise price per share of $0.11 and a vesting period of 36 months.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) |  | Subsequent to March 31, 2002 the Company was served with a citation notice of petition to sue for $75,000 plus costs from a creditor who is reflected in the
liabilities of the Company in the amount of $75,000. The Company considers the invoices by the creditor, while within the terms of the Companys agreement with the creditor, to be for services for which the Company did not receive services in
accordance with the said agreement. No additional costs have been recorded as a contingent liability.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (c) |  | Subsequent to March 31, 2002 the Company issued 500,000 shares of common stock pursuant to the Companys November 27, 2000 MyHelpDesk, Inc. acquisition
(Note 3(e)).
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (d) |  | Subsequent to March 31, 2002 the Company was advised by the lessor of its principal premises (Note 4(a)) that it was in default on the lease as a result of
non-payment. No specific action against the Company has been defined.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (e) |  | Subsequent to March 31, 2002 the Company entered into an agreement in principle with Voyus, Ltd. (Voyus), whereby the Company would undertake
efforts to merge with Voyus. Under the terms of the agreement, which is subject to shareholder and regulatory approval and other conditions precedent, shareholders of Voyus at the time of the completion would receive 66.67% and shareholders of the
Company at the time of completion would receive 33.33%, respectively, of the shares of the combined company. In accordance with the agreement, on May 17, 2002 Voyus advanced Cdn$100,000 to the Company under a demand note, such note being secured by
the assets of the Company.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 2MANAGEMENTS DISCUSSION AND ANALYSIS





All statements, other than
statements of historical fact, included in this Form 10-QSB involve assumptions, known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, to be materially different from any future
results, performance or achievements expressed or implied by such statements contained in this Form 10-QSB. These potential risks and uncertainties include, without limitation, those described below under Risk Factors. This
Managements Discussion and Analysis should be read in conjunction with our consolidated Financial Statements for the nine months ended March 31, 2002, included herein. The reader should qualify any assumptions made from the reading of this
Managements Discussion and Analysis and the Financial Statements presented for the nine months ended March 31, 2002 with the knowledge that we were unable to engage the appropriate review engagement of our financial statements for the three
months ended March 31, 2002 from our auditors due to insufficient funds.





OVERVIEW





PCsupport.com, Inc. is a provider of outsourced technical support solutions for businesses. We specialize in providing proactive,
user-focused technical support services to personal computer users worldwide using both online (eSupport) and phone based media. We provide eSupport solutions through our Technical Support Application to businesses who have an obligation to provide
technical support to their employees or customers, and complement that central offering with a telephone support call centre.





RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001





REVENUE





Total revenue increased by $242,849 (117%) to $450,195 for the quarter ended March 31, 2002 from $207,346 for the quarter ended March 31,
2001. For the nine months ended March 31, 2002 total revenue increased by $1,441,361 (226%) to $2,077,906 from $636,575 for the same period ended March 31, 2001. Revenue from service contracts accounted for $431,168 of revenue recognized during the
three months ended March 31, 2002, and for $103,263 of the revenue recognized during the three months ended March 31, 2001 for an increase of 318%. A comparison of the fiscal year to date service revenue shows an increase of $1,501,624 (299%) from
fiscal 2001 ($502,912) to fiscal 2002 ($2,004,536). The balance of the revenue was earned mainly from sub-leases of certain of our premises.





The increase in service contract revenue of $1,501,624 for the nine months ended March 31, 2002 from 2001 levels is primarily due to the introduction of our Technical Support Application to one of our
key target markets, the Internet Service Provider market space during the second half of fiscal 2001, and our first contract in retail warranty support. Service revenue was primarily earned from commissioning fees and the sale of eSupport and
telephone support services.





One customer accounted for approximately 50% of the service contract revenue for the
quarter ended December 31, 2001, and accounted for approximately 44% of the service revenue for the nine months ended March 31,2002. In November 2001 this customer gave notice of its intention to terminate its contract with us. While the impact to
our revenue base is material, the cash flow and profitability impacts are mitigated by the fact that approximately 80% of the revenue related to this contract was passed on to a third party for the provision of telephone support, and therefore did
not generate positive gross margins for the company. In November 2001 we commenced to provide telephone support directly to our customers rather than outsourcing this service, with a view to both enhancing our offering and ultimately improving our
margins.




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EXPENSES





We have made continual efforts to reduce our expenses to a level that will be funded by cash flow from our operations on a recurring basis, but to date we have been unable to achieve this objective. A
significant reduction of costs was implemented in September 2001, and further reductions in staff were implemented in February 2002.





Cost of License Fees and Services





The cost of license fees and services consists
primarily of direct labor and related costs associated with delivering eSupport services through our Technical Support Application, including payments to third parties for services rendered, Internet connections, and costs of license fees under
technology license agreements. Cost of license fees and services decreased to $335,625 for the three months ended March 31, 2002 from $417,686 for the same period during the previous year. The decrease in the cost of license fees and services of
$82,061 (20%) from the comparative quarter is primarily a function of efficiencies being gained in the servicing of our customers and a general freeze on discretionary spending. These expenses can be expected to continue to increase relative to
potential growth in revenues. We anticipate that there will be a significant lag between incurring the expenses to support the offering of our Technical Support Application and generating any potential revenues from these expenditures. For the nine
months ended March 31, 2002 the cost of license fees and services increased $535,107 (44%) from $1,222,259 for the nine months ended March 31, 2001, to $1,757,366. When represented as a percentage of total revenue, the cost of license fees and
services for the nine months ended March 31, 2002 was 85% compared to 192% for the comparative period ended March 31, 2001.





During the three months ended March 31, 2002 we realized a gross margin of approximately 25% on our service contracts, compared to approximately 13% for the three months ended December 31, 2001 and negative margins for all quarters
ending prior to September 30, 2001. The rate of gross margin varies from nil on certain contracts up to as much as 35% on others. We continue to review our pricing and contracts in order to eliminate or modify our lower margin accounts, and add
potential new contracts at pricing that will provide acceptable margins.





In November 2001 we implemented the
provision of telephone support directly to our customers via our own call centre in order to broaden the scope of our technical support capabilities. This is in recognition of the fact that while eSupport is a more effective tool than telephone
support, the market is not mature enough at this time to recognize eSupport as a full solution offering and that our potential customer base would be increased by this broadened offering. We also anticipate that our margins on telephone support,
which had been entirely sub-contracted to a third party prior to December 2001, will increase as we gain experience in this area of service.





Development Costs





Development costs consist primarily of
payroll and related expenses for research and development personnel. Development costs decreased to $94,920 for the three months ended March 31, 2002 from $383,778 for the comparative period. The decrease in development costs of $828,946 in the
first nine months of fiscal 2002 ($411,068) compared to the same period during fiscal 2001 ($1,223,749) is primarily the result of decreased personnel employed in Development combined with a reduction in software license costs. These decreases in
development costs are also a reflection, in our opinion, of a certain maturity having been reached in the stage of our product development, with our recent efforts being directed at feature enhancement as well as support analyst efficiencies,
compared to a more basic development effort in the prior fiscal year.





Our primary research and development effort
will be to continue to add features to the Technical Support Application and to release subsequent versions during the next year. Due to the constantly evolving nature of the Internet and




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related technologies, we will continuously monitor changes in PC support technologies and Internet-based support offerings with the goal of adding additional functionality in new releases of the
Technical Support Application. There is no assurance that the current levels of expenditures in product development will be sufficient to maintain our product as competitive, and expenditure levels may need to be increased.





Marketing and Promotion





Marketing and promotion expenses consist primarily of payroll and related expenses for sales and marketing personnel in the current fiscal year, and had included significant payments to third parties
for web portal and other advertising in previous fiscal years. Marketing and promotion expenses decreased to $214,418 during the three months ended March 31, 2002 from a level of $369,276 for the same period in the previous fiscal year. The decrease
of $154,858 compared to the prior fiscal years period was the result of a significant reduction of the personnel assigned to marketing activities, as well as the minimization of payments to third parties for advertising activities to a smaller
degree. For the nine months ended March 31, 2002 marketing and promotion costs decreased $1,271,350 to $622,866 from $1,894,216 for the comparative period. This fiscal year to date comparison and reduction is substantially the result of reduced
third party advertising costs no longer within our scope of operations. We have no plans to undertake material marketing efforts at this time due to limited resources. However, marketing efforts may be increased as and if funds permit.





General and Administrative





General and administrative expense consists principally of payroll expenses and related costs of administrative personnel and professional fees for legal, accounting and other professional services,
and the level of such costs have remained relatively steady during the current and comparative periods. General and administrative expenses incurred during the three months ended March 31, 2002 decreased to $283,083 from $730,617 for the same period
in the prior year. For the nine months ended March 31, 2002 and 2001, general and administrative expenses were $1,345,439 and $1,851,497, respectively, for a decrease of 27% in the current year to date level.





Depreciation and Amortization





We recorded depreciation and amortization expense totaling $234,987 during the three months ended March 31, 2002, compared to $2,401,737 during the three months ended March 31, 2001. The fiscal 2001
expenses included a one-time write down of an intangible asset. For the nine months ended March 31, 2002 and 2001, depreciation and amortization were $718,562 and $2,663,119, respectively. The decrease is primarily due to the write down of
intangible assets acquired in the course of the MyHelpDesk, Inc. acquisition in November 2000 during the three months ended March 31, 2001.





Interest Income (expense), net





Net interest income
includes interest income from cash and cash equivalents offset by interest expense. During the nine months ended March 31, 2002 we had net interest expense of $37,302 as compared to a net interest income of $189,426 for the same period in the prior
fiscal year. The decrease in interest income from the previous fiscal year levels is the result of lower cash balances, and we do not expect a material net interest income circumstance to occur in future periods, as we will likely be required to
work with lower cash reserves, and may have to finance future operations through interest bearing debt. During the nine months ended March 31, 2002 we incurred an interest expense charge of $39,341 in connection with the valuation of warrants
associated with an October 2001 bridge loan.




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LIQUIDITY AND CAPITAL RESOURCES





Net cash used in operations was $1,495,450 during the nine months ended March 31, 2002, compared to $5,181,826 for the same period in the prior fiscal year. Net cash used
in operations in the period was largely the result of net losses and an increase in trade and other accounts receivable combined with a decrease in accounts payable, accrued liabilities and partially offset by an increase in deferred revenue. Net
cash used in investing activities was $15,350 during the first three quarters of fiscal 2002 compared to $1,949,202 for the same period in fiscal 2001. The decrease in investing activities was due to the cash costs of acquisitions and investment in
equipment and licenses during the nine months ended March 31, 2001, with such acquisitions activities not being undertaken in the current fiscal year. Net cash provided by financing activities was $1,041,784 during the first three quarters of fiscal
2002 and $3,445,845 for the comparative period. The decrease in financing activities from fiscal 2001 to fiscal 2002 is the result of less financing being raised through the sale of common stock.





We had negative working capital of ($1,157,967) at March 31, 2002. Our principal commitments at March 31, 2002 consisted of obligations under operating leases, and
service credits due to customers to be recorded against the deferred revenue balance of $860,538 at March 31, 2002. These commitments and the execution of our business plan, together with the funding of anticipated operating losses, required working
capital in excess of our cash reserves at March 31, 2002. Approximately $725,000 of the deferred revenue balance as of March 31, 2002 resulted from the lower usage than the monthly minimum under the terms of our service agreement with Sears Roebuck
(Sears). Sears has paid for these monthly minimums and will be entitled to a credit for services used after April 30 2002 up to the total amount of service credits earned to April 30, 2002. This will decrease our cash flow from the Sears
contract after April 30, 2002 unless Sears increases its usage of our services to such a substantial degree as to consume these service credits prior to April 30, 2002, which appears unlikely to occur at the present time.





The funds raised from the private placement completed in December 2001 provided us with working capital sufficient to sustain our
operations through April 2002 as discussed in the Form 10-QSB for the period ended December 31, 2001. On May 6, 2002 our Board of Directors approved an agreement in principle to enter into a merger with Voyus Ltd. (Voyus), a company with
a complimentary service offering. The agreement in principle requires that the parties use their best efforts to raise a minimum of $700,000 to fund the merged operations. As part of this financing, Voyus has advanced CDN$100,000 to us for near-term
operating capital needs. This advance is evidenced by a demand note that is secured by a charge against all of our assets. The transaction is subject to a number of conditions precedent, including the execution of a definitive agreement and all
required regulatory and shareholder approvals. While management believes that the merged venture provides the basis for a more efficient business model, we do not currently have any commitments from any third party to provide additional financing
subject to the merger, and we may be unable to obtain financing on reasonable terms or at all. If additional working capital is not immediately available we will be forced to severely curtail or discontinue our operations. The proposed merger and
any potential future financings will cause our shareholders to experience significant dilution.





RISK FACTORS





Our actual future results, performance or achievements may be materially different from any future results, performance or
achievements that may be expressed or implied by the statements contained in this Form 10-QSB due to various factors and uncertainties, including without limitation the risk factors described below.





We need additional capital.





As of March 31, 2002, we had negative working capital on an unaudited basis of approximately $1,158,000. We need to raise additional capital immediately in order to sustain our operations at current
levels. We anticipate funding additional working capital requirements either through the proceeds from a private placement of our common stock or a debt financing if possible to obtain at all and in a timely fashion. We do not currently have any
commitment from any third party to provide the potential debt or equity financing. We may be unable to obtain financing on reasonable terms




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or at all. Furthermore, if we raise additional working capital through equity, our shareholders will experience dilution. If we are unable to secure sufficient additional financing immediately to
provide the necessary working capital, we will be forced to severely curtail or discontinue our operations. The proposed merger with Voyus (see Liquidity and Capital Resources, above) and any potential future financings will cause our shareholders
to experience significant dilution.





Our limited operating history makes it difficult to evaluate our business and prospects.





Our limited operating history makes it difficult to evaluate our current business and prospects or to
accurately predict our future revenue or results of operations. Our revenue and income potential are unproven, and because the Internet is constantly changing, we may need to modify our business model to adapt to these changes. Companies in early
stages of development, particularly companies in new and rapidly evolving Internet industry segments, are generally more vulnerable to risks, uncertainties, expenses and difficulties than more established companies.





Our business model is a new and unproven one.





Our model for conducting business and generating revenue is new and unproven. Our success will depend primarily on our ability to generate revenue from multiple sources, currently consisting primarily
of:





| |  |  | PC vendors, PC retailers and third party warranty vendors
| | - |  | ---------------------------------------------------------




| |  |  | Internet Service Providers
| | - |  | --------------------------




As the market for our services is new and evolving, it is difficult to predict the size of the market, its future rate of growth, if any, or the level of prices the market will pay for our services. We are not certain that
our business model will be successful or that we can generate revenue growth or be profitable. There can be no assurance that any increase in marketing and sales efforts will result in a larger market or increase in market acceptance for our
services. We may sell service contracts to provide warranty services or bundle our services for a fixed fee based on only limited historical experience as to the level of expenditures we will need to incur to satisfy our contractual obligations. In
order to increase our gross margins to acceptable levels from our existing and future contracts, we will need to migrate the end users of our services to a greater reliance on Internet use of our services rather than telephone support. We do not
have enough experience to date to know whether we will be successful in effecting this migration. If markets for our services develop more slowly than expected or become saturated with competitors, or our services do not achieve or sustain market
acceptance, or we are unable to set prices for our services that are sufficient to cover our costs and generate a profit, we will be unlikely to be able to successfully operate our business.





Our history of operating losses and negative cash flow may continue for the foreseeable future.





To date, we have incurred operating losses and negative cash flow from our operating activities. We anticipate that our operating losses and negative cash flow will continue for at least the
immediately foreseeable future unless we are able to generate somewhat greater revenues than we have had in recent prior periods. Moreover, we may need to significantly increase our expenditures in the future for sales and marketing, content
development, and technology and infrastructure development to enhance our business or to maintain our competitive position. Consequently, it is possible that we may never achieve profitability, and even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the future. If we do not achieve or sustain profitability in the future, we may be unable to continue our operations. The auditors report with respect to our financial
statements for the fiscal year ended June 30, 2001 includes an additional explanatory paragraph on these conditions that raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment
that might result from the outcome of these uncertainties.





We are dependent on large customers.





Internet Services Management Group (Skyenet), an Internet Service Provider, accounted for approximately 40% of our monthly
recurring revenue base for the nine-month period ended March 31, 2002. In November 2001, Skyenet notified us of its intention to terminate its agreement with us. We have recently entered into an agreement to provide online technical support services
to Service Net Solutions, LLC (Service Net). We anticipate that Service Net will account for a substantial portion of our revenues in fiscal 2002 and potentially in subsequent years. However, the actual revenues from this agreement will
depend upon the volume of PC warranty claims that Service Net administers.




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The level of our services consumed by Service Net may be limited if we are unable to provide specifically defined levels of service under this
agreement.





Our Technical Support Application will need to be continually enhanced.





Due to the constantly evolving nature of the Internet and related technologies, we must continuously monitor changes in PC support
technologies and Internet-based support offerings with the goal of adding additional functionality in new releases of our products. Our Technical Support Application will have to be updated and enhanced on a timely basis in order for us to compete
effectively. There can be no assurance that we will have access to the working capital, technology, or skilled personnel and outside contractors necessary in order to deliver these updates and enhancements to the market on a timely basis.





Sale of our services to large and medium-sized enterprise customers requires us to allocate substantial marketing resources and
involves long sales cycles.





We have increased our efforts to sell our services to large and medium-sized
enterprise customers and have devoted significant management and financial resources to achieving this goal. If our efforts are successful, large and medium-sized enterprise customers are expected to use our services in business critical operations
which involve significant capital and management commitments by such customers. Potential large and medium-sized enterprise customers generally commit significant resources to an evaluation of available PC support alternatives and may require us to
expend substantial time, effort and money educating them about the value of our solutions. Sales of our services to such customers require an extensive sales effort throughout a customers organization because decisions to purchase generally
involve the evaluation of the alternative solutions by a significant number of customer personnel in various functional and geographic areas, each often having specific and conflicting requirements. Since we have had only limited experience to date
in understanding or anticipating the complex and rapidly changing needs of such corporations, we may need to constantly revise and expand our service offerings. A variety of factors, including factors over which we have little or no control, may
cause potential large and medium-sized enterprise customers to favor a particular supplier or to delay or forego a purchase. As a result of these or other factors, including our relative inexperience in selling to such enterprise customers, the
sales cycle for our services may be long, typically ranging between three and nine months. As a result of the length of the sales cycle and the significant selling expenses from selling into the large enterprise, our ability to forecast the timing
and amount of specific sales is limited, and the delay or failure to complete one or more large transactions to which we have devoted significant resources could have a material adverse effect on our business, operating results or financial
condition and could cause significant variations in our operating results from quarter to quarter.





The market for our services is
highly competitive and we may not be able to compete successfully against our current and future competitors, resulting in reduced revenues or profitability.





The market for PC support services through the Internet is a new and highly competitive market, which is subject to rapid change and has few barriers to entry. We face competitive pressures from
numerous actual and potential competitors.





Competition in the PC support business is likely to increase
significantly as new companies enter the market and current competitors expand their services. Many of our current and potential competitors have substantial competitive advantages, including:





| |  |  | significantly greater financial, technical and marketing resources
| | - |  | ------------------------------------------------------------------




| |  |  | relationships with strong partners
| | - |  | ----------------------------------




| |  |  | longer operating histories
| | - |  | --------------------------




| |  |  | greater brand name recognition
| | - |  | ------------------------------




| |  |  | larger existing customer bases
| | - |  | ------------------------------




Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and devote greater resources to develop, promote and sell their products or services. Existing and
potential customers may perceive that competitor services are superior to ours. In addition, increased competition could result in reduced subscriber fees, reduced margins and loss of market share, any of which could harm our business.





We will need to develop brand recognition to effectively compete in the market.




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To attract users we must develop a brand identity and increase public awareness
of the services we offer. To increase brand awareness and revenue, we intend, to the extent we have adequate financial and other resources to do so, to increase our advertising and promotional efforts. Our marketing activities may, however, not
result in increased revenue and, even if they do, any increased revenue may not offset the expenses incurred in building brand recognition. Moreover, despite these efforts we may be unable to increase public awareness of our brands, which would have
an adverse effect on our business.





We rely on partners to provide us with technologies for our Technical Support Application.





Many of the online support technologies used in the Technical Support Application are licensed from unrelated
third parties or have been acquired from third parties, and we anticipate that we will need to gain access in the future to additional technologies through licenses or acquisitions. We are highly reliant on the technologies that we license or have
acquired. There can be no assurance that our licensors will take the necessary steps to assure that these technologies will keep pace with technological changes. There also can be no assurance that our licensors will continue to grant us licenses in
the future. We also may encounter unanticipated difficulties in integrating the technologies that we license or the technologies, personnel or operations that we acquire with our existing technologies or operations. The loss of the right to use one
or more of these technologies or our inability to successfully integrate these technologies with our existing technologies may have a material adverse effect on our business.





We are subject to rapid technological change affecting our services.





The market for Internet products and services is characterized by rapid change, evolving industry standards and frequent introductions of new technological developments. These new standards and developments could make our existing or
future products or services obsolete. In addition, personal computers, operating systems software, and applications software are constantly improving. Computer manufacturers and software developers may develop more robust technologies for their
products which could render our services obsolete or reduce the demand for our services below the level required to profitably support them.





Our keeping pace with the introduction of new standards and technological developments could result in significant additional costs or prove difficult or impossible. The failure to keep pace with these
changes and to continue to enhance and improve the responsiveness, functionality and features of our services could harm our ability to attract and retain users. Among other things, we may need to enhance our existing services or license or develop
new services or technologies, which may not be available to us on attractive terms or at all.





We may be unable to sufficiently
protect our intellectual property.





We may be unable to acquire or maintain trademark or Web domain names in
the United States and other countries in which we may conduct business. We have applied for trademark protection for the name MyHelpDesk and currently hold various relevant domain names, including SUPPORTEXCHANGE.COM, PCHEALTH.COM,
SUPPORTEXCHANGE.NET, MYHELPDESK.COM, FIRSTHELP.COM, MYHELPDESK.NET, PCSUPPORT.com, and RECON-TECH.com. The acquisition and maintenance of domain names generally is regulated by governmental agencies and their designees and is subject to change. The
relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. Therefore, we could be unable to prevent third parties from acquiring or using domain names that infringe or otherwise
decrease the value of our brand names and other proprietary rights.





Also, third parties may assert trademark,
copyright, patent and other types of infringement or unfair competition claims against us. If forced to defend against any such claims, whether they are with or without merit or are determined in our favor, then we may face costly litigation,
diversion of technical and management personnel, or product shipment delays. As a result of such a dispute, we may have to develop non-infringing technology, enter into royalty or licensing agreements or alter our business practices. Such royalty or
licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. If there is a successful claim of product infringement against us and we are unable to develop non-infringing technology or license the infringed or similar
technology on a timely basis, it could materially harm our business.





We rely on confidentiality, non-disclosure
and non-competition arrangements with our employees, representatives and other entities engaged in joint product or business development with us, and expect to continue to enter into such agreements with such persons. There can be no assurance that
these agreements will provide meaningful protection.




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There can be no assurance that other companies will not acquire and use information that we consider to be proprietary,
and we may be unsuccessful in enforcing our intellectual property rights against these companies.





System disruptions may adversely
affect our services.





Our ability to attract and retain subscribers depends on the performance, reliability
and availability of our services and network infrastructure. We may experience periodic service interruptions caused by temporary problems in our own systems or software or in the systems or software of third parties upon whom we rely to provide
service or support. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins, denial of service attacks and similar events could damage these systems and interrupt our services. Computer viruses, electronic break-ins or other
similar disruptive events also could disrupt our services. System disruptions could result in the unavailability or slower response times of our Technical Support Application, which would lower the quality of our customers experience. Service
disruptions could adversely affect our revenue and, if they were prolonged, would seriously harm our business and reputation. We do not carry business interruption insurance to compensate for losses that may occur as a result of these interruptions.
In addition, our customers will be dependent on Internet service providers and other Web site operators for access to our Technical Support Application. These providers and operators have experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures unrelated to our systems. Moreover, the Internet network infrastructure may not be able to support continued growth. Any of these problems could adversely affect our business.





The failure of online security measures could adversely affect our customer relationships.





Our relationships with our customers would be adversely affected if the security measures that we use to protect their personal
information were ineffective. We cannot predict whether events or developments will result in a compromise or breach of the technology we use to protect a customers personal information.





The infrastructure relating to our services is vulnerable to unauthorized access, physical or electronic computer break-ins, computer viruses and other disruptive
problems. Internet service providers have experienced, and may continue to experience, interruptions in service as a result of the accidental or intentional actions of Internet users, current and former employees and others. Anyone who is able to
circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. Security breaches relating to our activities or the activities of third-party contractors that involve the storage and
transmission of proprietary information could damage our reputation and our relationships with our subscribers and strategic partners. We could be liable to our subscribers for the damages caused by such breaches, or we could incur substantial costs
as a result of defending claims for those damages. We may need to expend significant capital and other resources to protect against such security breaches or to address problems caused by such breaches. Security measures that we take may not prevent
disruptions or security breaches.





Our business is dependent upon the continued development and maintenance of the Internet and the
availability of increased bandwidth to users.





The success of our business will rely on the continued
improvement of the Internet as a convenient means of consumer interaction and commerce. Our business will depend on the ability of our customers to use our Technical Support Application without significant delays or aggravation that may be
associated with decreased availability of Internet bandwidth and resultant limits to access to our Technical Support Application. This will depend upon the maintenance of a reliable network with the necessary speed, data capacity and security, as
well as timely development of complementary products, such as high-speed modems, for providing reliable Internet access and services. The failure of the Internet to achieve these goals may reduce our ability to generate significant revenue.





Our penetration of a broader consumer market will depend, in part, on continued proliferation of high speed
Internet access. The Internet has experienced, and is likely to continue to experience, significant growth in the numbers of users and amount of traffic. As the Internet continues to experience increased numbers of users, increased frequency of use
and increased bandwidth requirements, the Internet infrastructure may be unable to support the demands placed on it. In addition, increased users or bandwidth requirements may harm the performance of the Internet. The Internet has experienced a
variety of outages and other delays and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the level of traffic, and could result in the Internet becoming an inconvenient or
uneconomical source of products and services, which would cause its revenue to decrease. The infrastructure and complementary products or services necessary to make the Internet a viable commercial marketplace for the long term may not be developed
successfully or in a timely manner. Even if these




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products or services are developed, the Internet may not become a viable commercial marketplace for the products or services that we offer.





We may need to change the manner in which we conduct our business if government regulation increases or changes.





There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. Laws and regulations may be adopted in the future,
however, that address issues such as user privacy, pricing, taxation, content, copyrights, distribution, security, and the quality of products and services. For example, the United States Telecommunications Act of 1996 sought to prohibit
transmitting certain types of information and content over the Web. Several telecommunications companies have petitioned the United States Federal Communications Commission to regulate Internet service providers and online services providers in a
manner similar to long distance telephone carriers and to impose access fees on these companies. Any imposition of access fees could increase the cost of transmitting data over the Internet. In addition, the growth and development of the market for
online commerce may lead to more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on us. The United States Congress recently enacted Internet laws regarding childrens privacy,
copyrights, taxation and the transmission of sexually explicit material. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. Moreover, it may take years to determine the extent to
which existing laws relating to issues such as property ownership, libel and personal privacy are applicable to the Web. Any new, or modifications to existing, laws or regulations relating to the Web could adversely affect our business.





If one or more states or any foreign country successfully asserts that we should collect sales or other taxes on
the provision of our services, our net sales and results of operations could be harmed. We do not currently collect sales or other similar taxes on the provision of our services in any state. However, one or more states may seek to impose sales tax
collection obligations on companies, which engage in or facilitate the provision of services on the Internet. A number of proposals have been made at the state and local level that would impose additional taxes on the sale of products and services
through the Internet. Such proposals, if adopted, could substantially impair the growth of electronic commerce and could adversely affect our opportunity to derive financial benefit from the provision of our services. Moreover, if any state or
foreign country were to successfully assert that we should collect sales or other taxes on the provision of our services, our results of operations could be adversely affected.





Legislation limiting the ability of the states to impose taxes on Internet-based transactions has been enacted by Congress. However, this legislation, known as the Internet
Tax Nondiscrimination Act, imposes a moratorium ending on October 31, 2003 on state and local taxes on electronic commerce where such taxes are discriminatory and on Internet access unless such taxes were generally imposed and actually enforced
before October 1, 1998. Failure to renew this legislation would allow various states to impose taxes on Internet-based commerce.





We
may be exposed to product liability claims by our customers.





Our license agreements with customers typically
contain provisions designed to limit our exposure to potential product liability claims. In selling our services, we rely on click wrap (electronic sales transmitted via the Internet) licenses that are not signed by licensees and,
therefore, it is possible that such licenses may be unenforceable under the laws of certain jurisdictions. For these and other reasons, it is possible that the limitation of liability provisions contained in our license agreements may not be
effective. Although we have not experienced any product liability claims to date, the sale and support of our services may entail the risk of such claims. A successful product liability claim brought against us could have a material adverse effect
upon our business, operating results and financial condition.





We may be required to collect taxes in foreign jurisdictions, which
will impose additional administrative burdens on us.





As our business grows, we hope to generate sales from
consumers and businesses around the world. Each jurisdiction collects sales taxes of various kinds in different ways. We may need to quickly develop an understanding of a myriad of tax regimes and to customize our electronic commerce and accounting
systems to collect and remit such taxes for each one. There can be no assurance that we will be able to develop an understanding of every system and collect and remit such taxes in a timely manner. Failure to do so may expose us to significant
sanctions, penalties and fines that may have a material adverse impact on our business.





Our operating results may be adversely
affected by fluctuations in the U.S. and Canadian currencies.




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We expect a substantial portion of our revenues to be based on sales and services
rendered to customers in the United States, while a significant amount of our operating expenses will be incurred in Canada. As a result, our financial performance will be affected by fluctuations in the value of the U.S. dollar to the Canadian
dollar. At the present time, we have no plan or policy to utilize forward contracts or currency options to minimize this exposure, and even if these measures are implemented there can be no assurance that such arrangements will be available, be cost
effective or be able to fully offset such future currency risks.





Our operating results may prove unpredictable, and may fluctuate
significantly.





Our operating results are likely to fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. Because our operating results may be volatile and difficult to predict, in the future the operating results may fall below the expectations of securities analysts and investors. In this event, the
trading price of our common stock may fall significantly. Factors that may cause operating results to fluctuate significantly include the following:





| |  |  | rapid changes in the prices and costs of online services
| | - |  | --------------------------------------------------------




| |  |  | fluctuations in the levels of users served by our Technical Support Application and the amount of time that -users spend on the Technical Support Application
using labor intensive online support services
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | new Web sites, services or products introduced by us or by our competitors
| | - |  | --------------------------------------------------------------------------




| |  |  | the timing and uncertainty of advertising sales cycles and seasonal declines in advertising sales
| | - |  | -------------------------------------------------------------------------------------------------




| |  |  | general economic conditions, as well as economic conditions specific to users of our services and the public markets for Internet-related companies
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



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PART IIOTHER INFORMATION





ITEM 1LEGAL PROCEEDINGS





| | (a) |  | On April 4, 2002 a petition was filed in the state of Texas subject to which Motive Communications, Inc is suing the Company in the amount of $75,000. The suit
relates to non-payment by the Company of an outstanding account with Motive. The Company has not replied to the citation as of the date of this filing.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 2CHANGES IN SECURITIES AND USE OF PROCEEDS





| | (a) |  | In January 2002 the Company issued to a professional services provider 15,000 common shares of the Company as recognition for continued service despite a lack
of account settlement. The Company relied upon Regulation D in issuing these warrants without registration under the Securities Act of 1933.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 3DEFAULTS UPON SENIOR SECURITIES





None.





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





None.





ITEM 5OTHER INFORMATION





None.




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ITEM 6EXHIBITS AND REPORTS ON FORM 8-K





| | a. |  | The exhibits listed in the accompanying Index to Exhibits are filed as part of this Quarterly Report on Form 10-QSB.
| | -- |  | --------------------------------------------------------------------------------------------------------------------




| | b. |  | Reports on Form 8-K.
| | -- |  | --------------------




None.





SIGNATURES





In accordance with the requirements of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





PCSUPPORT.COM, INC.Date: May 30, 2002





By:

/s/    MICHAEL G.
MCLEANMichael G. McLean President and Chief Executive Officer








Date: May 30, 2002





By:

/s/    STEVEN W. MACBETHSteven W. Macbeth Chief Financial Officer




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INDEX TO EXHIBITS





ExhibitNumber

Description10.1

Preliminary Reorganization Agreement between the Company and Voyus Ltd. dated May 2, 2002.10.2

Promissory Note between the Company and Voyus Ltd dated May 17, 2002.10.3

General Security Agreement between the Company and Voyus Ltd. dated May 17, 2002.




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