<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
___________
Commission File Number: 000-27693
PCSupport.com, Inc.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Nevada 98-0211769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 300, 3605 Gilmore Way V5G 4X5
Burnaby, British Columbia, Canada (Zip Code)
(Address of principal executive offices)
</TABLE>
Issuer's Telephone Number: (604) 419-4490
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 11,924,662 shares of the Company's common stock outstanding on
November 9, 2000.
Transitional Small Business Disclosure Format (check one): YES [_] NO [X]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.................................. 1
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS.................. 9
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS..................................... 11
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS............. 11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES....................... 12
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS... 12
ITEM 5 - OTHER INFORMATION..................................... 12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K...................... 12
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,196,534 $ 5,149,290
Trade receivables 79,661 -
Other receivables 40,624 89,933
Prepaid expenses 244,512 257,625
Deposits 70,213 189,348
------------ -----------
Total current assets 3,631,544 5,686,196
Property and equipment (note 3) 813,659 411,817
Deferred acquisition costs (note 4) 370,000 25,000
Intangible assets (note 3) 288,443 7,052
------------ -----------
$ 5,103,646 $ 6,130,065
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,259,700 $ 657,050
Deferred revenue 23,323 -
------------ -----------
Total current liabilities 1,283,023 657,050
Stockholders' equity (note 5):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 10,844,662 shares at September 30, 2000 and 10,477,662
shares at June 30, 2000 10,795 10,478
Additional paid-in capital 14,323,478 13,765,041
Deferred stock compensation (495,338) (387,563)
Deficit accumulated during the development stage (10,018,312) (7,914,941)
------------ -----------
Total stockholders' equity 3,820,623 5,473,015
------------ -----------
$ 5,103,646 $ 6,130,065
============ ===========
</TABLE>
Commitments and contingencies (note 6)
Subsequent event (note 7)
See accompanying notes to interim consolidated financial statements.
1
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10, 1997
Three months ended (inception) to
September 30, September 30,
2000 1999 2000
(unaudited) (unaudited)
----------- ---------- ------------
<S> <C> <C> <C>
Revenue:
License fees $ 2,326 $ 706 $ 2,666
Services and other 96,223 - 125,464
----------- ---------- ------------
98,549 706 128,130
Costs and expenses:
Cost of license fees and services 378,465 710 575,717
Development costs 294,075 221,054 1,237,794
Marketing and promotion 954,080 164,548 2,611,736
General and administrative 628,818 171,019 2,113,191
Stock-based compensation expense 58,979 113,688 957,416
----------- ---------- ------------
2,314,417 671,019 7,495,854
----------- ---------- ------------
Loss from operations (2,215,868) (670,313) (7,367,724)
Interest income (expense), net 112,497 7,853 (2,650,588)
----------- ---------- ------------
Loss for the period $(2,103,371) $ (662,460) $(10,018,312)
=========== ========== ============
Net loss per common share, basic and diluted $(0.21) $(0.11) $(2.40)
=========== ========== ============
Weighted average common shares outstanding,
basic and diluted 10,243,803 6,029,969 4,176,722
=========== ========== ============
</TABLE>
See accompanying notes to interim consolidated financial statements.3
2
<PAGE>
PCSUPPORT.COM, INC. and subsidiary
(A Development Stage Enterprise)
Interim Consolidated Statements of Stockholders' Equity
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
Period from December 10, 1997 (inception) September 30, 2000
<TABLE>
<CAPTION>
Common Shares
-----------------------------
Shares Amount
-------------- ------------
<S> <C> <C>
Balance, December 10, 1997 (inception) 200 $ -
Issuance of common stock for services in January, valued at $.13 per share 489,800 490
Sale of common stock in January, $0.13 per share 510,000 510
Net loss - -
------------ -------------
Balance, June 30, 1998 1,000,000 1,000
Fair value of common stock purchase warrants granted to creditor - -
Sale of common stock in January, approximately $.85 per share, net of 291,838 292
issuance costs of $131,708
Issuance of common stock for services in January and May, valued at 52,848 53
approximately $.85 per share
Conversion of note payable to common stock 66,029 66
Issuance of common stock for services in January 63,440 63
Issuance of common stock for services in April 1,500,000 1,500
Amortization of deferred stock compensation - -
Issuance of common stock for acquisition in June, net of acquisition costs of 3,033,014 3,033
$46,753 (note 3)
Treasury stock repurchased by Company in June, not cancelled (285,000) -
Net loss - -
------------ -------------
Balance, June 30, 1999 5,722,169 6,007
Exercise of warrants in July, 1999 68,400 69
Shares issued in exchange for service 4,160 4
Fair value of options issued to employees and consultants - -
Conversion of notes payable in January, net of $5,803 in cash financing costs 350,000 350
(note 6(a)(i))
Fully paid warrants issued as financing compensation cost (note 6(a)(ii)) - -
Beneficial conversion feature of notes payable issued in February (note - -
6(a)(ii))
Amortization of deferred stock compensation - -
Sale of units in March and April, $2.00 per unit, net of $38,820 in cash 666,000 666
financing costs
Sale of common stock in March, $2.00 per share, net of $36,222 in cash 2,054,000 2,054
financing costs
Exercise of warrants in March for cash 140,600 141
Sale of common stock in April, $2.00 per share 34,000 34
Sale of common stock in April, $2.125 per share, net of $175,694 in cash 645,000 645
financing costs
Conversion of promissory notes payable in May (note 6(a)(ii)) 508,333 508
Net loss - -
------------ -------------
Balance, June 30, 2000 10,192,662 $ 10,478
Issuance of common stock for acquisition of license (note 5(b)) 100,000 100
Issuance of common shares under subscription (note 5(b)) 50,000 50
Less: note receivable for common shares subscription - (50)
Exercise of stock options in September 17,000 17
Issuance of common stock for acquisition (note 3) 100,000 100
Issuance of contingent common shares (note 3) 100,000 100
Fair value of options issued employees and consultants - -
Adjustment to deferred stock compensation due to cancellations - -
Amortization of deferred stock compensation - -
Net loss - -
------------ -------------
Balance, September 30, 2000 10,559,662 $ 10,795
<CAPTION>
Additional Deferred
Paid-in Stock
Capital Compensation
------------- --------------
<S> <C> <C>
Balance, December 10, 1997 (inception) $ - $ -
Issuance of common stock for services in January, valued at $.13 per share 65,157 -
Sale of common stock in January, $0.13 per share 67,642 -
Net loss - -
------------- -------------
Balance, June 30, 1998 132,799 -
Fair value of common stock purchase warrants granted to creditor 8,407 -
Sale of common stock in January, approximately $.85 per share, net of 116,062 -
issuance costs of $131,708
Issuance of common stock for services in January and May, valued at 45,101 -
approximately $.85 per share
Conversion of note payable to common stock 109,977 -
Issuance of common stock for services in January 53,861 -
Issuance of common stock for services in April 777,620 (392,356)
Amortization of deferred stock compensation - 45,247
Issuance of common stock for acquisition in June, net of acquisition costs of 886,155 -
$46,753 (note 3)
Treasury stock repurchased by Company in June, not cancelled (148,200) 148,200
Net loss - -
------------- -------------
Balance, June 30, 1999 1,981,782 (198,909)
Exercise of warrants in July, 1999 58,197 -
Shares issued in exchange for service 6,504 -
Fair value of options issued to employees and consultants 600,900 (600,900)
Conversion of notes payable in January, net of $5,803 in cash financing costs 494,747 -
(note 6(a)(i))
Fully paid warrants issued as financing compensation cost (note 6(a)(ii)) 1,794,000 (1,794,000)
Beneficial conversion feature of notes payable issued in February (note 1,000,000 -
6(a)(ii))
Amortization of deferred stock compensation - 2,206,246
Sale of units in March and April, $2.00 per unit, net of $38,820 in cash 1,292,514 -
financing costs
Sale of common stock in March, $2.00 per share, net of $36,222 in cash 4,069,724 -
financing costs
Exercise of warrants in March for cash 188,263 -
Sale of common stock in April, $2.00 per share 67,966 -
Sale of common stock in April, $2.125 per share, net of $175,694 in cash 1,194,286 -
financing costs
Conversion of promissory notes payable in May (note 6(a)(ii)) 1,016,158 -
Net loss - -
------------- -------------
Balance, June 30, 2000 $ 13,765,041 $ (387,563)
Issuance of common stock for acquisition of license (note 5(b)) 174,900 -
Issuance of common shares under subscription (note 5(b)) 261,750 -
Less: note receivable for common shares subscription (261,750) -
Exercise of stock options in September 16,983 -
Issuance of common stock for acquisition (note 3) 199,900 -
Issuance of contingent common shares (note 3) 199,900 (200,000)
Fair value of options issued employees and consultants 25,000 (25,000)
Adjustment to deferred stock compensation due to cancellations (58,246) 58,246
Amortization of deferred stock compensation - 58,979
Net loss - -
------------- -------------
Balance, September 30, 2000 $ 14,323,478 $ (495,338)
<CAPTION>
Deficit
Accumulated
During Total
Development Stockholders'
Stage Equity
------------- -------------
<S> <C> <C>
Balance, December 10, 1997 (inception) $ - $ -
Issuance of common stock for services in January, valued at $.13 per share - 65,647
Sale of common stock in January, $0.13 per share - 68,152
Net loss (182,294) (182,294)
------------ -----------
Balance, June 30, 1998 (182,294) (48,495)
Fair value of common stock purchase warrants granted to creditor - 8,407
Sale of common stock in January, approximately $.85 per share, net of - 116,354
issuance costs of $131,708
Issuance of common stock for services in January and May, valued at - 45,154
approximately $.85 per share
Conversion of note payable to common stock - 110,043
Issuance of common stock for services in January - 53,924
Issuance of common stock for services in April - 386,764
Amortization of deferred stock compensation - 45,247
Issuance of common stock for acquisition in June, net of acquisition costs of - 889,188
$46,753 (note 3)
Treasury stock repurchased by Company in June, not cancelled - -
Net loss (767,202) (767,202)
------------ -----------
Balance, June 30, 1999 (949,496) 839,384
Exercise of warrants in July, 1999 - 58,266
Shares issued in exchange for service - 6,508
Fair value of options issued to employees and consultants - -
Conversion of notes payable in January, net of $5,803 in cash financing costs - 495,097
(note 6(a)(i))
Fully paid warrants issued as financing compensation cost (note 6(a)(ii)) - -
Beneficial conversion feature of notes payable issued in February (note - 1,000,000
6(a)(ii))
Amortization of deferred stock compensation - 2,206,246
Sale of units in March and April, $2.00 per unit, net of $38,820 in cash - 1,293,180
financing costs
Sale of common stock in March, $2.00 per share, net of $36,222 in cash - 4,071,778
financing costs
Exercise of warrants in March for cash - 188,404
Sale of common stock in April, $2.00 per share - 68,000
Sale of common stock in April, $2.125 per share, net of $175,694 in cash - 1,194,931
financing costs
Conversion of promissory notes payable in May (note 6(a)(ii)) - 1,016,666
Net loss (6,965,445) (6,965,445)
------------ ----------
Balance, June 30, 2000 $(7,914,941) $5,473,015
Issuance of common stock for acquisition of license (note 5(b)) - 175,000
Issuance of common shares under subscription (note 5(b)) - 261,800
Less: note receivable for common shares subscription - (261,800)
Exercise of stock options in September - 17,000
Issuance of common stock for acquisition (note 3) - 200,000
Issuance of contingent common shares (note 3) - -
Fair value of options issued employees and consultants - -
Adjustment to deferred stock compensation due to cancellations - -
Amortization of deferred stock compensation - 58,979
Net loss (2,103,371) (2,103,371)
------------ ----------
Balance, September 30, 2000 $(10,018,312) $3,820,623
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10, 1997
Three months ended (inception) to
September 30, September 30,
2000 1999 2000
----------- --------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $(2,103,371) $(662,460) $(10,018,312)
Items not affecting cash:
Depreciation and amortization 58,649 9,649 173,576
Common stock issued in exchange for services - 39,492 513,099
Deemed discount amortization on promissory note - - 1,000,000
Amortization of deferred stock compensation 58,979 74,226 2,310,472
Discount on notes payable - - 8,407
Loss on debt extinguishment and other - - 17,566
Changes in operating assets and liabilities:
Trade receivables (79,661) - (79,661)
Other receivables 49,309 (35,511) (40,624)
Prepaid expenses 13,113 31,097 (244,512)
Deposits 119,135 24,899 (70,213)
Accounts payable and accrued liabilities 602,650 21,220 1,259,700
Deferred revenue 23,323 - 23,323
----------- --------- ------------
Net cash used in operating activities (1,257,874) (497,388) (5,147,179)
----------- --------- ------------
Cash flows from investing activities:
Purchase of property and equipment (192,882) (100,917) (716,615)
Deferred acquisition and acquisition cash costs (419,000) - (444,000)
Purchase of intangible asset (100,000) - (110,063)
----------- --------- ------------
Net cash used in investing activities (711,882) (100,917) (1,270,678)
----------- --------- ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable - - 110,043
Proceeds from issuance of bridge loan - - 17,088
Repayment of bridge loan - - (17,088)
Cash acquired in acquisition - - 888,932
Cash costs of conversion of debt to equity - - (5,803)
Proceeds from promissory notes - - 1,500,000
Proceeds from exercise of stock options 17,000 - 17,000
Proceeds from exercise of share purchase warrants - 58,266 246,670
Net proceeds from sale of common stock - - 6,857,549
----------- --------- ------------
Net cash provided by financing activities 17,000 58,266 9,614,391
----------- --------- ------------
Net increase (decrease) in cash and cash equivalents (1,952,756) (540,039) 3,196,534
Cash and cash equivalents at beginning of period 5,149,290 795,809 -
----------- --------- ------------
Cash and cash equivalents at end of period $ 3,196,534 $ 255,770 $ 3,196,534
=========== ========= ============
Supplemental disclosure
Cash paid for interest $ 1,000 - $ 8,200
Non-cash activities:
Notes payable and promissory notes
converted into common stock $ - $ - $ 1,626,709
Deferred stock compensation 166,754 74,226 2,954,010
Treasury stock acquired - - 285
Discount on notes payable and promissory notes - - 1,008,407
Common stock issued for intangibles 175,000 - 175,000
Common stock issued on acquisition 200,000 - 200,000
Common stock issued for services - - 558,346
See accompanying notes to interim consolidated financial statements.
</TABLE>
4
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
Period from December 10, 1997 (inception) to September 30, 2000
--------------------------------------------------------------------------------
1. Nature of development stage activities:
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 raise substantial doubt upon the validity of this
assumption. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure cost-effective third
party license service supply agreements. There can be no assurance that
the Company's services will be able to secure market acceptance or that
cost effective license and service supply agreements will exist or continue
to exist. As of September 30, 2000, the Company is considered to be in the
development stage as the Company has not generated significant revenues and
is continuing to develop its business. Operations have primarily been
financed through the issuance of equity instruments and debt. The Company
does not have sufficient working capital to sustain operations until
September 30, 2001. The Company has contracted with third parties to assist
them in securing funds through additional debt or equity financings. Such
financings may not be available or may not be available on reasonable
terms.
2. Basis of presentation:
(a) 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
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 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 year ended June 30, 2000, 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
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.
5
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
Period from December 10, 1997 (inception) to September 30, 2000
--------------------------------------------------------------------------------
2. Basis of presentation (continued):
(c) Net loss per share:
Basic loss per share is computed using the weighted average number of
common stock outstanding during the periods. Excluded from the weighted
average number of common stock outstanding are 100,000 shares held in
trust which are contingently returnable to the Company (note 3).
Diluted loss per share is computed using the weighted average number 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 September 30, 2000 are warrants to purchase 2,965,838 (September
30, 1999 - 243,438) shares of common stock and options to purchase
1,232,036 (September 30, 1999 - 527,950) shares of common stock because
their effects would be anti-dilutive.
3. Acquisition:
On September 15, 2000, the Company acquired substantially all of the
assets of Tavisco Ltd., a producer of anti-virus services and products.
The purchase price for Tavisco Ltd.'s assets consisted of 100,000
shares of common stock valued at $200,000 and a cash payment of $50,000
and other related acquisition costs of $24,000. The total purchase
price of $274,000, including estimated acquisition costs, is allocated
to the assets acquired based upon their relative fair values as
follows:
<TABLE>
<S> <C>
Software $252,000
Licenses, patents and other 22,000
intangibles --------
$274,000
--------
Consideration
Cash $ 74,000
Common shares 200,000
--------
$274,000
--------
</TABLE>
The common shares issued have been recorded at their market value at
June 12, 2000, the date when the terms of the acquisition were publicly
announced. Under the terms of the acquisition, an additional 100,000
common shares have been issued to Tavisco Ltd. The shares are subject
to cancellation under circumstances related to continued employment of
former Tavisco employees with the Company. The issuance of these shares
have been recorded as deferred stock compensation and amortized over
the relative service period.
6
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
Period from December 10, 1997 (inception) to September 30, 2000
--------------------------------------------------------------------------------
3. Acquisition (continued):
The following table reflects unaudited pro-forma information which
combines the operations of Tavisco Ltd. and the Company for the three
months ending September 30, 2000 and 1999, and for the period from
December 10, 1997 (inception) to September 30, 2000, as if the
acquisition had taken place at the beginning of these periods.
Appropriate adjustments have been made to reflect the accounting basis
used in recording these acquisitions. This pro-forma information does
not purport to be indicative of the results of operations that would
have resulted had the acquisition been in effect for the periods
presented, and is not intended to be a projection of future results or
trends.
<TABLE>
<CAPTION>
Three months ended Three months ended Period from December 10,
September 30, 2000 September 30, 1999 1997 (inception) to
September 30, 2000
<S> <C> <C> <C>
Revenue $ 98,549 $ 706 $ 128,130
Net loss for the period $(2,136,703) $(695,792) $(10,290,478)
Net loss per common share, basic and diluted $ (0.21) $ (0.12) $ (2.41)
</TABLE>
4. Deferred acquisition costs:
Deferred acquisition costs is comprised of cash advances to MyHelpDesk,
Inc. ("MHD") with whom the Company signed a Letter of Intent on
September 7, 2000 to acquire all of the assets and assume certain
liabilities in exchange for 1,250,000 common shares of the Company and
a further 250,000 common shares one year after closing. MHD is a
development stage company that provides web-based computer support
services. The Company is committed to assuming the ongoing costs of
maintaining the business of MHD effective September 1, 2000 to the
closing or cancellation to a maximum of $100,000 per week. If the
Company cancels the transaction, all funding will convert to a senior
debenture bearing interest at 1% per month.
7
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended September 30, 2000
Period from December 10, 1997 (inception) to September 30, 2000
--------------------------------------------------------------------------------
5. Stockholders' equity:
(a) Stock options and stock-based compensation:
During the three months ended September 30, 2000, the Company granted
85,500 stock options with exercise prices ranging from $1.95 to $3.44
and having a vesting period ranging from immediate up to 36 months.
Stock compensation expense for the three months ended September 30,
2000 totaling $58,979 (1999 - $113,688) would be allocated $16,265
(1999 - $4,167) to Development costs, $13,172 (1999 - $62,265) to
Marketing and promotion costs, and $29,542 (1999 - $47,256) to General
and administrative costs.
(b) Shares:
The Company issued 100,000 common shares valued at $175,000 and paid
$100,000 in cash in exchange for a license to use specific on line
support technology. The Company is required to issue warrants for each
incremental 100,000 licenses sold to users over 400,000 licenses. These
warrants will entitle the holder for a period of five years to purchase
shares of the Company at the stated prices.
In August 2000, the Company issued 50,000 common shares and received as
consideration a note receivable in the amount of $261,800. This note
bears interest at 6.62% per annum payable at the end of each year and
is payable in full on July 25, 2005.
6. Commitments and contingencies:
Subsequent to September 30, 2000, the Company entered into a sublease
of one of its office premises. Under the terms of the agreement, the
lessee has operating lease commitments to the Company equal to the
Company's own commitments in the following annual amounts:
<TABLE>
<S> <C>
2001 $121,500
2002 125,076
2003 20,846
</TABLE>
7. Subsequent event:
Subsequent to September 30, 2000, the Company completed a private
placement for the subscription of 1,350,000 common shares at a price
per share of $1.50. Proceeds, net of commissions paid, of $1,822,500
were received by the Company at closing. The Company has agreed to
issue 250,000 warrants as compensation for arranging the financing.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
All statements, other that 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. Such
potential risks and uncertainties include, without limitation, the impact of
competitive products and pricing, the need to raise additional capital,
uncertain markets for our products and services, our dependence on third parties
and licensing/service supply agreements, and the ability of competitors to
license the same technologies that we use for the PC Support Center or develop
or license other functionally equivalent technologies.
Overview
PCsupport.com, Inc. is a provider of eSupport solutions for businesses and
consumers. The Company specializes in providing online, proactive, and user-
focused technical support services to personal computer users worldwide. The
Company's PC Support Center offers a comprehensive eSupport solution which is
designed to reduce technical support costs and increase user satisfaction. The
Company provides eSupport solutions to businesses which have an obligation to
provide technical support to their employees or customers, and to consumers
through various marketing channels.
Revenue
License fee revenue increased by $1,620 in the current period over the
three months ended September 30, 1999, primarily due to the introduction of a
user fee in July 2000 for use of the PC Support Center which was launched in
October 1999. Service and other revenue was primarily earned from the
development of a privately-branded support gateway. One customer accounted for
94% of the revenue recorded in the period. The Company expects the number of
subscribers to the PC Support Center and branded portal revenue to increase
rapidly over the next year.
Cost of License Fees and Services
Cost of license fees and services consists of direct labor and related
costs associated with maintaining the PC Support Center, including payments to
third parties, and costs of license fees under technology license agreements.
Cost of license fees and services increased by $377,755 over the three months
ended September 30, 1999 due to the increase in personnel required to maintain
the PC Support Center, outsourcing agreements with third parties to provide
technical support and recently acquired technology licenses. The Company had
anticipated that there would be a significant lag between incurring the expenses
to support the PC Support Center and generating potential significant revenues
from these expenditures.
Development Costs
Development costs consist primarily of payroll and related expenses for
research and development personnel. Development costs for the period increased
by $73,021 over the three months ended September 30, 1999 primarily due to an
increase in research and development personnel. The Company's primary research
and development effort will be to continue to add features to the PC Support
Center and to release subsequent versions during the next year. Due to the
constantly evolving nature of the Internet and related technologies, the Company
will continuously monitor
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changes in PC support technologies and Internet-based support offerings with the
goal of adding additional functionality in new releases of the PC Support
Center.
Marketing and Promotion
Marketing and promotion consists primarily of payments to third parties for
web portal advertising and payroll and related expenses for marketing personnel.
Marketing and promotion expenses increased by $789,532 over the three months
ended September 30, 1999 largely due to commitments under co-branding and
advertising agreements, and to a lesser extent due to an increase in the number
of marketing personnel. The Company plans to increase marketing efforts for its
services through direct and indirect channels, including PC manufacturers, OEMS,
computer service companies and direct sales.
General and Administrative
General and administrative consists principally of payroll expenses and
related costs of administrative personnel and professional fees for legal,
accounting and other professional services. General and administrative expenses
increased by $457,799 in the current quarter over the three months ended
September 30, 1999. This increase was primarily due to an increase in the number
of administrative personnel and an increase in legal, accounting and other
consulting costs incurred in connection with the expansion of business
activities and the Company's operations as a public company.
Stock-based Compensation Expense
Stock-based compensation expense relates to the issuance of stock options
and other equity instruments to employees, directors and consultants for
services. The Company recorded stock compensation expense of $58,979 during the
current quarter as compared to $113,688 in the three months ending September 30,
1999. This compensation expense relates to options awarded to individuals in all
operating expense categories. Total deferred stock compensation as at September
30, 2000 is being amortized over the vesting periods of the options.
Interest Income (expense), Net
Interest income (expense), net includes interest income from cash and cash
equivalents offset by interest expense. Interest income (expense) was $112,497
for the three months ended September 30, 2000 as compared to $7,853 for the
three months ending September 30, 1999. The increase is primarily due to
interest earned on investment funds derived from recent financings.
Liquidity and Capital Resources
Net cash used in operations was $1,257,874 for the three months ended
September 30, 2000 compared to $497,388 for the same period in the prior year.
Net cash used in operations in the period was largely the result of net losses
partially offset by a reduction in prepaid expenses and deposits and an increase
in accounts payable and accrued liabilities. Net cash used in investing
activities was $711,882 for the current quarter as compared to $100,917 for the
three months ended September 30, 1999. The increase was primarily the cash costs
of acquisition and deferred acquisition costs and investment in equipment and
licenses during the period. Net cash provided by financing activities was
$17,000 in the current quarter as compared to $58,266 in the three months ended
September 30, 1999. The significant change in the current quarter is due to the
exercising of stock options for shares of the Company.
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The Company had working capital of $2,348,521 as of September 30, 2000.
Subsequent to September 30, 2000, the Company completed a private placement for
the subscription of 1,350,000 common shares for net proceeds totaling $1,822,500
after payment of commissions. As of September 30, 2000, the Company's principal
commitments consisted of obligations under advertising and co-branding
agreements and operating leases. These commitments, together with the funding of
anticipated operating losses, will require working capital in excess of the
Company's current cash reserves.
The Company has asserted that Alta Vista is in default in its advertising
and co-branding agreements with the Company and has declined to make certain
payments to Alta Vista. Alta Vista, in turn, has advised the Company that it is
in breach of these agreements. The Company is seeking to restructure its
agreements and resolve its outstanding disputes with Alta Vista. There can be no
assurance, however, that the Company will be successful in doing so or that the
Company may become subject to litigation in which it could incur significant
legal expenses and become liable to Alta Vista for substantial damages.
In September 2000, the Company entered into a letter of intent to acquire
all of the assets and certain of the liabilities of MyHelpDesk, Inc., and this
transaction is expected to close in November 2000. Under the terms of the letter
of intent, the Company has been funding a portion of MyHelpDesk's negative cash
flow pending the closing. The Company anticipates that it will also be required
to provide working capital funding for the MyHelpDesk operations after it
acquires this business.
The Company anticipates funding its working capital requirements through
proceeds from private placements together with future revenues generated from
customers. The Company does not currently have any further commitments from any
third party to provide additional financing and may be unable to obtain
financing on reasonable terms or at all. Furthermore, if the Company raises
additional working capital through the sale of equity securities, its
shareholders will experience dilution. If the Company is unable to secure
additional financing when needed and its revenues are inadequate to provide the
necessary working capital, it may be required to slow down or suspend its growth
or reduce the scope of its then current level of business operations, any of
which would have a material adverse effect on the Company's competitive
position.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2000, the Company made the following
sales of unregistered securities:
a. In August 2000, the Company issued 50,000 shares of common stock to an
affiliate of its public relations firm, receiving as consideration a note
receivable in the amount of $261,800. This note bears interest at 6.62% per
annum payable, which is due at the end of each year. The principal balance is
due in full on July 25, 2005.
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b. In September 2000, the Company issued 200,000 shares of common stock to
Tavisco Ltd. (with up to 100,000 of these shares subject to cancellation under
certain circumstances related to continued employment of certain former
employees of Tavisco Ltd.) to acquire substantially all of the assets of that
company, which is a producer of anti-virus services and products.
c. In September 2000, the Company issued 17,000 shares of common stock to
one individual pursuant to the exercise of outstanding stock options at the
exercise price of $1.00 per share.
The sales of the above securities were considered to be exempt from
registration under the Securities Act of 1933, as amended, in reliance on
Section 4(2) of the Securities Act, or Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering .
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. 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: During the three months ending September 30, 2000,
the Company filed one Form 8-K containing one Item 5 (Other Events) and Item 7
(Financial Statements, Proforma Financial Information and Exhibits) with a
report date of September 7, 2000.
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: November 16, 2000 By: /s/ Michael G. McLean
--------------------------------------
Michael G. McLean
President and Chief Executive Officer
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Date: November 16, 2000 By: /s/ David W. Rowat
--------------------------------------
David W. Rowat
Vice President and Chief
Financial Officer
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INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Promissory Note dated as of July 25, 2000 between the Company
and Coffin Partners, LLC Series C
10.2 Subscription Agreement dated as of July 25, 2000 between the
Company and Coffin Partners, LLC Series C
27 Financial Data Schedule
</TABLE>
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