As filed with the Securities and Exchange Commission on March 12, 2001
File No. 333-51680
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2
ON
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PCsupport.com, Inc.
(Name of Small Business Issuer in its Charter)
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Nevada 7389 98-0211769
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3605 Gilmore Way, 3/rd/ Floor,
Burnaby, British Columbia, Canada V5G 4X5
(604) 419-4490
(Address and telephone number of principal executive offices)
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Same
(Address and telephone number of principal place of business)
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David W. Rowat
Vice President and Chief Financial Officer
PCSupport.com, Inc.
3605 Gilmore Way, 3/rd/ Floor
Burnaby, British Columbia, Canada V5G 4X5
(604) 419-4490
(Name, address and telephone number of agent for service)
Copy to:
Sanford J. Hillsberg, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
(310) 553-4441
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
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CALCULATION OF REGISTRATION FEE
- ------------------------- --------------------- ---------------------- ----------------------- ----------------------
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit price registration fee
- ------------------------- --------------------- ---------------------- ----------------------- ----------------------
Common Stock, par value
$0.001 (1) 7,291,331 (1) $3.03125 (2) $22,101,847 (2) $6,145 (3)
- ------------------------- --------------------- ---------------------- ----------------------- ----------------------
Common Stock, par value
$0.001 (4) 1,500,000 (4) $0.83 (5) $1,245,000 (5) $329 (6)
- ------------------------- --------------------- ---------------------- ----------------------- ----------------------
Common Stock par value
$0.001 2,900,000 $0.531 (7) $1,539,900 (7) $385
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(1) These shares were previously registered on Form SB-2, File No. 333-37760.
(2) Estimated solely for the purpose of calculating the registration fee.
Based, pursuant to Rule 457(c), on the average of the high and low sale
prices of our Common Stock as reported on the OTC Electronic Bulletin Board
on May 19, 2000.
(3) Previously paid with Form SB-2, File No. 333-37760.
(4) These shares were previously registered on this Form SB-2, File No.
333-51680.
(5) Estimated solely for the purpose of calculating the registration fee.
Based, pursuant to Rule 457(c), on the average of the high and low sale
prices of our Common Stock as reported on the OTC Electronic Bulletin Board
on December 5, 2000.
(6) Previously paid with this Form SB-2, File No. 333-51680.
(7) Estimated solely for the purpose of calculating the registration fee.
Based, pursuant to Rule 457(c), on the average of the high and low sale
prices of our Common Stock as reported on the OTC Electronic Bulletin Board
on March 5, 2001.
================================================================================
This Pre-Effective Amendment No. 1 to Form SB-2 on Form S-3 is being
filed pursuant to Rule 401(c) under the Securities Act of 1933 in order to
convert the Registration Statement on Form SB-2 (Reg. No. 333-51680) to a Form
S-3. The prospectus contained in the Form S-3 supersedes the prospectus
contained in the Form SB-2.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
included in this Registration Statement also relates to securities that were
registered on Form SB-2, File No. 333-37760, filed by the Registrant which have
not been offered or sold as of the date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION, DATED MARCH 9, 2001
PROSPECTUS
PCSUPPORT.COM, INC.
11,691,331 Shares of Common Stock
This prospectus relates to shares of our common stock that may be offered
for resale by the selling securityholders listed on pages 37-39 through public
or private transactions at prevailing market prices or at privately negotiated
prices. We will not receive any proceeds from the sale of the shares. Of the
11,691,331 shares of common stock offered by this prospectus, selling
stockholders are selling 2,820,838 shares that are issuable upon the exercise of
outstanding options and warrants.
Our common stock is traded on the OTC Electronic Bulletin Board under the
symbol "PCSP." On March 8, 2001 the closing price of our common stock was
$0.468 per share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the common stock or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
An investment in our common stock involves a high degree of risk. Before
investing in our common stock, you should consider carefully the risks described
under "Risk Factors" beginning on page 3.
The date of this prospectus is ______________, 2001.
The information contained in this Prospectus is not yet complete and
it may be supplemented or amended in the final version. A
registration statement for the securities described in this prospectus
has been filed with the Securities and Exchange Commission. The
selling shareholders may not sell these securities, or accept offers
to buy them, until the registration statement becomes effective. This
prospectus is not an offer to sell and is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
All statements, other than statements of historical fact, included in this
prospectus, including without limitation the statements under "Our Business" and
"Management's Discussion and Analysis of Operations," 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 prospectus. 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.
All statements are made as of the date of this prospectus and we assume no
obligation to update these statements, except as required by law. Therefore,
readers are cautioned not to place undue reliance on these statements.
Unless otherwise indicated, all dollar amounts are expressed in U.S.
currency values.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information you should consider before
investing in our common stock. You should read the entire prospectus carefully
before making an investment decision.
General Information About Us
----------------------------
We are an early stage corporation formed under the laws of the State of
Nevada on June 23, 1999 pursuant to the merger of PCSupport.com, Inc. and
Reconnaissance Technologies Inc. We provide personalized, proactive, and user-
focused technical support services via the Internet and telephone to personal
computer users worldwide. We are committed to minimizing the cost and
productivity gaps associated with software and hardware failure.
Our primary service, the PC Support Application, is a web-based mechanism
for delivering support services for PCs to corporations for their employees and
their customers. This service aggregates a number of support technologies,
including interactive online technical trouble-shooting, telephone support, a
user self-help knowledgebase, hard disk maintenance and other automated support
tools. We also offer the PC Support Center to individual retail customers. The
Support Center, our first product offering in the online support market, is a
web site similar to the Support Application, aggregating a number of different
support technologies and services. We are partnering with ISPs, Internet
portals, personal computer ("PC") vendors, and corporations for the sale and
distribution of our online preventive maintenance and technical support
services. Our goal is to partner with all distribution channels serving PC
Internet users, offering branded support portals and customized technical
support solutions. Our principal executive offices are located at 3605 Gilmore
Way, 3/rd/ Floor, Burnaby, British Columbia, Canada V5G 4X5, and our telephone
number is (604) 419-4490.
The Offering
------------
Common stock offered.......................................11,691,331 shares (1)
Common stock currently outstanding...............................15,786, 662 (2)
Common stock to be outstanding after the offering..............18,607,500(1) (3)
OTC Electronic Bulletin Board Symbol........................................PCSP
______________________________
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(1) This assumes the issuance of all shares issuable upon exercise by the
selling securityholders of the options and warrants for the shares of
common stock covered by this prospectus.
(2) Based on the number of shares of common stock outstanding on March 9, 2001.
This number includes shares of outstanding common stock offered by this
prospectus, but excludes 2,820,838 shares covered by this prospectus that
are issuable upon exercise of outstanding options and warrants, 1,200,000
additional shares issuable upon exercise of outstanding warrants and
2,481,421 shares reserved for issuance upon the exercise of options granted
under our stock option plans.
(3) Based on the number of shares of common stock outstanding on March 9, 2001.
This number includes all of the outstanding shares and other shares of
common stock covered by this prospectus, including the shares issuable upon
exercise of outstanding options and warrants, but excludes 1,200,000 shares
issuable upon exercise of outstanding warrants and 2,481,421 shares
reserved for issuance upon the exercise of options granted under our stock
option plan.
RISK FACTORS
Our operations and securities are subject to a number of risks, including
those described below. If any of the following risks actually occur, our
business, financial condition or operating results and the trading price or
value of our securities could be materially adversely affected.
Limited Operating History
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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 our business
model is constantly evolving. 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.
New and Unproven Business Model
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Our model for conducting business and generating revenue is new and
unproven. Our success will depend primarily on our ability to generate revenue
from sources that include subscriptions for services and customization fees.
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. To date, only a very limited
number of persons have subscribed to the PC Support Center on a paying basis and
only a limited number of corporations have purchased the PC Support Application.
We have received several revenue contracts from corporations, but few have
generated significant revenue to date. 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 or monthly fee based on only limited historical
experience as to the level of expenditures we will need to incur to satisfy our
contractual obligations. 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.
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History of Operating Losses and Anticipated Losses and Negative Cash Flow for
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the Foreseeable Future
- ----------------------
To date, we have incurred operating losses and negative cash flow. We
expect to maintain our current level of expenditures for sales and marketing,
content development, and technology and infrastructure development to enhance
our business and anticipate that our operating losses and negative cash flow
will continue for the foreseeable future. We will need to generate significant
revenue to achieve profitability with our current level of expenditures.
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, 2000 includes an additional explanatory paragraph on these
conditions that raises substantial doubt about our ability to continue as a
going concern.
Need for Additional Capital
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Between February 2000 and January, 2001, we raised aggregate gross proceeds
of $10,643,625 from the sale of common stock, $232,404 from the exercise of
previously issued warrants and options, and $1,000,000 from the issuance of
convertible debt that was converted entirely into equity in May 2000. However,
our current financial commitments and business plan will require working capital
in excess of our cash reserves and revenue, which we believe are sufficient to
sustain our operations at their current levels until at least June, 2001.
We anticipate funding our additional working capital requirements through
the proceeds from sales of our securities, together with anticipated revenues
generated from customers. We do not currently have any commitment from any
third party to provide any financing. Furthermore, the financial markets have
become very unreceptive to early-stage Internet-based companies such as ours.
We may be unable to obtain financing on reasonable terms or at all.
Furthermore, if we raise additional working capital through equity, our
shareholders will experience dilution. If we are unable to secure additional
financing when needed and our revenues are inadequate to provide the necessary
working capital, we may be required to slow down or suspend our growth or reduce
the scope of our then current level of business operations, any of which would
have a material adverse effect on our business.
Our Web Site and Service Offerings Will Need to Be Continually Enhanced
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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 the PC Support Application. Our web site and
service offerings 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.
Dependence on Other Outside Agents and Distributors
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Our success will also depend, to a significant extent, upon our ability to
develop strategic alliances and a timely and multi-channel distribution system
based on independent third parties and distributors. Furthermore, the initial
market penetration for our products and services will depend heavily on the
sales agents of third parties and the quality of their relationships with their
current and future customers. There can be no assurance that such alliances
will develop or that they will prove successful over the course of our future
operations.
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Control of Rapid Growth
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We have significantly expanded operations to address potential growth in
our customer bases, the breadth of our service offerings, and other
opportunities. We expect that this expansion will continue to strain our
management, operations, systems and financial resources. To manage our recent
growth and any future growth of our operations and personnel, we must improve
and effectively utilize our existing operational, management, marketing and
financial systems and successfully recruit, hire, train and manage personnel and
maintain close coordination among our technical, finance, marketing, sales and
production staffs. In addition, we may also need to increase the capacity of
our software, hardware and telecommunications systems on short notice, and will
need to manage an increasing number of complex relationships with users,
strategic partners, distributors and other third parties. The failure to manage
this growth could disrupt our operations and ultimately prevent us from
generating the revenue we expect.
We have not yet deployed our services on a mass basis, and have not yet
tested our ability to provide our services on a mass basis. There can be no
assurance that the software platforms upon which our services operate will be
able to handle the volume of information necessary to meet our operating
requirements. The failure of those software platforms to handle the necessary
volume of information would seriously affect our business.
Dependence On Key Personnel and Need For Additional Personnel
- -------------------------------------------------------------
Our future success depends to a significant extent on the continued
services of senior management, including Michael McLean, Steven Macbeth, David
Rowat, Bruce McDonald, Bruno Hoffman, Joanne Charley and Mark Tracey.
We have employment contracts with Messrs. McLean, Macbeth, Rowat, McDonald,
Hoffman and Tracey and Ms. Charley but these contracts do not require any of
them to remain with us for any particular period of time. The loss of any of
these senior managers would likely have an adverse effect on our business.
Competition for personnel throughout the industry is intense and we may be
unable to retain our current key employees or attract, integrate or retain other
highly qualified employees in the future. If we do not succeed in attracting
new personnel or retaining and motivating our current personnel, our business
could be materially adversely affected.
The Market is Highly Competitive and We May Not Be Able to Compete Successfully
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Against Our Current and Future Competitors
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The market for PC support services through the Internet is a new and highly
competitive market which is subject to rapid change. We expect competition in
the market to increase because there are 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
. significantly greater revenues
5
. 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. Services offered by
existing and potential competitors may be perceived by users or advertisers as
being superior to ours. In addition, increased competition could result in
reduced subscriber fees and margins and loss of market share, any of which could
harm our business.
Changing our Business Model
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We are shifting our business model to incorporate telephone support,
incident tracking, call history, and detailed reporting into the PC Support
Application. Such additional features require different skills sets to develop,
market, sell, and service to large and medium corporations, and are broader than
the narrow Internet-delivered services which we have heretofore developed and
offered. Our inability to successfully learn, insource, develop, integrate,
market, sell, and service such broader offerings may result in our inability to
penetrate the corporate markets, and have a material adverse impact on our
ability to grow our business and achieve profitability.
Brand Recognition
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To attract users and corporate customers, we must develop a brand identity
and increase public and corporate awareness of the services we offer. 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, which may be adversely
impacted by our limited working capital that is currently available to support
these efforts, we may be unable to increase public awareness of our brands,
which would have an adverse effect on our business.
Reliance on Technology Partners
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Many of the online support technologies used in the PC Support Center and
PC 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 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 may have a material adverse effect on
our business.
Technological Change
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The market for Internet products and Internet-delivered technical support
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.
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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.
Intellectual Property Protection
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We may be unable to acquire or maintain web domain names in the United
States and other countries in which we may conduct business. We currently hold
various relevant domain names, including PCSUPPORT.com, GLOBALREPLACE.com,
PCREPLACE.com, PDASUPPORT.com, PCSUPPORTCENTER.com, PCSUPPORTCENTER.net,
PCRESTORE.com, RECON-TECH.com, MYHELPDESK.com, MYHELPDESK.net, MYHELPDESK.org,
MYHELPDESKSUCKS.com, FIRSTHELP.com, FIRSTHELP.org, 1STHELP.com, 1STHELP.net, AND
1STHELP.org. 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 or enter into
royalty or licensing agreements. 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 harm business.
In addition, we rely on other third parties to provide services enabling
our operations. We could become subject to infringement actions by third
parties based upon the use of intellectual property provided by third-party
providers. It is also possible that we could become subject to infringement
actions based upon the content licensed from third parties. Any such claims or
disputes could subject us to costly litigation and the diversion of our
financial resources and technical and management personnel.
Further, if efforts to enforce our intellectual property rights are
unsuccessful or if claims by third parties against us are successful, we may be
required to pay financial damages or alter our business practices.
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. There can be no assurance that other
companies will not acquire and use information which we consider to be
proprietary.
System Disruptions
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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,
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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 web site, 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 web
site. 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.
Failure of Online Security Measures
- -----------------------------------
Our relationship with our customers would be adversely affected if the
security measures that we use to protect their personal information are
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 it 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.
The failure of our systems and technicians to verify that users accessing
our technical support services have purchased the right to do so either directly
or indirectly may increase our costs and have a material negative impact on our
profitability.
Development and Maintenance of the Internet and the Availability of Increased
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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 web site without
significant delays or aggravation that may be associated with decreased
availability of Internet bandwidth and access to our web site and PC 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 the 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
8
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 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
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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 Telecommunications Act of 1996 sought
to prohibit transmitting certain types of information and content over the web.
Several telecommunications companies have petitioned the 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 the Company. 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 provinces 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 Freedom Act of 1998, imposes only a three-year
moratorium ending on October 21, 2001 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.
9
Collection of Taxes
- -------------------
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 which may have a material adverse
impact on our business.
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
. rapid changes in the mix of support services delivered online, with or
without technician assistance, and with telephone or other media
. fluctuations in the levels of user visits to our web site and the amount
of time that users spend on the web site
. new web sites, services or products introduced by us or by our
competitors
. general economic conditions, as well as economic conditions specific to
users of our services and the public markets for Internet-related
companies
. the emergence or entrance of new and larger competitors
Risks of Selling to Large and Medium-sized Enterprise Customers
- ---------------------------------------------------------------
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 little experience to date in
understanding or anticipating the complex and rapidly changing needs of such
corporations, we may need to constantly revise and expands 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 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 resulting from selling into the large
10
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.
Risks of International Operations
- ---------------------------------
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. Similarly, we anticipate expanding our subscriber
base and other operations in other countries, which may expose us to
difficulties and costs of staffing and managing these operations, differing
technology standards, dependence on local vendors and changes in currency
exchange rates and controls.
Risks of Product Liability
- --------------------------
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.
Executive Officers, Directors and Major Stockholders Exercise Significant
- -------------------------------------------------------------------------
Control
- -------
As of February 26, 2001, our executive officers and Directors and the
holders of 5% or more of our outstanding common stock together beneficially
owned approximately 45% of our outstanding common stock. These stockholders are
able to significantly influence all matters requiring approval by stockholders,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying, deterring or preventing a change in control and may make some
transactions more difficult or impossible to complete without the support of
these stockholders.
Common Stock Price May Be Volatile
- ----------------------------------
The market prices of securities of Internet and technology companies are
extremely volatile. Factors that may contribute to the volatility of the trading
price of our common stock include, among others:
. public announcements of technical innovations relating to our business,
new products or services by us or our competitors, or acquisitions or
strategic alliances by us or our competitors
. public reports concerning our services or those of our competitors
. the announcement of large and noteworthy business deals by our
competitors or us
11
. our quarterly results of operations
. the variance between our actual quarterly results of operations and
predictions by stock analysts
. financial predictions and recommendations by stock analysts concerning
Internet companies and companies competing in our market in general, and
concerning us in particular
. the operating and stock price performance of other companies that
investors or stock analysts may deem comparable to us
. the general investment climate and the climate for technology and
Internet-related public companies, which has historically been very
volatile
In addition to the foregoing factors, the trading prices for equity
securities in the stock market in general, and of technology and Internet-
related companies in particular, have been subject to wide fluctuations that may
be unrelated to the operating performance of the particular company affected by
such fluctuations. Consequently, broad market fluctuations may have an adverse
effect on the trading price of our common stock, regardless of our results of
operations.
Limited Market for Our Common Stock
- -----------------------------------
Although our common stock is quoted on the OTC Electronic Bulletin Board,
there is only a limited market for our common stock, and there can be no
assurance that this market will be maintained or broadened. The market price
for shares of common stock is likely to be very volatile, and numerous factors
beyond our control may have a significant effect on the market for these shares.
Substantial Sales of Common Stock Could Cause Stock Price to Fall
- -----------------------------------------------------------------
As of March 9, 2001, we had outstanding 15,786,662 shares of common stock,
of which approximately 12,753,648 shares were "restricted securities" (as that
term is defined under Rule 144 promulgated under the Securities Act of 1933).
Currently, 8,870,493 of these restricted shares, as well as an additional
2,820,838 shares underlying currently exercisable options and warrants, are
eligible for sale pursuant to registration statements that include the shares
covered by this prospectus. In addition, a substantial portion of the remaining
restricted shares are currently eligible for sale under Rule 144.
No prediction can be made as to the effect, if any, that sales of shares of
common stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of common stock may be sold in the public market may
adversely affect prevailing market prices for our common stock and could impair
our ability to raise capital through the sale of our equity securities.
The Common Stock May Be Deemed "Penny Stock" and Therefore Subject to Special
- -----------------------------------------------------------------------------
Requirements
- ------------
Our common stock may be deemed to be a "penny stock" as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934.
Penny stocks are stocks (i) with a price of less than five dollars per share;
(ii) that are not traded on a "recognized" national exchange; (iii) whose prices
are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks
must still meet requirement (i) above); and (iv) in issuers with net tangible
assets of less than $2,000,000 (if the issuer has been in continuous operation
for at least three years) or $5,000,000 (if in continuous operation for less
than three years), or with average revenues of less than $6,000,000 for the last
three years.
12
Section 15(g) of the Securities Exchange Act of 1934, and Rule 15g-2
promulgated under the Securities Exchange Act of 1934, require broker-dealers
dealing in penny stocks to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account. Moreover, Rule 15g-9 promulgated under the
Securities Exchange Act of 1934 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the broker-
dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in our common stock
to resell their shares to third parties or to otherwise dispose of them.
USE OF PROCEEDS
This prospectus relates to an aggregate of 11,691,331 shares of common
stock that may be sold from time to time by the selling securityholders,
including 2,820,838 shares that are issuable upon the exercise of outstanding
options and warrants. Although we will pay the expenses of registration of
these shares, including legal and accounting fees, we will not receive any
proceeds from the sale of the shares. We will receive the exercise price of any
of the warrants or options which are exercised. We intend to use these proceeds
for working capital. If such warrants and options are exercised for cash, we
will receive a total of $ 4,834,176.
OUR BUSINESS
Business Development
- --------------------
We are a corporation that was formed under the laws of the State of Nevada
on June 23, 1999 pursuant to the merger (the "Merger") of PCSupport.com ("PCS")
and Reconnaissance Technologies Inc. ("RTI"). PCS was the resulting entity from
a prior merger of PCSupport.com and Mex Trans Seafood Consulting Inc. ("Mex
Trans"). Mex Trans was incorporated in the State of Texas on February 13, 1989
under the name "Mutual Produce, Inc." and later changed its name to "Mex Trans
Seafood Consulting, Inc."
RTI was incorporated in British Columbia, Canada, on December 10, 1997 for
the purpose of engaging in the development and provision of notebook computer
support services to end users through the Internet. Prior to the Merger, PCS
(and its predecessor, Mex Trans) did not have any active business and had only
nominal assets and liabilities and was seeking to acquire a new business. In
early 1999 RTI was seeking further capital to develop its business and to merge
with a public entity to provide liquidity for its shareholders. Management of
RTI and PCS began discussions for a merger of the two companies in March 1999.
In anticipation of the Merger, Mex Trans merged on April 7, 1999 with PCS, a
Nevada corporation incorporated on that date solely for the purpose of
transferring the corporate jurisdiction of Mex Trans to Nevada. In April 1999,
in anticipation of the Merger, PCS completed a private placement of its common
shares that generated gross proceeds of approximately $950,000. The shares to
be issued in and proceeds from this private placement were placed in escrow and
released upon completion of the Merger.
13
RTI and PCS entered into a formal merger agreement on May 5, 1999, and the
following transactions were carried out to complete the Merger:
(a) Each of RTI and PCS obtained shareholder approval for the Merger;
(b) PCS underwent a reverse split of its common stock on a 15 old shares
for one new share basis;
(c) RTI transferred its governing corporate jurisdiction from British
Columbia to Wyoming; and
(d) RTI merged with PCS.
In the Merger, each shareholder of RTI received one share of our common
stock for each five shares of RTI held. Each shareholder of PCS received one
share of our common stock for each share of PCS held. Each holder of outstanding
warrants of RTI received one warrant of the Company for each five warrants of
RTI held. (See "Market for Common Equity and Other Shareholder Matters" below
for a description of outstanding warrants.)
The Company has a wholly-owned subsidiary, Reconnaissance International
Ltd., a British Virgin Islands company. The subsidiary has no assets or
liabilities.
Business of the Company
- -----------------------
Principal Products and Services and their Markets
Market Overview
Personal computers ("PCs"), both desktop and laptop or notebook types,
suffer from a wide variety of technical problems that occasionally impair their
performance, causing lost productivity and frustration for end-users. For
example:
. PC hardware, software, drivers, and operating systems (and their
interaction) have become more complex, and this is causing an increasing
number of problems. As a result, computer crashes can occur, resulting
in lost data and unscheduled downtime.
. Software publishers continually issue bug fixes. End-users, however, are
typically not aware of, nor do they know how to find, bug fixes on the
Internet and install them on their PCs.
. Over time, PC hard drives become cluttered with temporary files, missing
drivers for applications and hardware peripherals. The registry, which
acts as the "table of contents" for the PC can also become cluttered and
disorganized. The hard drive becomes fragmented from normal use.
Consequently, over time, the PC performs more slowly, and is subject to
crashes. Often, the end-user is not aware that he or she has a problem.
In response, the Windows 95/98/2000/NT operating systems provide a
utility for users to de-fragment their hard drives.
. PCs are often subject to configuration problems, in which the various
software, hardware and operating systems cannot communicate with each
other.
. PCs are continuously vulnerable to the advent of new viruses which are
designed to impair their operation or destroy the user's data.
14
. Frequently, the dialer program that end-users invoke to access the
Internet using a dial-up connection becomes corrupted, preventing them
from logging on.
With respect to the technical problems described above, until recently, the
end-user had only a few inefficient and costly options to obtain technical
support. End-users in a large corporation typically have skilled technicians
employed in a management information systems ("MIS") group to assist them, but
SME, SOHO and home end-users have to rely on themselves and volunteers.
Hardware manufacturers and software publishers (collectively, "vendors") provide
access to libraries of support information over the Internet, but these data
bases are typically voluminous and hard for the end-user to navigate.
Alternatively, the end-user can phone one of the many help desks operated by
these vendors, but the process is often time-consuming and frustrating for the
end-user and very expensive for the vendor or the end-user.
End-users can also purchase utilities from a local software retailer, such
as a disk maintenance package. Finally, the end-user can either bring his PC
into a depot repair facility or call a local PC service company to send a
technician to the end-user's place to repair the problem. Both of these latter
options are expensive, and can result in several days of lost productivity for
the end-user.
In sum, the traditional options for the solution of technical problems for
PCs are inefficient and expensive, both for the PC end-user and the vendor
supplying the technology. The result is a high level of dissatisfaction among
end-users with the reliability and ease of use of personal computers, and
increasing costs of support among vendors.
The growing popularity of the Internet provides new options to
significantly improve the levels of satisfaction among end-users and to lower
the costs of support among vendors. From 1998 onwards, many companies began to
offer solutions to PC support problems over the Internet. As described below
under "Competitive Business Conditions and the Company's Competitive Position,"
several companies offered point solutions to a narrow range of problems,
including but not limited to the following:
. Online virus scans and download and update of virus solution libraries.
. Knowledge bases of solutions to technical problems, many with natural-
language search engines to allow easier access to end-users.
. Email and online chat access to technicians.
. Online updates for drivers and software bug fixes.
. Technical forums where users can ask questions online and have them
answered by one or more technicians loosely affiliated with such online
technical forum.
. Remote diagnostic and repair technologies.
A support portal is a destination on the World Wide Web dedicated to
providing technical support services for PC end-users. In 1999 and 2000, the
first of the support portals were introduced, with the Company and several other
companies, including McAfee.com, all.com, MyHelpDesk.com, and Service911
(recently renamed "Attenza") among those launching support portals. The largest
PC manufacturers, including Dell, IBM, HP, Toshiba, Gateway and Micron,
introduced support portals in 2000. In general, these support portals aggregate
a number of point solutions to solve a broad range of PC technical problems.
15
We have developed and implemented, and continue to improve upon, a suite of
services to address the technical needs of PC users described above.
Market Segmentation
PC users can be segmented into three categories. Users in large
corporations typically have MIS departments from which to access technical help.
SME PC users have all of the same technical problems, yet generally do not have
an MIS department for support. The third segment, SOHO or individual users, are
often completely on their own.
Currently, we are primarily marketing to businesses with technical support
obligations to their own clients and/or employees. The revenue sources will
include one-time fees from customized support center development, subscription
fees from the service packages and fees from incidental support services,
including Internet-based and telephone support services delivered through the PC
Support Application.
Products and Services
Our primary service, the PC Support Application, is a web-based mechanism
for delivering support services for PCs to corporations for their employees and
customers which aggregates a number of support technologies, including
interactive online technical trouble-shooting, a user self-help knowledgebase,
hard disk maintenance and other automated support tools. We also offer the PC
Support Center to individual retail and SOHO customers. The Support Center, our
first product offering in the online support market, is a web site similar to
the Support Application, aggregating a number of different support technologies
and services, including telephone support. Previously, we offered Online Data
Backup, an on-line backup service for notebook and desktop computers and
Phoenix, which allowed a notebook user to transfer a full-image of all data,
applications, preferences and settings to a new notebook. However, we recently
discontinued both Online Data Backup and Phoenix.
PC Support Application
We have developed the PC Support Center, a web-based support portal
offering the services of the PC Support Application, for all PC users to provide
a service which will react to technical problems and pro-actively maintain the
user's computer to prevent problems from occurring. The first version of the PC
Support Center was launched on our web site, www.pcsupport.com, in October 1999.
The PC Support Center aggregates various technical solutions, such as
interactive online technical trouble-shooting, a user self-help knowledgebase,
hard disk maintenance and other automated support tools.
In July 2000, we launched an eCommerce engine, introduced 24 x 7 service
(24 hours per day, seven days a week), segregated certain of our previously-free
services and introduced a premium service for which we charge subscribers. Such
services include Live Assist and Remote Repair, services in which the end-user
can engage a technician in an online chat session to solve technical problems
and provide advice, and with the user's permission, take control of the end-
user's PC and solve the problem online while the end-user watches. The premium
service package also includes four-hour turnaround on email requests for
service.
In November, 2000, we completed the acquisition of the assets and certain
liabilities of MyHelpDesk, Inc. which allowed us to incorporate a comprehensive
searchable knowledgebase to solutions to support problems for thousands of
computer hardware and software products.
16
We then integrated the features of the PC Support Center and MyHelpDesk and
launched a new service, the PC Support Application, for corporations to enable
them to support their employees and customers. We intend to add new functions
to the PC Support Application during the fiscal year ending June 30, 2001,
including a deeper personalization of support services specific to each end-
user's configuration and usage, and stand-alone services such as telephone
support, an electronic birth certificate, and an Internet dialer module. We
also will incorporate a data base of support incidents from all users and a
comprehensive reporting system which is under development for us by a third
party. We also plan to further develop the architecture of the PC Support
Application to maintain a comprehensive data base of support incidents and
subscriber statistics to provide continuous feedback to the online support
process.
We offer the PC Support Application to companies to enable them to provide
technical support to their employees and customers. In this case, we develop a
branded version of the PC Support Application with our corporate customer's
logo, look and feel. The customer then offers this version to its employees and
customers.
Individual users can become subscribers to the PC Support Center simply by
registering on our web site and paying an annual fee.
It is our intent to market the PC Support Application to the corporate and
SME market segments or through strategic partnerships with ISPs, hardware
manufacturers, extended warranty providers, computer services companies, and
distribution channels serving consumer end-users. We are maintaining, but not
promoting, the PC Support Center at this time.
Distribution Methods of Products and Services
We intend to employ a distribution strategy that targets corporate and SME
users, with the goal of positioning ourselves as the leading provider of online
computer technical support services. We will market our services through
branded support portals to corporate and SME users.
Corporate and SME Customers
We market and sell the PC Support Application to large and medium-sized
corporations, and to companies such as ISPs, PC vendors, and software vendors,
that by the nature of their business are required to provide technical support
to their customers. Many such companies are now paying significant sums to
provide support to their users by employing traditional methods such as
telephone call centers and dedicated MIS centers. We believe that our corporate
customers and partners will benefit from better support to their employees and
customers as follows:
i. Reduced Costs
Since many support problems will now be solved through the PC Support
Center, providers will significantly reduce their internal support costs.
ii. Improved Productivity
By providing a customized, comprehensive, and easy-to-use site at which
users' computers can be easily maintained, and where many problems in using
applications can be more easily solved, fewer problems are likely to occur, and
will be more easily solved. Computer users will become more productive in the
use of their computers. Customers of companies supplying our services will also
become more likely to purchase additional products and services from the vendor.
17
iii. Tech Support Center Becomes More Productive
The PC Support Application will reduce the involvement of trained
technicians in solving many problems, and reduce the time required to solve
problems when their help is required. The technicians will become more
productive.
Our corporate partners include the following types of companies:
Internet Service Providers (ISPs)
We have sold and are seeking to sell the PC Support Application to
additional companies offering Internet access to enable them to provide
technical support to their users. In August 2000, we entered into an agreement
with TELUS, Canada's second largest telecommunications provider, to provide
certain of our online support services to TELUS subscribers, for which TELUS
agreed to pay us fees, a portion which has already been paid. As of February,
2001, we have sold the PC Support Application to several other small ISPs.
Resellers
There are several large international resellers and systems integrators of
computer services whose market focus is large corporations. Each has long-
standing relationships with its current client base and are constantly looking
for new products and services.
In April 1999, we entered into a two-year agreement with one such systems
integrator, Unisys of Canada Inc. ("Unisys"), an international computer service
company. Pursuant to the terms of this agreement, Unisys was marketing the
Online Data Backup Suite under its own brand name to Unisys's corporate
customers. Unisys agreed to pay us a fee equal to 75% of our suggested list
price for the Online Data Backup services. Recently, Unisys has begun actively
selling our PC Support Application, and discontinued marketing of our Online
Data Backup product. We intend to enter into a reseller agreement with Unisys
on similar terms to the current agreement for the resale of the PC Support
Application.
We intend to expand our marketing activities to include other large
international resellers. There can be no assurance that any further agreements
will be reached with any resellers.
Distribution Channels
We are developing relationships with corporations who distribute computer
services to their customers. In September, 2000, we signed an agreement with
BT, formerly known as British Telecom, a large Telco serving the United Kingdom.
Under the terms of the agreement, we will build a branded support portal for BT,
called BT24X7.com, to serve the customers of BT's SME Division. After a trial
period which began in November, 2000, BT will market our support services to
their 3,000,000 SME customers.
Direct Sales
We have begun to develop a direct sales force to market our services
directly to large corporations and SMEs in the United States and Canada. As of
February 12, 2001, seven sales people are selling directly to potential
customers, supplemented by the efforts of our senior management.
18
Direct to Consumer
Any PC Internet user can become a subscriber to the PC Support Center by
visiting the Center at www.pcsupport.com and registering. Through online
-----------------
searches, word-of-mouth, our own web marketing efforts, and reviews in the
computer trade print and online journals, subscribers have registered from
approximately 169 countries. In November, 2000, we increased our annual
subscription fee to $149, although the Center is not currently generating
significant revenues.
In April 2000, we entered into a strategic alliance with AltaVista Company,
a leading search and information marketplace. Pursuant to the agreement, we
built a branded HelpDesk support portal for AltaVista which we launched in July
2000. In November 2000, we reached an agreement with AltaVista under which we
paid a portion of the accrued balance that we owed AltaVista and terminated the
agreement with no further financial obligations.
We are not actively promoting the PC Support Center at this time.
Revenue Generation
We intend to earn revenues in any or all of the following ways:
i. Subscriber Fees
For improving the level of customer satisfaction for these partners, and
lowering the costs of providing support to their users, we intend to charge the
partners a fee per user per month.
ii. Commissioning Fees
We may private-label the PC Support Center for our partners so that the
partners can offer our services under the partners' own brand names. We will
charge a commissioning fee for such customization.
iii. Software Sales
We will include discrete components of our support software in sales to
distribution channels.
IV. Per-incident Fees
We may sell support services individually as an end user requests them and
charge an incident fee, including telephone support.
V. Premium Services to Individual Users
In July, 2000, we launched a package of premium services as part of our PC
Support Center, including Email and Expert, Live Chat with an Expert, and
Desktop Sharing, for which we now charge subscribers an annual fee of $149. We
are not actively promoting the PC Support Center at this time and do not expect
to earn significant revenue from it.
There can be no assurance that we will be able to negotiate agreements that
will generate sufficient revenue or profits for us. Failure to successfully
negotiate such agreements will have a material adverse impact on our business.
19
Technology Acquisitions
In addition to our own research and development, we seek to acquire
technology, software and products to enhance our products and services through
licensing agreements and purchases. Such acquisitions include the following:
Remote Diagnostics, Inc.
In July 2000, we received a worldwide, nonexclusive, irrevocable license
for software from Remote Diagnostics, Inc. that enables us to customize and
improve dial-ups and DSL connections of end-users to their ISPs and the
Internet. The license fee was 100,000 shares of our common stock, plus $100,000
in cash. We are obligated to issue warrants for up to an additional 266,666
shares of our common stock if we reach certain sales milestones.
Tavisco Ltd.
On September 15, 2000, we acquired substantially all of the assets of
Tavisco Ltd. ("Tavisco"), a producer of anti-virus services and products.
Tavisco. designs, develops and provides state-of-the-art virus diagnostic
products for computer service professionals. Its products include virus scanners
and cleaners, a full-featured anti-virus protection system, and a rapid
screening test that protects against virus infections. The purchase price for
Tavisco's assets consisted of 200,000 shares of our common stock (with up to
100,000 of these shares subject to cancellation under certain circumstances) and
a cash payment of $50,000. In November 2000 we agreed to assign back to Tavisco
certain of the intellectual property that we had acquired from Tavisco, and
Tavisco agreed to the cancellation of 50,000 shares of the common stock which
were subject to cancellation under certain circumstances. We intend to develop
an Internet version of Tavisco's virus-scanning software to provide online
scanning and virus removal in the future, but are not actively developing any
virus remediation software at this time.
MyHelpDesk, Inc.
In November, 2000 we acquired all of the assets and certain liabilities of
MyHelpDesk, Inc. a provider of live technical support, proactive maintenance
services, software updates, virus scans, online backup, email support
newsletters and an extensive knowledge-base of computer self-help directories.
This allowed us to incorporate the world's largest directory of computer help
and productivity resources into the PC Support Application.
Under the terms of our asset purchase agreement with MyHelpDesk, we issued
1,000,000 shares of its common stock to MyHelpDesk and is required within twelve
months following this initial issuance to issue an additional 387,500 shares of
common stock to MyHelpDesk and 112,500 shares of common stock to eight former
employees of MyHelpDesk, with the number of shares to be issued in the
subsequent issuances being subject to reduction in the event we assume
additional liabilities upon certain breaches of the representations and
warranties of MyHelpDesk under the Asset Purchase Agreement.
Competitive Business Conditions and the Company's Competitive Position
We are an early development stage company with no history of earnings.
While we believe that the aggregation of our services is unique, there are only
limited barriers to entering into the field of PC support services. And, while
we expect competition to intensify in some areas, we are also seeing a decrease
in competition in others due to the consolidation and elimination of companies.
Although few competitors may be able to provide services similar to our services
just as efficiently, many of our potential competitors have substantially
greater financial, marketing, service, customer support and research and
development resources than we do. Additionally, while we are optimistic, there
can be no
20
assurances made that we will be able to develop a market for any of our services
against these competitors.
PCsupport.com Product Offering
There are many vendors of computer support and service components, posing
direct and indirect competition to our product offering. We are among the first,
though, to integrate several support technologies and mediums, as well as among
the first to implement a proactive service such as the PC Support Application.
Our product is PC and/or software vendor independent.
The competitive landscape is changing rapidly. Our existing competitors
frequently revise and augment their offerings, and we encounter new direct and
indirect competitors on a regular basis. We expect the competitive picture to
continue to evolve, changing rapidly for the foreseeable future. We are
currently aware, though, of the following competition to our product offerings:
. Attenza (formerly Service911) claims to be the leading provider of
eSupport solutions. Attenza's delivery infrastructure, Webskin, combines
content, interactive services, and analysis to enable enterprises to
support and train their customers, employees, and partners via the
Internet. Attenza offers a suite of eSupport products and services - which
include email support, live chat support, self-help, and dispatch (onsite)
support. Through acquisitions, the company now offers free drivers and
elearning tools (video tutorials). Attenza has refined its business model
and added functionality to target both external technical support markets
and internal help desk markets. Attenza intends to target both the
eSupport and eLearning markets.
. ePeople (formerly NoWonder.com) bills itself as an online marketplace for
IT services and technical support. They provide technology vendors and IT
departments with web-based technology solutions to support customers and
manage internal and external support resources. ePeople develops co-
branded technical support sites and creates, hosts and maintains partner
gateways to their marketplace. They provide a diagnostic program,
collaborative support (desktop sharing), live help (by chat or email),
online access to session history, and a billing and tracking system. They
also offer a consolidated reporting feature.
. All.com launched a support portal offering remote repair in 2000. All.com
recently suspended operations, and, therefore, no longer competes in this
space.
We are also aware of indirect competitors who have launched competitive
offerings to the PCsupport Center. These include:
. Techknow-how.com - launched by the Rivus Internet Group, an independent
spin-off company of Stream International, one of the world's top
outsourced call centers - provides an online support portal competitive to
the PCsupport.com offering. Techknow-how.com bills itself as a one-stop
technical support and computer wellness Web site for small businesses.
This competitor offers online chat, email assist, technical support
forums, software updates, and other services that compete with our product
offering.
. Sykes - another of the world's top outsourced call centers - created
AnswerTeam to provide support to end-users via the Web. Sykes AnswerTeam's
mission is to create and provide solutions to help people use technology.
Sykes AnswerTeam offers end-users 24x7 support, multimedia tutorials,
application protection and repair, knowledge base access, personalized PC
support, online backup, and virus scanning and repair.
21
Other companies offer all or some of the following services: technical
support forum, expert advice, technical knowledge base, and answers to
frequently asked questions (FAQs), including 32bit.com, about.com,
computing.net, Ehow.com, GoofyGuys.com, Knowledge Brokers, and VirtualDr.com.
Also, there are companies that offer online information exchanges, including
ExpertCity, Exp.com, Experts Exchange, and Hot Dispatch. ExpertCity also has
created a support infrastructure product that enables support personnel to share
a user's desktop to help find a solution to their problem (desktop sharing).
Competition also exists from firms that are selling individual features
that compete with one or more of the services of the PCsupport.com offering. For
example, support software and services are sold in conjunction with a number of
companies producing support software that feature extensive knowledge bases, and
remote diagnoses and fixes. The prominent companies in this group include Motive
Communications and Support.com. Support.com also provides the service technology
infrastructure to allow other companies to build their own support portal. Other
similar firms include Aveo Inc., and INFACT Technologies.
We also see competition from utilities manufacturers and distributors. The
PC Support Center includes diagnostic, automatic upgrades and driver updates,
and disk maintenance, segments that are already served in the computer services
marketplace. Competitors are found in established brands such as McAfee.com,
Symantec's Norton Web, ZDNet, and Catch*Up from CNET. Additionally, PC
Pitstop.com offers users a number of detailed analyses of their PCs' hardware,
software, and operating system.
Hardware and software vendors are also potential competitors. Notebook
computer manufacturers such as Dell, Compaq and IBM already bundle a level of
support services with their product, as do other large firms in the industry,
such as Intel and Microsoft. Previously, computer manufacturers, including,
Micron, Hewlett Packard, and Toshiba launched support portals, which could
compete with our PCsupport Center offering in the future.
Partnerships continue to occur among various competitors. Attenza has
announced partnerships with McAfee.com, Support.com, and OnTrack. The now-
defunct All.com had very strong ties to Motive, while ePeople lists Support.com
and McAfee.com amongst it's partners, and has created a support Web site for
consumers, students, and small businesses with SITEL, named Seek The Geek.
We believe that the PC Support Center's strongest competitors presently
include Techknow-how.com, AnswerTeam, ePeople, and Attenza, and from the various
partnerships that they may form.
Sources of Materials
There are no significant materials which we require to carry on our
operations other than servers, Internet access equipment, and telephone lines.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements,
or Labor Contracts
We do not hold any patents or trademarks. We are in the process of applying
for certain trademarks, including "pcsupport.com," but there can be no assurance
that any such applications will be granted. We currently hold the following
domain names: PCSUPPORT.com, GLOBALREPLACE.com, PCREPLACE.com, PDASUPPORT.com,
PCSUPPORTCENTER.com, PCSUPPORTCENTER.net, PCRESTORE.com, RECON-TECH.com,
MYHELPDESK.com, MYHELPDESK.net, MYHELPDESK.org, MYHELPDESKSUCKS.com,
FIRSTHELP.com, FIRSTHELP.org, 1STHELP.com, 1STHELP.net, and 1STHELP.org. We are
also applying for certain similar domain
22
names in jurisdictions outside North America. Domain names are obtained by
applying to Network Solutions, Inc., or one of a small number of other companies
competing to register domain names, and paying a fee to register each unique
domain name. While we have registered the foregoing domain names, there can be
no assurance that we will be able to maintain these names in the future, or
register further domain names, should we so require. The loss of the domain
names could result in confusion for our customers, and a resultant loss of
goodwill. In particular, the loss of the domain names PCSUPPORT.COM and
MYHELPDESK.com would have a material adverse impact on our business.
There can be no assurance that third parties will not bring claims of
copyright, patent or trademark infringement against us or claim that certain of
our products, technology, processes or features violate the patent rights or
other intellectual property rights of others. There can be no assurance that
third parties will not claim that we have misappropriated their creative ideas
or formats or otherwise infringed upon their proprietary rights. Any claims of
infringement, with or without merit, could be time consuming to defend, result
in costly litigation, divert management attention, or require us to enter into
costly royalty or licensing arrangements to enable us to use important
technologies or methods, any of which could have a material adverse effect on
our business, financial condition or operating results.
Regulation
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulation applicable to businesses
generally. However, due to the increasing popularity and use of the Internet, it
is possible that a number of laws and regulations may be adopted with respect to
the Internet or covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. Such new regulations would require us to expend significant resources
to understand and comply with such regulations, which may have a material
adverse impact on our business.
We do not believe that current regulations governing the Internet and
computer service industry will have a material effect on our current operations.
However, various federal and state agencies may propose new legislation that may
adversely affect our business, financial condition and results of operations.
Research and Development
From inception until June 30, 1998, for the year ended June 30, 1999, for
the year ended June 30, 2000, and for the six months ended December 31, 2000, we
and our predecessor, RTI, expended approximately $2,814, $17,646, $923,259 and
$677,853, respectively, on the development of our services. We expect to
increase research and development expenditures during the fiscal year ending
June 30, 2001, consisting primarily of the development of additional functions
for the PC Support Application.
Employees and Contractors
As of February 28, 2001, we had 59 full-time employees employed as
follows:
Employees
---------
Administration 9
Research and Development 19
Marketing and Sales 17
Technical Support 14
23
We also purchase technical support to deliver our email assist, live assist
and remote repair services provided through the PC support center from
Firstring, Inc., a Delaware corporation with offices and technicians in India,
and Advantage, a Canadian company based in Prince Edward Island.
Principal Business Facilities
We maintain our principal place of business at Suite 300, 3605 Gilmore Way,
Burnaby, British Columbia, Canada V5G 4X5, where we lease approximately 24,750
square feet at an annual rate of (Cdn) $17.00 per square foot, plus operating
costs of approximately (Cdn) $7.00 per square foot per year. This lease will
expire on August 31, 2005. In January, 2001, we entered into an agreement with a
third party to sub-lease approximately 8,250 square feet of such space at a rate
of $15.00 per square foot plus all operating costs for the balance of the lease
term. Pursuant to the acquisition of MyHelpDesk, we also lease 8,302 square feet
at an office in Norwood, Massachusetts, for an average annual rent of $67,600.
This lease expires in February, 2002. We intend to sub-lease all of the space in
Norwood if such sub-lease can be arranged on suitable business terms. We
anticipate that the space provided by our current facilities will be sufficient
to meet our requirements for at least the next twelve months.
24
Investment Policies
We currently have no policies regarding the acquisition or sale of assets
primarily for possible capital gain or for income. We do not presently hold any
investments or interests in real estate mortgages or securities of or interests
in persons primarily engaged in real estate activities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
We are a provider of outsourced technical support solutions for businesses
and consumers. We specialize in providing online, proactive, and user-focused
technical support (eSupport) services to personal computer users worldwide. Our
PC Support Center offers a comprehensive eSupport solution to consumers which is
designed to reduce technical support costs and increase user satisfaction. We
provide eSupport solutions through the PC Support Application to businesses
which have an obligation to provide technical support to their employees or
customers.
Six Months Ended December 31, 2000 Compared With Six Months Ended December 31,
- ------------------------------------------------------------------------------
1999
- ----
Revenue
License fee revenue increased by $27,260 in the six months ended December
31, 2000 over the six months ended December 31, 1999, primarily due to the
introduction of a user fee in July 2000 for use of the PC Support Center.
Services and other revenue, which increased by 399,649 for the six month period
ended December 31, 2000, compared to the prior period for 1999, was primarily
earned from commissioning fees and the sale of eSupport services. One customer
accounted for 84% of the services and other revenue recorded in the six months
ended December 31, 2000.
Cost of License Fees and Services
Cost of license fees and services consists of direct labor and related
costs associated with delivering eSupport services through the PC Support Center
and PC Support Application, including payments to third parties, and costs of
license fees under technology license agreements. Cost of license fees and
services increased by $794,019 for the six months ending December 31, 2000 over
the six months ended December 31, 1999 due to the increase in personnel required
to maintain the PC Support Center and PC Support Application, outsourcing
agreements with third parties to provide technical support and recently acquired
technology licenses. We 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 increased by $305,234 for
the six months ended December 31, 2000 over the six months ended December 31,
1999, primarily due to an increase in research and development personnel. Our
primary research and development effort will be to continue to add features to
the PC Support Application and to release subsequent versions during the next
year. Due
25
to the constantly evolving nature of the Internet and 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 PC Support Application.
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 $1,057,365 during the six months
ended December 31, 2000 over the six months ended December 31, 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. In November
2000, we terminated one advertising agreement, significantly reducing marketing
and promotion current period expenses and future commitments.
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 to $1,342,933 for the six months ended December 31, 2000 from $488,733
for the six months ended December 31, 1999. The increase was primarily due to an
increase in the number of administrative personnel and increases in legal,
accounting and other consulting costs incurred in connection with the expansion
of business activities and our 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. Stock-based compensation expense for the six months ended December 31,
2000 totaled $177,751, a decrease from $252,611 for the six months ended
December 31, 1999. These compensation expenses relate to options awarded to
individuals in all operating expense categories. Total deferred stock
compensation as at December 31, 2000 is being amortized over the related vesting
periods of the options.
Interest Income, Net
Net interest income for the six months ended December 31, 2000 increased by
$150,113 over the six months ended December 31, 1999 balance of $7,984. This
increase is primarily due to interest earned on the net proceeds obtained from
recent financings.
Year Ended June 30, 2000 Compared With Year Ended June 30, 1999
- ---------------------------------------------------------------
Revenue
Revenue generated by PC Support Center and online backup services was
$29,482 for the year ended June 30, 2000. For the year ended June 30, 1999,
total revenue was $99. Service and other revenue was primarily earned from the
development of a privately-branded support gateway. One customer accounted for a
substantial majority of the revenue recorded in the period. We expect the number
of subscribers to the PC Support and branded portal revenue to increase rapidly
over the next year.
26
Cost of Support Center and Online Backup Services
Cost of support center and online backup 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 $197,080 over the
prior year 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. We had anticipated that there would
be a significant lag between incurring the expenses to support the PC Support
Center and generating significant revenues from these expenditures.
Development Costs
Development costs consist primarily of payroll and related expenses for
research and development personnel and outsourced development. Development costs
increased by $905,613 over the prior fiscal year primarily due to an increase in
research and development personnel. Our 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, we will continuously monitor changes
in PC support technologies and Internet-based support offerings with the goal of
adding additional functionality to the PC Support Application.
Marketing and Promotion
Marketing and promotion expenses consist primarily of payments to third
parties for web portal advertising and payroll and related expenses for
marketing personnel. Marketing and promotion expenses increased by $1,300,192
over the prior fiscal year 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. We plan to increase marketing efforts for our services
through direct and indirect channels, including PC manufacturers, OEMs, computer
service companies and direct sales.
General and Administrative
General and administrative expenses consist 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 $1,148,627 in the year ended June 30, 2000 over the prior fiscal
year. This increase was primarily due to an increase in legal, accounting and
other consulting costs incurred in connection with the expansion of business
activities and our 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. We recorded stock compensation expense of $412,246 during the year
ended June 30, 2000 as compared with $486,191 in the prior fiscal year. This
compensation expense relates to options awarded to individuals in all operating
expense categories. Total deferred stock compensation is 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. Net interest expense was $2,756,572 for
the year ended June 30, 2000 as compared with $6,513 for the prior fiscal year.
The majority of this expense was a non-cash charge primarily due to a
27
beneficial conversion feature related to the issuance of convertible promissory
notes on February 29, 2000 and certain warrants in connection with this
financing. The notes, including $16,666 in accrued interest, were converted in
May 2000 into 508,333 of our common shares.
Liquidity and Capital Resources
Net cash used in operations was $3,357,909 for the six months ended
December 31, 2000 compared to $818,484 for the same period in the prior year.
Net cash used in operations in the six months ended December 31, 2000 was
largely the result of net losses and an increase in trade receivables, partially
offset by reductions in prepaid expenses and deposits and an increase in
deferred revenue. Net cash used in investing activities was $1,950,777 for the
six months ended December 31, 2000 representing an increase of $1,796,463 over
the six months ended December 31, 1999. The increase was primarily due to the
cash costs of acquisitions and investment in equipment and licenses during the
period. Net cash provided by financing activities was $1,939,461 for the six
months ended December 31, 2000 compared to $558,266 for the same period in the
prior year. The significant increase is primarily due to the receipt, in
November 2000, of approximately $1,810,000 of net proceeds from a private
placement of our securities.
We had working capital of $1,664,717 as of December 31, 2000. Subsequent
to December 31, 2000, we received net proceeds of $1,609,500 from a private
placement of our securities. As of December 31, 2000, our principal commitments
consisted of obligations under operating leases. These commitments and the
execution of our business plan, together with the funding of anticipated
operating losses, will require working capital in excess of our current cash
reserves, which we believe are sufficient to sustain our operations at current
levels until at least June 2001.
We anticipate funding our working capital requirements through proceeds
from private placements together with future revenues generated from customers.
We do not currently have any commitments from any third party to provide
additional financing and may be unable to obtain financing on reasonable terms
or at all. Furthermore, if we raise additional working capital through the sale
of equity securities, our shareholders will experience dilution. If we are
unable to secure additional financing when needed and its revenues are
inadequate to provide the necessary working capital, we may be required to
reduce the scope of its then current level of business operations, which would
have a material adverse effect on our competitive position and operations.
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
- --------------------------------
Each of our Directors will hold office until the later of (a) the next
annual meeting of shareholders (at which time such Director will be eligible for
re-election by the shareholders), or (b) until his successor shall have been
duly elected and qualified.
Michael G. McLean, age 39, has been our President and CEO and a Director
since the Merger, and was President and a director of RTI from December 1997
until the Merger. Mr. McLean has over 12 years experience with technology
organizations and has a broad base of technical and marketing experience. Most
recently, from March 1997 to June 1997, he was Product Development Manager at
Riptide Technologies, a software development company that focuses on providing
products and services to the lottery industry, where he was charged with
creating the infrastructure for a successful product
28
development group. Prior to that, from May 1996 to December 1996, he was General
Manager of a business unit at Simba Technologies, a software development and
marketing company, managing a staff of 17 responsible for product development,
product marketing, customer support and professional services.
At HealthVISION Corporation, a software company serving the health care
industry, from 1993 - 1996, Mr. McLean developed and managed a strategic
partnership to allow HealthVISION to private label the partner's software. He
also managed several other reseller partnerships. Subsequently, also at
HealthVISION, he was a senior Software Development Manager managing 35 technical
and user support staff across 3 product lines. Before starting his career in
technology, Mr. McLean founded a construction company and grew it to 35
employees.
Steven W. Macbeth, age 31, has been our Chief Technology Officer,
Secretary/Treasurer and a Director since the Merger. Mr. Macbeth was Chief
Executive Officer and a director of RTI from December 1997 until the Merger. Mr.
Macbeth has over 13 years executive and project management experience in
technology companies. Most recently, he co-founded and served as Director,
Product Development from June 1996 to June 1997 at Riptide Technologies, a
software development company that focuses on providing products and services to
the lottery industry. In that position, he managed three development projects
and project teams of up to 25 employees.
Prior to Riptide, Mr. Macbeth served as Technical Project Manager at MPR
Teltech from August 1995 to May 1996, and as Software Development Manager at
HealthVISION Corporation from May 1994 to July 1995.
Bruce S. Nelson, age 48, has been one of our Directors since June 2, 2000.
Since 1999, Mr. Nelson has been an independent consultant. From 1998 to 1999,
Mr. Nelson was the Vice Chairman and a member of the Management Committee of
Young & Rubicam Inc., a global marketing and communications company. Prior to
this he was with McCann-Erickson Worldwide for 19 years, most recently serving
as Executive Vice President and Director of Worldwide Accounts and Director of
Strategy for Worldwide Accounts (1994-1998). While at McCann-Erickson, Mr.
Nelson created global branding strategies for American Express, Citibank, Texas
Instruments, United Parcel Service and Lufthansa. He also created U.S. branding
strategies for GeoCities, AT&T, Sony and America Online. Mr. Nelson is also a
member of the board of directors of iTurf Inc. and previously served as a
director for Official Payments Corporation and Euro American Capital Partners.
Jerome J. DeLuccio, age 47, has been one of our Directors since February
22, 2001. Since August 2000, Mr. DeLuccio has served as the President of CPI
Business Groups, an Internet fulfillment firm that provides complete web based
fulfillment and packaging to client companies. CPI Business Groups offers
integrated eStore development, web payments, digital delivery, on demand
printing, systems integration, and complete packaging and pick/pack and ship
services. Prior to joining CPI Business Groups, Mr. DeLuccio's experience
included the Sutherland Group, Ltd., where from November 1999 to August 2000 he
was a Senior Vice President, Managing Director of the Technology Division. The
Sutherland Group is a technical services firm offering a contact center, help
desk and electronic consulting and systems integration for CRM services. From
1997 to 1999, Mr. DeLuccio was the Senior Vice President, Marketing, Operations
and Supply Chain for Canandaigua Wine Company, the second largest worldwide
provider of wine and related products to both domestic and international
markets. From 1989 to 1997, Mr. DeLuccio was a Vice President for Cadbury
Schweppes, a multinational beverage and chocolate manufacturer. Mr. DeLuccio is
also a member of the board of directors of CPI Business Groups and previously
served as a director for the Madeira Glass Company.
29
David W. Rowat, age 45, has been our Vice President and Chief Financial
Officer since the Merger. Mr. Rowat held the same position with RTI from April
1, 1999 until the Merger. He is a Professional Engineer, earned his MBA from
Harvard University in 1986 and has a broad operational background with a
specialty in public and private finance, strategic partnering, and mergers and
acquisitions for early stage technology companies. He served as Vice-President
of Sales, Development and Finance at various times for Nexus Engineering from
August 1986 to January 1992, a technology company developing cable television
headend products, Vice President and Chief Financial Officer for Xillix
Technologies from June 1993 to January 1995, a technology company developing
medical imaging products, and Chief Executive Officer of Merit Technologies from
January 1995 to April 1995, a manufacturer of point-of-sale terminals. From
October 1995 to December 31, 1999, Mr. Rowat was the president of Strategic
Catalysts Inc., a consulting company he founded to serve the technology
industry.
Significant Employees
- ---------------------
There are no significant employees who are not described as executive
officers above, except as follows:
Bruce McDonald, age 33, was appointed our Vice President, Operations on
December 10, 1999. From August 1996 to January 2000, Mr. McDonald was the
Director of Customer and Technical Services for Seanix Technology Inc., a
Vancouver-based manufacturer of personal computer and server hardware systems
sold under its own name and under private labels. Mr. McDonald was responsible
for the delivery of customer satisfaction throughout North America for both the
post-sales support and technical services divisions. From November 1995 to
August 1996, Mr. McDonald was National Sales Manager with Seanix, responsible
for Seanix's national sales organization in all Canadian provinces excluding
Quebec. From June 1994 to November 1995, Mr. McDonald was Regional Sales Manager
with Seanix, responsible for the development of sales first in British Columbia
and then elsewhere in Western Canada.
Bruno A. Hoffman, age 46, is our Vice President of Business Development and
has been with the Company since November 1999. Mr. Hoffman has over 14 years
experience in selling software business solutions and developing business
opportunities across multiple industry segments in North America and Europe.
Most recently, from December 1997 to November 1999, he was Business Development
Manager at Manugistics, a software provider that focuses on delivering supply
chain solutions to the Fortune 1000 manufacturing and consumer goods industries.
Prior to Manugistics, Mr. Hoffman served as Canadian Director of Business
Development at IDS-Scheer Inc. from March 1996 to December 1997, where he
established their Canadian operations including sales offices in Toronto and
Vancouver. Mr. Hoffman also served 5 years in Germany establishing direct sales
and channel partners in Central Europe for two North American ERP companies.
Mark Tracey, age 45, has been our Vice President since November 1, 2000.
Mr. Tracey has over 16 years experience in sales and marketing. From August 1999
to August to August 2000, Mr. Tracey served as a Business Development Manager
for Canada for Dell Computer Corporation. From January 1996 to August 1999 Mr.
Tracey acted as the Regional Manager for Eastern Canada for Dell Computer
Corporation. In addition, Mr. Tracey has held Branch Management and Sales
Management positions with Canon, Xerox as well as operating his own business for
a period of 5 years. Mr. Tracey is a business graduate from Concordia
University.
Joanne Charley, age 36, has been our Director of Marketing since July, 2000
and was promoted to Vice President in February 2001. From 1995 to June, 2000,
Ms. Charley was the Director of Corporate Communications of ACL Services Ltd., a
data analysis software company. Previously, she consulted with Wandjina Pty Ltd,
a leading Australian communications consultancy company, specializing in
marketing programs for several national and international financial
institutions. From 1982 to 1990, Ms. Charley held various management positions
30
with Qantas Airlines, Hambros Bank, Mitsubishi Australia and Howard Smith Ltd.
Ms. Charley has successfully introduced and branded high tech and consumer
products and developed marketing strategies for diverse industries, including
banking, insurance and transportation. Ms. Charley earned a B.A. in economics
from University of New South Wales in Australia and an MBA from Simon Fraser
University in Canada.
Family Relationships
- --------------------
There are no family relationships among any Directors or executive
officers.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 26, 2001, by (i) each person who is
known by us to own beneficially more than 5% of our outstanding voting
securities; (ii) each of our Directors; (iii) our Chief Executive Officer; and
(iv) all of our executive officers and Directors as a group:
- -----------------------------------------------------------------------------------------------------
Amount of Common Stock & Approximate Percent
Nature of Beneficial of Ownership of
Name & Address(1) Ownership(2) Common Stock
- -----------------------------------------------------------------------------------------------------
Michael G. McLean 665,776(3) 4.2%
- -----------------------------------------------------------------------------------------------------
Steven W. Macbeth 710,501(4) 4.5%
- -----------------------------------------------------------------------------------------------------
Bruce S. Nelson 10,000(5) *
- -----------------------------------------------------------------------------------------------------
Jerome J. DeLuccio 115,833(6) *
- -----------------------------------------------------------------------------------------------------
MyHelpDesk 1,000,000(7) 6.3%
- -----------------------------------------------------------------------------------------------------
ICE Holdings(8) 696,605(9) 4.3%
- -----------------------------------------------------------------------------------------------------
ICE Securities Limited- Client Account(10) 1,100,000 7.0%
- -----------------------------------------------------------------------------------------------------
ICE Securities Limited - Client Account(11) 3,600,000(12) 21.8%
- -----------------------------------------------------------------------------------------------------
All executive officers and Directors as a group
(5 persons) 1,878,073(13) 11.6%
- -----------------------------------------------------------------------------------------------------
* Indicates less than 1% beneficial ownership.
(1) Unless otherwise indicated, the address of each person is c/o
PCsupport.com, Inc. at 3605 Gilmore Way, 3/rd/ Floor, Burnaby, British
Columbia, Canada V5G 4X5.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of our common stock
subject to options, warrants or convertible securities that are currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the person holding such options, warrants or
convertible securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote and
subject to community property laws where applicable, the persons named in
the table have sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by them.
31
(3) Includes half of the 553,440 shares owned by Dromond Technologies Group,
Inc., as to which Messrs. McLean and Macbeth have shared voting and
investment power. Also includes 40,556 shares issuable pursuant to options
that are currently exercisable, or exercisable within 60 days.
(4) Includes half of the 553,440 shares of common stock owned by Dromond, as to
which Messrs. McLean and Macbeth have shared voting and investment power.
Also includes 78,781 shares issuable pursuant to options that are currently
exercisable, or exercisable within 60 days.
(5) Includes 10,000 shares issuable pursuant to options that are currently
exercisable, or exercisable within 60 days.
(6) Includes 37,500 shares issuable upon exercise of currently exercisable
warrants and 3,333 shares issuable upon exercise of currently exercisable
options.
(7) We are also required within twelve months following the initial issuances
to issue an additional 387,500 shares of common stock to MyHelpDesk and
112,500 shares of common stock to eight former employees of MyHelpDesk with
the number of shares to be issued in the subsequent issuances subject to
reduction in the event we assume additional liabilities upon certain
breaches of the representations and warrants of MyHelpDesk under our asset
purchase agreement with MyHelpDesk.
(8) The address of ICE Holdings is 645 Madison Ave., 13/th/ Floor, New York, NY
10022. Includes the shares beneficially owned by ICE Securities NA LLC,
ICE Securities Limited and ICE Consult GmbH, which are all under common
ownership.
(9) Includes 250,000 shares issuable pursuant to warrants that are currently
exercisable. Does not include an additional 250,000 shares issuable
pursuant to warrants that are anticipated to be issued to ICE Holdings (or
an affiliate of ICE Holdings) and will be currently exercisable upon
issuance.
(10) The address of ICE Securities Limited is c/o ICE Holdings. ICE Securities
Limited holds these shares in a client account for Meditor Capital
Management Ltd., which is the beneficial owner of the shares. Meditor
Capital Management Ltd. is an affiliate of Meditor Capital Management
(Bermuda) Limited.
(11) ICE Securities Limited holds these shares in a client account for Meditor
Capital Management (Bermuda) Limited, which is the beneficial owner of the
shares. Meditor Capital Management (Bermuda) Limited is an affiliate of
Meditor Capital Management Ltd.
(12) Includes 700,000 shares issuable pursuant to warrants that are currently
exercisable.
(13) Includes 341,133 shares issuable pursuant to options and warrants that are
currently exercisable, or exercisable within 60 days. Also includes the
553,440 shares of common stock owned by Dromond, as to which Messrs. McLean
and Macbeth have shared voting and investment power.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation which we paid to Michael G.
McLean, our Chief Executive Officer (the "named executive officer"), for the
fiscal years ended June 30, 1998, 1999 and 2000. No other officer of the
Company received a combined salary and bonus in excess of $100,000 during the
last fiscal year. As we completed the merger with RTI on June 23, 1999, the
information provided in the table includes information for our predecessor, RTI,
for the period December 10, 1997 to June 23, 1999.
32
- ----------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term All Other
-------------------
Compensation Compensation
------------ ------------
- ----------------------------------------------------------------------------------------------------------
Securities
Fiscal Underlying
Name & Principal Position Year/(1)/ Salary Bonus Options
- ------------------------- --------- ------ ----- -------
- ----------------------------------------------------------------------------------------------------------
Michael G. McLean 2000 $77,324/(2)/ $23,456 50,000 $ -0-
-----------------------------------------------------------------------------
CEO & President 1999 $45,565/(2)/ $ -0- 0 $151,274/(3)/
-----------------------------------------------------------------------------
1998 $26,176/(2)/ $ -0- 0 $ 29,388/(4)/
- ----------------------------------------------------------------------------------------------------------
(1) For the twelve months ended June 30, 2000 ("fiscal 2000"), the twelve
months ended June 30, 1999 ("fiscal 1999") and the period from December 10,
1997 to June 30, 1998 ("fiscal 1998").
(2) Includes fees paid to ST Technologies Inc., a company of which Mr. McLean
is the sole owner, amounting to $11,122 for fiscal 2000, $2,926 for fiscal
1999 and $10,788 for fiscal 1998. Also includes Mr. McLean's share of
consulting fees paid by the Company to Dromond, of which Mr. McLean owns
50%, amounting to $35,516 for fiscal 2000, $42,639 for fiscal 1999 and
$15,388 for fiscal 1998.
(3) Includes the difference between the price paid by Mr. McLean in April, 1999
for shares of common stock of PCsupport.com, Inc. ("PCS"), the company
which merged with RTI to form our Company and the then market price of
these shares. See "Certain Relationships and Related Transactions." Also
includes $26,962 in common stock, representing Mr. McLean's 50% share of
63,440 shares of common stock in RTI issued on January 6, 1999 for services
rendered to RTI (as adjusted to reflect the one-for-five exchange ratio in
the merger with PCS).
(4) Represents Mr. McLean's share of the difference between the price paid by
Dromond in January 1998 for 489,800 shares of common stock of RTI and the
then market price.
Compensation of Directors
We grant non-employee directors options to purchase 30,000 shares of Stock
upon their initial election to the Board of Directors. The exercise price of
these options is the market value of the Common Stock at the time the option is
granted, and the options vest on a monthly basis over three years. Directors
who are also officers of the Company receive no additional compensation for
their services as directors. Except for the option grants to non-employee
directors, none of our directors received any compensation for their services as
directors during the last fiscal year. We compensate one of our directors for
his services as a consultant. See "Certain Relationships and Related
Transactions - Consulting Agreement with Director."
Stock Option Plans
We adopted a stock option plan in July 1999 (the "1999 Plan"). The 1999
Plan authorizes the grant of stock options to our directors, officers,
consultants and employees resident in Canada. Under the terms of the Plan, at
no time may the number of shares subject to options result in:
(a) the number of shares reserved for issuance pursuant to stock options
granted to insiders exceeding 15% of our issued and outstanding shares of
Common Stock;
(b) the issuance to insiders, within a one-year period, of a number of shares
exceeding 15% of our issued and outstanding shares of Common Stock; or
(c) the issuance to any one individual, within a one-year period, of a number
of shares exceeding 5% of our issued and outstanding shares of Common
Stock.
33
We adopted a second stock option plan in December 2000 (the "2000 Plan").
The 2000 Plan provides for the grant of options to officers, directors, other
key employees and consultants of the Company who primarily are resident in the
United States to purchase up to an aggregate of 1,500,000 shares of Common
Stock. The 2000 Plan is administered by the Board of Directors, which has
complete discretion to select the optionees and to establish the terms and
conditions of each option, subject to the provisions of the 2000 Plan. Options
granted under the 2000 Plan may be "incentive stock options" as defined in
Section 422 of the United States Internal Revenue Code (the "Code"), or
nonqualified options, and will be designated as such. Options covering no more
than 500,000 shares of Common Stock may be granted to any one employee in any
twelve-month period.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Common Stock as of the date of grant (110% of the
fair market value if the grant is to an employee who owns more than 10% of the
total combined voting power of all classes of capital stock of the Company).
The Code currently limits to $100,000 the aggregate value of Common Stock that
may become exercisable in any one year pursuant to incentive stock options under
the 2000 Plan or any other option plan adopted by the Company. Nonqualified
options may be granted under the 2000 Plan at an exercise price less than the
fair market value of the Common Stock on the date of grant. Nonqualified
options also may be granted without regard to any restriction on the amount of
Common Stock that may be acquired upon exercise of such options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 30 days following termination of employment.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of the Company). Options granted under the 2000 Plan are not
transferable (except with the consent of the Company in the case of nonqualified
options) and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the 2000 Plan, shares subject to cancelled or terminated options are
reserved for subsequently granted options. The number of options outstanding
and the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. The 2000 Plan is effective for ten years, unless sooner terminated
or suspended.
The following table sets forth the grants of stock options to the named
executive officer during our fiscal year ended June 30, 2000:
- ----------------------------------------------------------------------------------------------------------------------
Number of Securities % of Total Options/SARS
Underlying Options/SARs Granted to Employees in Exercise or Base
Name Granted Fiscal Year Price Expiration Date
---- ------- ----------- ----- ---------------
- ----------------------------------------------------------------------------------------------------------------------
Michael G. McLean 50,000 3.8% $1.00 July 2, 2004
- ----------------------------------------------------------------------------------------------------------------------
34
The following table sets forth information concerning the value of
unexercised stock options held by the named executive officer as of June 30,
2000:
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at Fiscal
Shares Acquired Value at Fiscal Year-End Year End
Name on Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- ----------- -------- --------------------------- ---------------------------
- -----------------------------------------------------------------------------------------------------------------------
Michael G. McLean 0 0 16,666/33,334 $16,666/$33,334
- -----------------------------------------------------------------------------------------------------------------------
Employment Agreements
We have entered into an employment agreement with Michael G. McLean, our
Chief Executive Officer, that commenced in March 2000. Under this agreement,
Mr. McLean received an initial monthly salary of (Cdn.) $8,300 which increased
to (Cdn.) $12,500 in April 2000. An annual cash bonus equal to up to 75% of the
annual salary will be paid, based upon achieving performance standards that are
agreed to by Mr. McLean and the Company. Either Mr. McLean or the Company may
terminate the agreement at any time. If the Company terminates Mr. McLean's
employment agreement without cause, the Company is required to pay him severance
equal to a total of nine months salary plus one month for each year or partial
year of his employment with the Company.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our by-laws provide that no officer or Director shall be personally liable
for any of our obligations of or for any duties or obligations arising out of
any acts or conduct of said officer or Director performed for or on our behalf.
Our by-laws also provide that we will indemnify and hold harmless each person
who serves at any time as one of our Directors or officers, and his or her heirs
and administrators, from and against any and all claims, judgments and
liabilities to which such person shall become subject by reason of his or her
having been a Director or officer, or by reason of any action alleged to have
been taken or omitted to have been taken by him or her as such Director or
officer, and shall reimburse such person for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or
liability. We also have the power to defend such person from all suits or
claims in accord with the Nevada General Corporation Law. However, no such
person shall be indemnified against, or be reimbursed for, any expense incurred
in connection with any claim or liability arising out of his or her own
negligence or willful misconduct. The rights accruing to any person under our
by-laws do not exclude any other right to which any such person may lawfully be
entitled, and we may indemnify or reimburse such person in any proper case, even
though not specifically provided for by the by-laws.
We believe that it is the position of the Securities and Exchange
Commission that, insofar as any of the foregoing by-law provisions may be
invoked to disclaim liability for damages arising under the Securities Act of
1933, the provisions are against public policy as expressed in the Securities
Act of 1933 and are, therefore, unenforceable.
35
DESCRIPTION OF SECURITIES
The total authorized share capital stock of the Company consists of
100,000,000 shares of common stock with a par value of $0.001 per share. There
are 15,786,662 shares of common stock issued and outstanding. Each holder of
common stock is entitled to one vote for each share held. The common stock
ranks equally in all respects. The holders of common stock are entitled to
attend and vote at all meetings of our shareholders on the basis of one vote for
each share of common stock held by them. The holders of common stock are also
entitled to receive dividends if, as and when declared by the Board of Directors
on our common stock and to receive our remaining property upon liquidation,
dissolution or winding-up.
MARKET FOR COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
Market Information
- ------------------
Shares of our common stock are traded on the OTC Electronic Bulletin Board
under the symbol "PCSP." From August 18, 1998 until the Merger, the common
stock of PCS traded on the OTC Electronic Bulletin Board under the symbol
"MXTS," reflecting the previous name of PCS as Mex Trans Seafood Consulting Inc.
Our common stock began trading on the OTC Electronic Bulletin Board on June 24,
1999 under the symbol "PCSP." The following table sets forth the high and low
bid prices for our common stock for the quarters indicated. The information has
been adjusted for all periods presented to reflect the reverse stock split of
our common stock which occurred in connection with the Merger.
--------------------------------------------------------------------------------------
Quarter Ended High Low
--------------------------------------------------------------------------------------
December 31, 1998 $ 1.88 $ 1.70
--------------------------------------------------------------------------------------
March 31, 1999 2.50 1.56
--------------------------------------------------------------------------------------
June 30, 1999 2.00 0.78
--------------------------------------------------------------------------------------
September 30, 1999 2.00 0.5625
--------------------------------------------------------------------------------------
December 31, 1999 1.9375 0.875
--------------------------------------------------------------------------------------
March 31, 2000 9.6875 0.97
--------------------------------------------------------------------------------------
June 30, 2000 5.50 1.94
--------------------------------------------------------------------------------------
September 30, 2000 2.28 1.25
--------------------------------------------------------------------------------------
December 31, 2000 2.34 0.625
--------------------------------------------------------------------------------------
Quotations posted on the OTC Electronic Bulletin Board reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
reflect actual transactions.
Holders
- -------
We have approximately 241 shareholders of record of common stock.
Dividends
- ---------
We have not, to date, paid any dividends on our common stock. The payment
of dividends on our common stock is within the discretion of the Board of
Directors and will depend upon our future earnings, our capital requirements,
our financial condition, and other relevant factors. We do not currently intend
to declare any dividends on our common stock for the foreseeable future.
36
SELLING SECURITYHOLDERS
Except as indicated below, none of the selling securityholders has held any
position or office or had any other material relationship with us within the
past three years. The following table shows the beneficial ownership of our
common stock for each of the selling stockholders. The table assumes that the
selling stockholders will sell all of the shares and that the selling
stockholders will make no other purchases or sales of our common stock. However,
the selling stockholders are not obligated to sell their shares at any time or
at any price. Therefore, we cannot state with certainty the number of shares of
common stock that will be owned by each of the selling stockholders upon the
termination of this offering. The number of shares of common stock that each
holder may own may also change due to stock splits or other anti-dilution
adjustments.
- ------------------------------------------------------------------------------------------------------------------------------------
Beneficial Ownership Beneficial Ownership
Before Offering(1) After Offering (1)
- ---------------------------------- --------------------------------- ---------------------- ----------------------------------------
Number of Number of Shares Number of
Selling Stockholder Shares Percent Being Offered Shares Percent
- ---------------------------------- --------------------- ------------ -------------------- -------------- --------------------------
Bradley T. Aelicks 35,000 * 35,000 0 0
A. Jakubowski Holding Co. 20,000(2) * 20,000(2) 0 0
Algernon Investment Limited 40,000 * 40,000 0 0
Al Heaps & Associates 4,000 * 4,000 0 0
Donald G. Allison (a) 25,000 * 25,000 0 0
Amadro Equities 35,000 * 35,000 0 0
Thomas Ball 20,000(3) * 20,000(3) 0 0
Steve Bastable 59,000 * 59,000 0 0
J. A. Beaulieu 7,838(4) * 7,838(4) 0 0
Marty Biegel (b) 10,000(5) * 10,000(5) 0 0
Big Sky Holdings, Inc. 51,000(6) * 51,000(6) 0 0
Don Bolin 50,000 * 50,000 0 0
William Boutillier 2,400 * 2,400 0 0
Graham Boyle 4,000 * 4,000 0 0
Daniel J. Brimm 56,250(7) * 56,250(7) 0 0
Tammy Brimm 4,000 * 4,000 0 0
Ward Cameron 10,000(8) * 10,000(8) 0 0
Capilano West Capital Inc. 230,000 1.4% 230,000 0 0
Capilano West Capital Ventures 1 L.P. 35,000 * 35,000 0 0
Paul Cargiulo 25,000 * 25,000 0 0
Bill Catalano 35,000 * 35,000 0 0
CGTF, LLC 590,000(9) 3.7% 590,000(9) 0 0
Paul Champagne 35,000 * 35,000 0 0
Collins Enterprises 4,000 * 4,000 0 0
Erica Crichton 4,000 * 4,000 0 0
Amy E. Cutting Revocable
Living Trust 33,042 * 33,042 0 0
Rebecca L. Cutting
Revocable Living Trust 35,583 * 35,583 0 0
Cypress Capital Management Ltd. 34,000 * 34,000 0 0
John Dekam 35,000 * 35,000 0 0
Jerome J. DeLuccio (c) 112,500(10) * 112,500(10) 0 0
Discovery View Estates 33,000 * 33,000 0 0
Brian Donnelly (d) 7,500(11) * 7,500(11) 0 0
Elizabeth A. Eger
Revocable Living Trust 12,708 * 12,708 0 0
Stanley Elbaum (e) 30,000(12) * 30,000(12) 0 0
Bob Farley 4,000 * 4,000 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
37
- ------------------------------------------------------------------------------------------------------------------------------------
Friend Family Trust Reg. (f) 125,000 * 125,000 0 0
Grant Ferguson 8,000(13) * 8,000(13) 0 0
Eileen Finnigen 4,000 * 4,000 0 0
FMWP (BWI) Inc. 4,000 * 4,000 0 0
Gordon Friesen 55,000 * 55,000 0 0
Robert Gelfand 36,000 * 36,000 0 0
Mary Ann Gould (g) 3,750(14) * 3,750(14) 0 0
Robert S. Grigg 86,250(15) * 56,250(15) 30,000 *
Claudio Grubner 45,000 * 45,000 0 0
Gerry Hamilton 4,000 * 4,000 0 0
Grant Hempell 44,000 * 44,000 0 0
Alan Hetherington 50,000 * 50,000 0 0
HFIC, Inc. 150,000(16) * 150,000(16) 0 0
Sanford J. Hillsberg (h) 56,250(17) * 56,250(17) 0 0
Bruno Hoffman (i) 2,250(18) * 2,250(18) 0 0
Rey Holdings 12,000(19) * 12,000(19) 0 0
Ashley Howard (j) 7,500(20) * 7,500(20) 0 0
ICE Consult GmbH (k) 350,000 2.2% 350,000 0 0
ICE Holdings North America, LLC (l) 278,605(21) 1.7% 28,605 250,000(21) 1.6%
ICE Securities Limited (m) 68,000 * 68,000 0 0
ICE Securities - Client Account (n) 1,100,000 7.0% 1,100,000 0 0
ICE Securities - Client Account (o) 3,600,000(22) 21.8% 2,900,000 700,000 4.2%
ICE Securities - Client Account (p) 32,000 * 32,000 0 0
Frank and Anita Holler 34,000 * 34,000 0 0
Keresan Capital Corp. 8,000 * 8,000 0 0
John C. Kleinert 50,000 * 50,000 0 0
Ross Kondo 35,000 * 35,000 0 0
Richard and Laurie Kraniak JTWROS 600,000(23) 3.7% 600,000(23) 0 0
Josip Kresna 35,000 * 35,000 0 0
Doug Lahay 34,000 * 34,000 0 0
Dick Lee 5,000 * 5,000 0 0
Eung Bum Lee 4,000 * 4,000 0 0
Eva Lee 10,000 * 10,000 0 0
Robert Lee 34,000 * 34,000 0 0
Stella Lee 5,000 * 5,000 0 0
Maurice Levy (q) 40,000(24) * 40,000(24) 0 0
Lloyds TSB Bank plc 165,000 1.0% 145,000 20,000 *
Fiona Lo 70,000 * 70,000 0 0
Loon Properties 55,000 * 55,000 0 0
Sandy MacDougall 53,500 * 53,500 0 0
Dick, Ray, Bill and Bon Machin 20,000 * 20,000 0 0
Anil Madan 40,000 * 40,000 0 0
George Magill 4,000 * 4,000 0 0
Margaret C. Manuel 33,042 * 33,042 0 0
Joseph B. Marsh 127,083 * 127,083 0 0
Patrick J. Mason 25,417 * 25,417 0 0
Gordon McConkey 38,000 * 38,000 0 0
Gary McDonald 50,000 * 50,000 0 0
Dorothy Mae McKim 4,000(25) * 4,000(25) 0 0
Brett McLean (r) 4,000 * 4,000 0 0
Don and Barb McLean (s) 800 * 800 0 0
Jim McMahon 4,000 * 4,000 0 0
Charlene Meehan 4,000 * 4,000 0 0
Ray Melissa 63,500 * 63,500 0 0
M & J Investment Trust (t) 600,000(26) 3.7% 600,000(26) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
38
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony Murray 25,000 * 25,000 0 0
National Bank Financial 34,000 * 34,000 0 0
Mike Newman 4,000 * 4,000 0 0
Aaron Nielsen (u) 7,500(27) * 7,500(27) 0 0
Kerry Noon (v) 2,000 * 2,000 0 0
Odlum Brown Ltd. (w) 2,000 * 2,000 0 0
Irwin Olian (x) 385,000(28) 2.4% 385,000(28) 0 0
Danielle Oliver 35,000 * 35,000 0 0
Curtis Palmer 52,500(29) * 52,500(29) 0 0
Robert Pellatt 4,000 * 4,000 0 0
Kwee Peng Jo 34,000 * 34,000 0 0
Ennio and Lisa Petrella 12,708 * 12,708 0 0
Don Pollard 4,000 * 4,000 0 0
Premier Technology Fund 100,000 * 100,000 0 0
Peter Reid 4,000 * 4,000 0 0
David Risley 4,160 * 4,160 0 0
Harry Ross 75,000(30) * 75,000(30) 0 0
Paul T. Rubery, Jr. 51,000(31) * 51,000(31) 0 0
Wayne Leslie Saxbee 6,000 * 6,000 0 0
Ken H. Schaeffers 38,000 * 38,000 0 0
Edwin B. Shaw and Felicia P. Shaw
Jt. Tenants 25,417 * 25,417 0 0
Edwin B. Shaw, Robert B. Nelson & Dawn * 25,417 0 0
E. Kidd, TTEES 25,417
Lyle H. Shuert
Revocable Living Trust 25,417 * 25,417 0 0
Matthew Charles Shuert and Kelly Rosa
Shuert 12,708 * 12,708 0 0
Mark R. Siewart 112,500(32) * 112,500(32) 0 0
Sitrick & Company, Inc. (y) 34,000 * 34,000 0 0
Andrew P. Smith (z) 25,000 * 25,000 0 0
Edyta Smith (aa) 25,000 * 25,000 0 0
Robert A. Spence 4,000 * 4,000 0 0
Paul Stanley 127,083 * 127,083 0 0
Roma Stewart 35,000 * 35,000 0 0
Tavisco Ltd. (bb) 150,000 * 150,000 0 0
William Trimble 34,000 * 34,000 0 0
Troy & Gould Profit Sharing Plan FBO
William D. Gould (cc) 47,250(33) * 47,250(33) 0 0
Valor Invest Ltd. 50,000 * 50,000 0 0
Pamela Anne Vandy 34,000 * 34,000 0 0
William H. Vanover 12,708 * 12,708 0 0
Virgin Capital Corp. 16,395 * 16,395 0 0
Harjit Virk 35,000 * 35,000 0 0
Richard M. Wilson 4,000 * 4,000 0 0
David and Terry Wohlberg (dd) 160,000(34) * 150,000(34) 10,000 *
Wolverton Securities Ltd. (ee) 504,000(35) 3.1% 504,000(35) 0 0
Chris Wong 40,000 * 40,000 0 0
Martin Woodward 38,000 * 38,000 0 0
Paul Woodward 38,800 * 38,800 0 0
Darryl J. Yea 100,000 * 100,000 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 11,691,331(36)
- ------------------------------------------------------------------------------------------------------------------------------------
39
(a) Mr. Allison is the Chief Financial Officer of ICE Holdings North America,
LLC, which has provided us with investment banking services since December
1999.
(b) Mr. Biegel served as a financial consultant for us from August, 1999 to
May, 2000.
(c) Mr. DeLuccio is one of our Directors.
(d) We have employed Mr. Donnelly as Sales Director since December 1999.
(e) Mr. Elbaum served as a financial consultant for us from June 1999 until
December, 2000.
(f) Friend Family Trust Reg. is affiliated with ICE Holdings North America,
LLC, which has provided us with investment banking services since December
1999.
(g) Ms. Gould is the wife of William D. Gould, who is a member of Troy & Gould
Professional Corporation, which has served as legal counsel to us since
July 1999 and is giving a legal opinion on the validity of the shares
covered by this prospectus.
(h) Mr. Hillsberg is a member of Troy & Gould Professional Corporation, which
has served as legal counsel to us since July 1999 and is giving a legal
opinion on the validity of the shares covered by this prospectus.
(i) We have employed Mr. Hoffman as Sales Director since December 1999.
(j) We have employed Ms. Howard in several capacities since January 2000.
(k) ICE Consult GmbH is an affiliate of ICE Holdings North America, LLC, which
has provided us with investment banking services since December 1999.
(l) ICE Holdings North America, LLC.
(m) ICE Securities Limited is an affiliate of ICE Holdings North America, LLC.
(n) ICE Securities Limited holds these shares in a client account for Meditor
Capital Management Ltd., which is the beneficial owner of the shares.
Meditor Capital Management Ltd. is an affiliate of Meditor Capital
Management (Bermuda) Ltd.
(o) ICE Securities Limited holds these shares in a client account for Meditor
Capital Management (Bermuda) Ltd., which is the beneficial owner of the
shares. Meditor Capital Management (Bermuda) Ltd. Is an affiliate of
Meditor Capital Management Ltd.
(p) ICE Securities Limited holds these shares in a client account for Derham
O'Neill, who is the beneficial owner of the shares.
(q) Mr. Levy has served as a financial consultant for us since August, 1999.
(r) Brett McLean is a cousin of Michael McLean, who is our President and CEO.
(s) Don and Barb McLean are an uncle and aunt, respectively, of Michael McLean,
who is our President and CEO.
(t) M & J Investment Trust is affiliated with Mike Lee & Associates, which
provided us with financial consulting services in connection with our
private placement of convertible notes in February 2000.
(u) We have employed Mr. Nielsen as Manager, Finance and Investor Relations
since May 1999.
(v) Ms. Noon served as our Controller from our inception in December 1997 until
November, 2000.
(w) Odlum Brown provided us with financial consulting services in connection
with our private offering of common stock in April 1999.
(x) Mr. Olian has served as a financial consultant for us since June, 1999.
(y) Sitrick and Company provided us with investor relations services from
October 1999 to May 2000.
(z) Mr. Smith is the managing director of ICE Holdings North America LLC, which
has provided us with investment banking services since December 1999.
(aa) Ms. Smith is the mother of Andrew Smith, who is a managing director of ICE
Holdings North America LLC, which has provided us with investment banking
services since December 1999.
(bb) Tavisco Ltd. is owned by Raymond Glath and Beverley Ann Glath. Mr. Glath
was employed by the Company as Senior Software Architect from June, 2000
until November, 2000.
(cc) Mr. Gould is a member of Troy & Gould Professional Corporation, which has
served as legal counsel to us since July 1999 and is giving a legal opinion
on the validity of the shares covered by this prospectus.
(dd) Mr. Wohlberg is of counsel to Troy & Gould Professional Corporation, which
has served as legal counsel to us since July 1999 and is giving a legal
opinion on the validity of the shares covered by this prospectus.
(ee) Wolverton Securities Ltd. provided us with financial consulting services in
connection with our private offering of common stock in March 2000.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to options, warrants and convertible securities currently
exercisable or convertible, or exercisable or convertible within 60 days,
are deemed outstanding, including for purposes of computing the percentage
ownership of the person holding the option, warrant or convertible
security, but not for purposes of computing the percentage of any other
holder.
(2) Consists of shares issuable upon exercise of warrants.
(3) Consists of shares issuable upon exercise of warrants.
(4) Consists of shares issuable upon exercise of warrants.
(5) Consists of shares issuable upon exercise of options.
(6) Includes 17,000 shares issuable upon exercise of warrants.
(7) Includes 18,750 shares issuable upon exercise of warrants.
(8) Includes 7,000 shares issuable upon exercise of warrants.
(9) Includes 240,000 shares issuable upon exercise of warrants.
40
(10) Includes 37,500 shares issuable upon exercise of warrants.
(11) Includes 2,500 shares issuable upon exercise of warrants.
(12) Consists of shares issuable upon exercise of warrants.
(13) Consists of shares issuable upon exercise of warrants.
(14) Includes 1,250 shares issuable upon exercise of warrants.
(15) Includes 18,750 shares issuable upon exercise of warrants.
(16) Includes 50,000 shares issuable upon exercise of warrants.
(17) Includes 18,750 shares issuable upon exercise of warrants.
(18) Includes 750 shares issuable upon exercise of warrants.
(19) Consists of shares issuable upon exercise of warrants.
(20) Includes 2,500 shares issuable upon exercise of warrants.
(21) Includes 250,000 shares issuable upon exercise of warrants but does not
include an additional 250,000 shares issuable pursuant to warrants that are
anticipated to be issued to ICE Holdings North America (or its affiliate).
(22) Includes 700,000 shares issuable upon exercise of warrants.
(23) Consists of shares issuable upon exercise of warrants.
(24) Consists of shares issuable upon exercise of options.
(25) Consists of shares issuable upon exercise of warrants.
(26) Consists of shares issuable upon exercise of warrants.
(27) Includes 2,500 shares issuable upon exercise of warrants.
(28) Consists of 330,000 shares issuable upon exercise of warrants and 55,000
shares issuable upon the exercise of options.
(29) Includes 17,500 shares issuable upon exercise of warrants.
(30) Includes 25,000 shares issuable upon exercise of warrants.
(31) Includes 17,000 shares issuable upon exercise of warrants.
(32) Includes 37,500 shares issuable upon exercise of warrants.
(33) Includes 15,750 shares issuable upon exercise of warrants.
(34) Includes 50,000 shares issuable upon exercise of warrants.
(35) Consists of shares issuable upon exercise of warrants.
(36) Includes 2,715,838 shares issuable upon exercise of warrants and 105,000
shares issuable upon exercise of options.
PLAN OF DISTRIBUTION
As used in this prospectus, "selling stockholders" includes the pledgees,
donees, transferees or others who may later hold the selling stockholders'
shares of common stock We will pay the costs and fees of registering the shares
of common stock, but the selling stockholders will pay any brokerage
commissions, discounts or other expenses relating to the sale of these shares.
The selling stockholders may sell the shares of common stock in the over-
the-counter market or otherwise, at market prices prevailing at the time of
sale, at prices related to the prevailing market prices or at negotiated prices.
In addition, the selling stockholders may sell some or all of their shares
through:
. a block trade in which a broker-dealer may resell a portion of the
block, as principal, in order to facilitate the transaction;
. purchases by a broker-dealer, as principal, and resale by the broker-
dealer for its account; or
. ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
When selling the shares of common stock, the selling stockholders may enter
into hedging transactions. For example, the selling stockholders may:
. enter into transactions involving short sales of the shares by broker-
dealers;
. sell shares short themselves and redeliver the shares to close out
their short positions;
. enter into option or other types of transactions that require the
selling stockholder to deliver shares to a broker-dealer, who will
then resell or transfer the common shares under this prospectus; or
41
. loan or pledge the shares to a broker-dealer, who may sell the loaned
shares or, in the event of default, sell the pledged shares.
The selling stockholders may negotiate and pay broker-dealers commissions,
discounts or concessions for their services. Broker-dealers engaged by the
selling stockholders may allow other broker-dealers to participate in resales.
However, the selling stockholders and any broker-dealers involved in the sale or
resale of the shares of common stock may qualify as "underwriters" within the
meaning of Section 2(a)(11) of the Securities Act of 1933. In addition, the
broker-dealers' commissions, discounts or concession may qualify as
underwriters' compensation under the Securities Act.
In addition to selling their shares under this prospectus, the selling
stockholders may:
. agree to indemnify any broker-dealer or agent against liabilities
related to the selling of the shares, including liabilities arising
under the Securities Act of 1933;
. transfer their shares in other ways not involving market makers or
established trading markets, including directly by gift, distribution
or other transfer; or
. sell their shares under Rule 144 of the Securities Act of 1933 rather
than under this prospectus, if the transaction meets the requirements
of Rule 144.
EXPERTS
Our financial statements for the years ended June 30, 2000 and June 30,
1999 have been included in this prospectus in reliance upon the report of KPMG
LLP, Vancouver, British Columbia, Canada, appearing elsewhere in this
prospectus, and upon the authority of KPMG LLP as experts in accounting and
auditing.
The report of KPMG LLP covering the June 30, 2000 financial statements
contains an explanatory paragraph that states that our recurring losses from
operations and negative cash flows from operations raise substantial doubt about
the entity's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of that
uncertainty.
LEGAL MATTERS
Troy & Gould Professional Corporation, Los Angeles, California, has
rendered an opinion with respect to the validity of the shares of common stock
covered by this prospectus. Troy & Gould Professional Corporation, together
with certain members and of counsel of that firm and their spouses own in the
aggregate 181,500 shares of our common stock and warrants to purchase 85,750
shares of our common stock.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 15, 1999, the Company engaged KPMG LLP, Vancouver, British
Columbia, Canada, as its principal accountant to audit the Company's financial
statements. Neither the Company nor its predecessor for accounting purposes,
RTI, had engaged any accountants prior to the engagement of KPMG LLP.
42
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 under the Securities Act for
the common stock offered under this prospectus. We are subject to the
informational requirements of the Exchange Act, and file reports, proxy
statements and other information with the Commission. These reports, proxy
statements and other information filed by PCsupport.com, Inc. can be inspected
and copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 7 World Trade Center, Suite 1300, New York, New York 10048 and CitiCorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
these materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a web site that contains reports, proxy
statements, information statements and other information concerning
PCsupport.com, Inc. at the site located at http://www.sec.gov. This prospectus
does not contain all the information in the registration statement and its
exhibits which we have filed with the Commission under the Securities Act and to
which reference is made.
We "incorporate by reference" into this prospectus the information we file
with the Commission, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus and information that we file
later with the Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the Commission under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act before the time that all the common stock offered by
this prospectus has been sold:
. Our annual report on Form 10-KSB for the fiscal year ended June 30,
2000
. Our quarterly report on Form 10-QSB for the quarter ended September
30, 2000
. Our quarterly report on Form 10-QSB for the quarter ended December 31,
2000
. Our Current Report on Form 8-K filed on December 8, 2000
. Our Current Report on Form 8-K filed on September 21, 2000
. The description of our common stock contained in our Registration
Statement on Form 10-SB filed October 18, 1999, and as amended
November 23, 1999 and January 12, 2000 and any amendment or report
filed for the purpose of updating such description
. All subsequent documents filed by us Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: PCsupport.com. Inc. 3605, Gilmore Way,
3/rd/ Floor, Burnaby, British Columbia, Canada, V5G 4X5, (818) 737-4000.
43
INDEX TO FINANCIAL STATEMENTS
Audited Annual Financial Statements
- -----------------------------------
Independent Auditors' Report to Annual Financial Statements..................... F-2
Balance Sheets as of June 30, 2000 and 1999..................................... F-3
Statements of Operations for the Years Ended June 30, 2000 and 1999, and the
Period from December 10, 1997 (inception) to June 30, 2000...................... F-4
Statements of Stockholders' Equity for the Years Ended June 30, 2000 and 1999
and the Period from December 10, 1997 (inception) to June 30, 2000.............. F-5
Statements of Cash Flows for the Years Ended June 30, 2000 and 1999 and the
Period from December 10, 1997 (inception) to June 30, 2000...................... F-6
Notes to Annual Financial Statements............................................ F-7
Unaudited Interim Financial Statements
- --------------------------------------
Balance Sheets as of December 31, 2000 and June 30, 2000........................ F-22
Statements of Operations for the Six Months Ended December 31, 2000 and 1999 and
for the Three Months Ended December 31, 2000 and December 31, 1999.............. F-23
Statements of Stockholders' Equity for the Six Months Ended December 31, 2000... F-24
Statements of Cash Flows for the Six Months Ended December 31, 2000 and 1999.... F-25
Notes to Interim Financial Statements........................................... F-26
44
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PCSupport.com, Inc.
We have audited the consolidated balance sheets of PCSupport.com, Inc. and
subsidiary (a Development Stage Enterprise) as of June 30, 2000 and 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 2000 and 1999 and for the period from
December 10, 1997 (inception) to June 30, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of PCSupport.com, Inc. and subsidiary
as of June 30, 2000 and 1999, and the results of their operations and their cash
flows for the years ended June 30, 2000 and 1999 and for the period from
December 10, 1997 (inception) to June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and negative cash flows from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
"KPMG LLP"
/s/ KPMG LLP
- ---------------
Chartered Accountants
Vancouver, Canada
August 25, 2000, except with respect
to notes 10(e) and 10(f) which are as
of September 15, 2000
F-2
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
June 30, 2000 and 1999
2000 1999
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 5,149,290 $ 795,809
Goods and services taxes recoverable and other receivables 89,933 14,728
Prepaid expenses and deposits 335,113 33,950
Other current assets 111,860 49,256
----------- ----------
Total current assets 5,686,196 893,743
Property and equipment (note 4) 411,817 11,210
Deferred acquisition costs 25,000 -
Intangible assets (note 5) 7,052 2,697
----------- ----------
$ 6,130,065 $ 907,650
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 657,050 $ 68,266
Stockholders' equity (note 6):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 10,477,662 shares in 2000 and 6,007,169 shares in 1999 10,478 6,007
Additional paid-in capital 13,765,041 1,981,782
Deferred stock compensation (387,563) (198,909)
Deficit accumulated during the development stage (7,914,941) (949,496)
----------- ----------
Total stockholders' equity 5,473,015 839,384
----------- ----------
Commitments and contingencies (note 7)
Subsequent events (note 10)
$ 6,130,065 $ 907,650
=========== ==========
See accompanying notes to consolidated financial statements.
F-3
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
Period from
December 10,
1997
Year ended Year ended (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- --------------
Revenue:
Support center $ 340 $ - $ 340
Online backup 29,142 99 29,241
------------- ---------- ------------
29,482 99 29,581
Operating expenses:
Support center and online back-up 197,166 86 197,252
Development costs 923,259 17,646 943,719
Marketing and promotion 1,418,465 118,273 1,657,656
General and administrative 1,287,219 138,592 1,484,373
Stock-based compensation expense 412,246 486,191 898,437
------------- ---------- ------------
4,238,355 760,788 5,181,437
------------- ---------- ------------
Loss from operations (4,208,873) (760,689) (5,151,856)
Interest expense, net (note 6(a)(ii)) 2,756,572 6,513 2,763,085
------------- ---------- ------------
Loss for the period $ (6,965,445) $ (767,202) $ (7,914,941)
============= ========== ============
Net loss per common share, basic and diluted $ (1.01) $ (0.46) $ (2.22)
============= ========== ============
Weighted average common shares outstanding,
basic and diluted 6,884,464 1,659,455 3,572,640
============= ========== ============
See accompanying notes to consolidated financial statements.
F-4
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
Period from December 10, 1997 (inception) to June 30, 2000
Deficit
Accumulated
Additional Deferred During Total
Common Shares Paid-in Stock Development Stockholders'
--------------------
Shares Amount Capital Compensation Stage Equity
------ ------ ----------- ------------- ----------- -------------
Balance, December 10, 1997 (inception) 200 $ - $ - $ - $ - $ -
Issuance of common stock for services
in January, valued at $.13 per share 489,800 490 65,157 - - 65,647
Sale of common stock in January, $0.13 per share 510,000 510 67,642 - - 68,152
Net loss - - - - (182,294) (182,294)
---------- ------- ----------- ----------- ------------- -----------
Balance, June 31, 1998 1,000,000 1,000 132,799 - (182,294) (48,495)
Fair value of common stock purchase
warrants granted to creditor - - 8,407 - - 8,407
Sale of common stock in January,
approximately $.85 per share, net of
issuance costs of $131,708 291,838 292 116,062 - - 116,354
Issuance of common stock for services
in January and May, valued at
approximately $.85 per share 52,848 53 45,101 - - 45,154
Conversion of note payable to common stock 66,029 66 109,977 - - 110,043
Issuance of common stock for services
in January 63,440 63 53,861 - - 53,924
Issuance of common stock for services
in April 1,500,000 1,500 777,620 (392,356) - 386,764
Amortization of deferred stock compensation - - - 45,247 - 45,247
Issuance of common stock for acquisition
in June, net of acquisition costs of
$46,753 (note 3) 3,033,014 3,033 886,155 - - 889,188
Treasury stock repurchased by Company in
June, not cancelled (285,000) - (148,200) 148,200 - -
Net loss - - - - (767,202) (767,202)
---------- ------- ----------- ----------- ------------- -----------
Balance, June 31, 1999 5,722,169 6,007 1,981,782 (198,909) (949,496) 839,384
Exercise of warrants in July, 1999 68,400 69 58,197 - - 58,266
Shares issued in exchange for service 4,160 4 6,504 - - 6,508
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
(note 6(a)(i)) 350,000 350 494,747 - - 495,097
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 6(a)(ii)) - - 1,000,000 - - 1,000,000
Amortization of deferred stock compensation - - - 2,206,246 - 2,206,246
Sale of units in March and April, $2.00 per
unit, net of $38,820 in cash financing
costs 666,000 666 1,292,514 - - 1,293,180
Sale of common stock in March, $2.00 per
share, net of $36,222 in cash financing
costs 2,054,000 2,054 4,069,724 - - 4,071,778
Exercise of warrants in March for cash 140,600 141 188,263 - - 188,404
Sale of common stock in April, $2.00 per
share 34,000 34 67,966 - - 68,000
Sale of common stock in April, $2.125 per
share, net of $175,694 in cash financing
costs 645,000 645 1,194,286 - - 1,194,931
Conversion of promissory notes payable in
May (note 6(a)(ii)) 508,333 508 1,016,158 - - 1,016,666
Net loss - - - - (6,965,445) (6,965,445)
---------- ------- ----------- ----------- ------------- -----------
Balance, June 31, 2000 10,192,662 $10,478 $13,765,041 $ (387,563) $ (7,914,941) $ 5,473,015
========== ======= =========== =========== ============= ===========
See accompanying notes to consolidated financial statements.
F-5
PCSUPPORT.COM, INC. and subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
Period from
December 10,
1997
Year ended Year ended (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- -------------
Cash flows from operating activities:
Loss for the period $ (6,965,445) $ (767,202) $ (7,914,941)
Items not affecting cash:
Depreciation and amortization 108,972 5,336 114,927
Common stock issued in exchange for services 6,508 440,944 513,099
Deemed discount amortization on promissory note 1,000,000 - 1,000,000
Amortization of deferred stock compensation 2,206,246 45,247 2,251,493
Discount on notes payable - 8,407 8,407
Loss on debt extinguishments and other 17,566 - 17,566
Changes in operating assets and liabilities:
Goods and services taxes recoverable and
other receivables (75,205) (14,728) (89,933)
Prepaid expenses and deposits (326,163) (33,950) (360,113)
Other current assets (62,604) (49,014) (111,860)
Accounts payable and accrued liabilities 588,784 64,556 657,050
------------ ---------- ------------
Net cash used in operating activities (3,501,341) (300,404) (3,914,305)
------------ ---------- ------------
Cash flows from investing activities:
Purchase of property and equipment (507,357) (13,055) (523,733)
Purchase of intangible asset (6,577) (3,486) (10,063)
------------ ---------- ------------
Net cash used in investing activities (513,934) (16,541) (533,796)
------------ ---------- ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable - 62,314 110,043
Proceeds from issuance of bridge loan - 17,088 17,088
Repayment of bridge loan - (17,088) (17,088)
Cash acquired in acquisition - 888,932 888,932
Cash costs of conversion of debt to equity (5,803) - (5,803)
Proceeds from promissory notes 1,500,000 - 1,500,000
Proceeds from exercise of share purchase warrants 246,670 - 246,670
Net proceeds from sale of common stock 6,627,889 161,508 6,857,549
------------ ---------- ------------
Net cash provided by financing activities 8,368,756 1,112,754 9,597,391
------------ ---------- ------------
Net increase in cash and cash equivalents 4,353,481 795,809 5,149,290
Cash and cash equivalents at beginning of period 795,809 - -
------------ ---------- ------------
Cash and cash equivalents at end of period $ 5,149,290 $ 795,809 $ 5,149,290
============ ========== ============
Supplemental disclosure:
Cash paid for:
Income taxes $ - $ - $ -
Interest 7,200 - 7,200
Non-cash activities:
Notes payable and promissory notes
converted into common stock 1,516,666 110,043 1,626,709
Deferred stock compensation 2,394,900 392,356 2,787,256
Treasury stock acquired - 285 285
Discount on promissory note payable 1,000,000 - 1,000,000
Discount on notes payable - 8,407 8,407
Common stock issued for services 6,508 486,191 558,346
See accompanying notes to consolidated financial statements.
F-6
PCSUPPORT.COM, INC. and subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
- --------------------------------------------------------------------------------
1. Nature of development stage activities:
Mex Trans Seafood Consulting, Inc. was incorporated in Texas on February
13, 1989 and was a holding company prior to its merger with Reconnaissance
Technologies Inc. ("Reconnaissance"). In anticipation of this merger, a
shell company was incorporated in Nevada in April, 1999 and Mex Trans
Seafood Consulting, Inc. was merged into it, with PCSupport.com, Inc.
("PCS") as the surviving company. PCS had no substantive operations at that
time. In June 1999, PCS merged with Reconnaissance, with PCSupport.com,
Inc. (the "Company") being the surviving corporation (note 2(a)). The
Company currently operates in one business segment and is in the business
of developing and commercializing support services for the personal
computer market. The Company's services include providing daily secured
backup of personal computer hard-drives over the Internet, overnight laptop
replacements and an aggregation of web-based computer support services.
These 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, 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 and 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 June 30, 2000, the Company is considered to be in the
development stage as the Company has not generated significant revenues, is
continuing to develop its business, and has experienced negative cash flow
from operations. Operations have primarily been financed through the
issuance of common stock and debt. The Company does not have sufficient
working capital to sustain operations until the end of the year ended June
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. Significant accounting policies:
(a) Reverse take-over and basis of presentation:
On June 23, 1999, PCS merged with Reconnaissance, with
Reconnaissance's stockholders receiving the largest number of shares
and control of the Company. Accordingly, Reconnaissance is deemed the
accounting acquirer for financial statement purposes.
F-7
2. Significant accounting policies (continued):
(a) Reverse take-over and basis of presentation (continued):
The acquisition is accounted for as a reverse take-over using the
purchase method. The Company's historical financial statements reflect
the results of operations and cash flows of Reconnaissance from the
date of its incorporation on December 10, 1997 under the Company Act
(British Columbia). During June, 1999, Reconnaissance continued its
incorporation into Wyoming. The historical stockholders' equity gives
effect to the shares issued to the stockholders of Reconnaissance. The
financial position and results of operations of PCS are included from
the date of acquisition, June 23, 1999.
(b) Basis of consolidation:
These consolidated financial statements have been prepared using
generally accepted accounting principles in the United States. The
financial statements include the accounts of the Company's wholly-
owned subsidiary, Reconnaissance International Ltd. All significant
intercompany balances and transactions have been eliminated in the
consolidated financial statements.
(c) Use of estimates:
The preparation of 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.
(d) Contract revenue recognition:
Revenue from customer support service contracts is recognized over the
term of the customer support agreement. The Company also provides web-
based computer solutions to customers, including developing customized
branded web-based support portals or other products. Revenue from
these services are recognized when the product is delivered and no
significant performance obligations remain. For longer-term contracts
with significant customization, the Company recognizes revenue based
on the percentage of completion method of accounting.
Anticipated losses on contracts are charged to earnings as soon as
such losses can be estimated. Changes in estimated profits on
contracts are recognized during the period in which the change in
estimate is known.
F-8
2. Significant accounting policies (continued):
(e) Foreign currency:
The functional currency of the Company and its subsidiary is the
United States dollar. Transactions in foreign currencies are
translated to United States dollars at the rates in effect on the
transaction date. Exchange gains or losses arising on translation or
settlement of foreign currency denominated monetary items are included
in the consolidated statement of operations.
(f) Cash and cash equivalents:
The Company considers all short-term investments with a maturity date
at purchase of three months or less to be cash equivalents.
(g) Prepaid expenses and deposits:
Prepaid expenses and deposits primarily includes prepaid advertising
and software license fees and deposits relating to its office
operating leases.
(h) Property and equipment:
Property and equipment are recorded at cost and are depreciated using
the straight-line method over their estimated useful lives as follows:
Computer equipment and software 2 years
Furniture and fixtures 7 years
Office equipment 7 years
Leasehold improvements Over the lease term
The cost of maintenance and repairs are charged to expenses as
incurred. The Company reviews property and equipment for impairment
whenever events or changes in circumstances indicate the carrying
value may not be recoverable. If the sum of future cash flows expected
to result from the use of the asset and its eventual disposition is
less than the carrying amount, an impairment loss is recognized for
the excess of the carrying amount of the asset over the fair value of
the asset.
(i) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Under this method, current taxes are recognized for the
estimated income taxes payable for the current period.
Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between financial statement carrying
amounts of assets and liabilities and their respective tax bases as
well as the benefit of losses available to be carried forward to
future years for tax purposes.
F-9
2. Significant accounting policies (continued):
(i) Income taxes (continued):
Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in operations in the period that includes
the substantive enactment date. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that such deferred
tax assets will not be realized.
(j) Research and development:
Research and development costs are expensed when incurred.
The Company accounts for the costs of developing and maintaining its
web site in accordance with EITF 00-02 and SOP 98-1. Costs incurred
during the preliminary project stage are expensed as incurred. Costs
incurred during the application development stage are capitalized and
costs incurred during the operating stage are expensed, unless they
represent upgrades or enhancements that result in additional
functionality. Costs capitalized are reviewed for impairment in
accordance with SFAS 121. Also included in development costs are costs
incurred to develop branded support portals for third parties under
contract.
(k) Net loss per share:
Basic earnings per share is computed using the weighted average number
of common stock outstanding during the periods. Diluted loss per share
is computed using the weighted average number of common and
potentially dilutive common stock issuances 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 year
ended June 30, 2000 are warrants to purchase 2,965,838 (1999 -
311,838) shares of common stock and options to purchase 1,311,869
(1999 - nil) shares of common stock because their effects would be
anti-dilutive.
(l) Stock-based compensation:
The Company accounts for its stock-based compensation arrangement in
accordance with provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense under fixed plans would
be recorded on the date of grant only if the market value of the
underlying stock at the date of grant exceeded the exercise price. The
Company recognizes compensation expense for stock options, common
stock and other equity instruments issued to non-employees for
services received based upon the fair value of the services or equity
instruments issued, whichever is more reliably determined. This
information is presented in note 6(b)(ii).
F-10
2. Significant accounting policies (continued):
(l) Stock-based compensation (continued):
SFAS No. 123, Accounting for Stock Based Compensation, requires
entities that continue to apply the provisions of APB Opinion No. 25
for transactions with employees to provide pro forma net income and
pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied to these transactions. This
information is presented in note 6(b)(i).
(m) Comparative figures:
Certain comparative figures have been reclassified to conform to the
basis of presentation adopted for the current period.
3. Acquisitions:
In June, 1999, PCS merged with Reconnaissance. As described in note 2(a),
the acquisition was a reverse take-over with Reconnaissance being the
deemed accounting acquirer for financial statements purposes.
Net assets acquired through the issuance of common stock consisted of cash
and cash equivalents with a fair value of $935,685. The cash and cash
equivalents held by PCS were obtained through a private placement.
Acquisition related costs of $46,753 were incurred and were recorded as a
decrease in the acquisition amount carried in stockholders' equity.
The following table reflects unaudited pro forma information which combines
the operations of PCS and Reconnaissance for the year ended June 30, 1999
and the period from December 10, 1997 (inception) to June 30, 1998 as if
the acquisition of PCS had taken place at the beginning of the period.
There were no pro forma adjustments required in combining this information
of these two entities. This pro forma information does not reflect any non-
recurring charges or credits directly attributable to the transaction. This
pro forma information does not purport to be indicative of the revenues and
net loss that could have resulted had the acquisition been in effect for
the period presented and is not intended to be a projection of future
results or trends.
F-11
3. Acquisitions (continued):
Period from
December 10,
Year ended 1997 (inception)
June 30, to June 30,
1999 1999
---------- ----------------
Revenue $ 99 $ 99
Expenses:
On-line back-up 86 86
Research and development 17,646 20,460
Marketing and promotion 477,103 598,021
General and administrative 317,685 376,247
Interest, net 6,513 6,513
---------- ------------
Net loss for the period $ (818,934) $ (1,001,228)
========== ============
Net loss per share $ (0.14) $ (0.23)
========== ============
4. Property and equipment:
Property and equipment consists of the following:
June 30,
---------------------------
2000 1999
--------- --------
Computer equipment $ 335,546 $ 14,173
Furniture and fixtures 51,608 1,584
Office equipment 64,184 -
Leasehold improvements 71,776 -
--------- --------
523,114 15,757
Less accumulated depreciation 111,297 4,547
--------- --------
$ 411,817 $ 11,210
========= ========
5. Intangible assets:
Intangible assets includes the cost of acquiring the Company's World Wide
Web domain names and trademarks and is amortized straight-line over a three
year period.
F-12
6. Stockholders' equity:
(a) Convertible debt:
(i) Promissory notes:
In November, 1999, the Company issued promissory notes to an
investor totaling $500,000 with interest payable monthly, not in
advance, at a rate of 10% per annum. On January 11, 2000, the
Company agreed to convert the notes into 350,000 common shares
and warrants to purchase 240,000 common shares at a price of
$1.40 per share. The loss on extinguishment of the debt was
approximately $900.
(ii) Convertible promissory notes:
On February 29, 2000, the Company issued promissory notes
("Convertible Promissory Notes") to private investors totaling
$1,000,000, convertible into common stock of the Company at a
conversion rate of $2.00 per common share. The notes bore
interest at an annual rate of 10% and payable monthly. The notes
carried a beneficial conversion feature valued at $1,250,000,
equal to the aggregate excess of the market value of the
Company's common shares at the date of agreement over the
conversion rate. The beneficial conversion feature recorded was
limited to the proceeds of the promissory note offering of
$1,000,000 and was amortized to interest expense over the period
to the earliest conversion date, which resulted in full
amortization of the $1,000,000 to interest expense during the
year.
The notes, including $16,666 in accrued interest, were converted
in May 2000 into 508,333 common shares.
Under the terms of the financing agreement, the Company granted
1,000,000 "A" warrants and 500,000 "B" warrants to its agent for
the $1,000,000 Convertible Promissory Notes financing and for
future general financing services. Each "A" warrant entitles the
holder to acquire one common share at an exercise price of $1.25
per share to February 28, 2001 and $1.75 thereafter to February
28, 2002. Each "B" warrant entitles the holder to acquire one
common share at an exercise price of $2.00 per share to February
28, 2001 and $2.50 thereafter to February 28, 2002. The estimated
fair value of the warrants of $1,794,006 was recorded as deferred
financing costs and was amortized to interest expense over the
period to the earliest conversion date, which resulted in full
amortization of the $1,794,000 to interest expense during the
current year.
F-13
6. Stockholders' equity (continued):
(b) Stock options and stock-based compensation:
(i) Stock options:
On July 2, 1999, the Company adopted a fixed stock option plan that
provides for the issuance of incentive and non-qualified stock
options to officers, directors, employees, and consultants to
acquire shares of the Company's common stock.
The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and the
vesting schedule. The exercise price for qualified incentive stock
options shall not be less than the fair market value of the
underlying stock at the date of grant, and have terms no longer
than five years from the date of grant. Subsequent to year end, the
Company amended certain terms of its stock option plan (note
10(a)).
Stock option activity since the inception of the plan is presented
below:
Weighted
Number average
of shares exercise price
--------- --------------
Outstanding, July 1, 1999 - $ -
Granted 1,311,869 2.32
Exercised - -
Cancelled - -
--------- --------
Outstanding, June 30, 2000 1,311,869 $ $2.32
========= ========
The following table summarizes the stock options outstanding at
June 30, 2000:
Options outstanding Options exercisable
------------------------------------------- ---------------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of exercise price of shares contractual life exercise price exercisable exercise price
----------------------- --------- ---------------- -------------- ----------- --------------
$1.00 - $1.50 691,000 4.1 years 1.01 314,750 1.01
$1.69 - $2.48 201,369 4.9 years 2.02 119,008 1.99
$2.67 - $3.95 105,000 4.9 years 3.14 3,194 3.21
$4.22 - $6.06 314,500 4.8 years 5.10 28,167 5.08
--------- --------- ---- ------- ----
1,311,869 4.5 years 2.32 465,119 1.52
========= ========= ==== ======= ====
As at June 30, 2000, 465,119 stock options have vested and are
exercisable. The weighted average fair value of the options granted
during the year ended June 30, 2000 was $1.72 per option.
F-14
6. Stockholders' equity (continued):
(b) Stock options and stock-based compensation (continued):
(i) Stock options (continued):
As explained in note 2(l), the Company adopted only the disclosure
provisions of FAS No. 123 for options granted under the existing
employee stock option plan. FAS No. 123 uses a fair value method of
calculating the cost of stock option grants. Had compensation cost
for the employee stock option plan been determined by this method,
loss and basic loss per share would have been as follows:
June 30, 2000
-------------
Loss:
As reported $(6,965,445)
Pro-forma (7,295,259)
===========
Basic loss per share:
As reported $ (1.01)
Pro-forma (1.06)
===========
The Company recognizes the calculated compensation cost at the date
of granting the stock options on a straight-line basis over the
vesting period.
The Company has estimated the fair value of each option on the date
of the grant using the Black-Scholes option-pricing model with the
following assumptions:
June 30, 2000
-------------
Expected dividend yield -
Expected stock price volatility 70%
Risk-free interest rate 6%
Expected life of options 4 years
(ii) Stock-based compensation:
In January, 1998, the Company recorded non-cash compensation
expense of $65,647 related to the sale of 489,800 common shares at
$0.01 per share to certain stockholders and officers of the
Company. The fair value of the common shares was estimated at $0.13
per share at the time of the transaction.
In January, 1999, the Company recorded non-cash interest expense of
$8,407 related to the issuance of warrants to purchase 20,000
shares of common stock. The warrants were exercisable immediately
at an exercise price of $0.85 per share and expired in January,
2000.
In January and May, 1999, the Company issued 52,848 shares of
common stock in exchange for services relating to share issuances.
The fair value of these services was estimated based upon the
estimated fair value of the shares at $0.85 per share or $45,154.
The costs were deducted from the additional paid-in capital from
the sale of common stock in January, 1999.
F-15
6. Stockholders' equity (continued):
(b) Stock options and stock-based compensation (continued):
(ii) Stock-based compensation (continued):
In January, 1999, the Company recorded non-cash compensation
expense of $53,924 related to the issuance of 63,440 shares of
common stock to certain stockholders and officers of the Company.
The fair value of the shares was estimated at $0.85 per share at
the time of the transaction.
In April, 1999, the Company recorded non-cash compensation expense
and deferred compensation expense of $779,120 related to the
issuance of 1,500,000 shares of common stock at no cost to certain
officers and stockholders. The value of the shares was estimated
at $0.52 per share. A certain portion of these shares are subject
to vesting over a period of time. The compensatory element
relating to these shares were recorded as deferred stock
compensation to be amortized over their respective vesting
periods. In June, 1999, the Company repurchased 285,000 common
shares at $0.001 per share and recorded the transaction as shares
held in treasury as of June 30, 1999.
Common shares held in treasury total 285,000 at June 30, 2000.
Pursuant to an agreement dated July 31, 1999, the Company has the
option to re-purchase certain shares held by executive officers if
their employment ceases with the Company prior to January 1, 2002
at a price of $0.01 per share.
(c) Share purchase warrants:
In July, 1999 and March, 2000, warrants to purchase 68,400 and 140,600
common shares at a price of $0.85 and $1.34 per common share,
respectively, were exercised.
Share purchase warrants outstanding at June 30, 2000 and 1999 are as
follows:
Shares issuable on exercise of
outstanding warrants
------------------------------
Expiry dates Exercise price per share June 30, 2000 June 30, 1999
------------ ------------------------ ------------- -------------
March, 2001 (6(c)(iii)) $2.00 333,000 -
January, 2000 (6(b)(ii)) $0.85 - 20,000
January, 2002(6(a)(ii)) $1.40 240,000 -
February, 2002 (6(a)(iii)) $1.25 / $1.75 1,000,000 -
February, 2002 (6(a)(iii)) $2.00 / $2.50 500,000 -
March, 2002 (6(c)(ii)) $2.00 500,000 -
June, 2002 (6(c)(iv)) various 250,000 -
January, 2003 (6(c)(iv)) $1.05 10,000 -
April, 2003 (6(c)(iv)) $5.40 50,000 -
Various (6(c)(i)) $1.34 82,838 291,838
--------- -------
2,965,838 311,838
========= =======
F-16
6. Stockholders' equity (continued):
(c) Share purchase warrants (continued):
(i) Between January 26, 1999 and February 18, 1999, the Company
issued warrants which are exercisable at $0.85 per share for a
period expiring three months after the completion of an initial
public offering by the Company of its common shares at a price
per share of $0.85 prior to July 18, 1999 and $1.34 per share
thereafter.
(ii) In March 2000, the Company completed a private placement for
2,054,000 common shares of the Company for proceeds of
$4,071,778, being net of $36,222 of cash financing costs. The
Company agreed to issue warrants to purchase 500,000 common
shares of $2.00 per share for consulting and advisory services in
connection with this transaction. The warrants will expire March
2002. The estimated fair value of these warrants at the date of
grant was $1,736,000 and has been recorded as a charge against
additional paid-in capital.
(iii) In March and April, 2000, the Company completed a private
placement issuing 666,000 units to investors for proceeds of
$1,293,180, net of $38,820 of cash financing costs. Each unit
consists of one common share of the Company and one-half of one
warrant, with two one-half warrants exercisable to purchase an
additional one common share at an exercise price of $2.00 per
share, with the warrants expiring in March 2001.
(iv) In April, 2000, the Company completed a private placement for
645,000 common shares for proceeds of $1,194,931, net of $175,694
of cash financing costs. The Company also issued warrants to
purchase 310,000 common shares as compensation for arranging the
financing. The exercise price of 250,000 of the warrants is
dependent on the issuance price of an expected future private
placement. The value of these warrants have initially been
measured at their fair value using current market information and
will be readjusted as this fair value changes until the date of
the future private placement. The value assigned to these
warrants is recorded in equity. Of the remaining warrants, 10,000
and 50,000 have exercise prices of $1.05 and $5.40, respectively.
The estimated fair value of the warrants of $260,451 has been
recorded as a charge against additional paid-in capital.
F-17
7. Commitments and contingencies:
(a) Operating leases:
The Company leases office facilities in British Columbia under
operating lease agreements that expire in November, 2002 and June,
2005. Minimum lease payments under these operating leases and other
license software and lease equipment are as follows:
2001 $493,500
2002 495,500
2003 357,000
2004 280,500
2005 280,500
Thereafter 46,500
Rent expense totalled $79,413 and $9,587 for the years ended June 30,
2000 and 1999, respectively.
(b) Internet portal advertising agreement:
The Company entered into an agreement with an Internet service company
to allow the Company to advertise its services on the Internet service
Company's web site for a one year term. Also, the Company has agreed
to create a co-branded web site to provide its services to the
Internet service Company's customers for a two year term. The Company
paid $570,000 under the agreement for fiscal year 2000 and is
committed to paying $2,460,000 in fiscal year 2001 and $2,250,000 in
fiscal year 2002. The agreement is subject to cancellation after one
year at the Company's option.
(c) Financing agreement:
The Company entered into a financing agreement with ICE Holdings North
America, LLC in March, 2000. Subject to the completion of direct and
indirect financing milestones, the Company will be required to issue
and register with the United States Securities and Exchange Commission
1,000,000 warrants as consideration for their services. As at June 30,
2000, 250,000 warrants were earned and issued (note 6(c)(iv)).
F-18
8. Deferred tax assets and liabilities:
June 30,
-----------------------
2000 1999
----------- ---------
Deferred tax assets:
Start-up costs and other $ 311,200 $ 269,953
Operating loss carry forwards 1,413,000 -
Property and equipment 71,056 4,547
Accounts payable and accrued liabilities 6,207 -
----------- ---------
Total deferred tax assets before valuation allowance 1,801,463 274,500
Valuation allowance (1,801,463) (274,500)
----------- ---------
Net deferred tax assets $ - $ -
=========== =========
Management believes that it is not more likely than not that it will create
sufficient taxable income sufficient to realize its deferred tax assets. It
is reasonably possible these estimates could change due to future income and
the timing and manner of the reversal of deferred tax liabilities. Due to
its losses, the Company has no income tax expense.
The Company has operating loss carry forwards for income tax purposes at
June 30, 2000 of approximately $4,137,000. Operating losses begin to expire
in fiscal year 2020.
9. Financial instruments:
(a) Fair values:
The Company regularly invests funds in excess of its immediate needs
in money market accounts. The fair value of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities
approximates their financial statement carrying amounts due to the
short-term maturities of these instruments. The carrying amount of
notes payable approximates fair value since they have a short-term to
maturity.
(b) Foreign currency risk:
The Company operates internationally which gives rise to the risk that
cash flows may be adversely impacted by exchange rate fluctuations.
The Company does not enter into foreign currency hedge transactions.
(c) Market risk:
Approximately 83% (1999 - 100%) of the Company's revenues were from
one Canadian customer for the year ended June 30, 2000. All of the
Company's capital assets are located in Canada.
F-19
10. Subsequent events:
(a) In July 2000, the Company amended its stock option plan whereby all
options granted to a starting employee in any fiscal quarter will have
an exercise price equal to the average closing price for every trading
day in the previous quarter. All options granted since January 1, 2000
are to be retroactively repriced in accordance with the amended terms
unless the new exercise price exceeds the original exercise price. For
accounting purposes, all repriced options will be considered to be
variable plan options and compensation expense will be recognized to
the extent that the market price of the Company's stock increases to
the exercise or expiry date.
(b) Subsequent to June 30, 2000 the Company granted 68,500 stock options
to officers, directors and employees with an exercise price of $3.44
per share.
(c) In July 2000, the Company obtained a license to use specific dial-up
connection technology in exchange for minimum payments of $100,000 in
cash and 100,000 common shares. 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.
(d) 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.
(e) On September 7, 2000, the Company signed a Letter of Intent to acquire
all of the assets and assume certain liabilities of MyHelpDesk, Inc.
in exchange for 1,250,000 common shares of the Company and a further
250,000 common shares one year after closing. MyHelpDesk, Inc. is a
development stage company that provides web-based computer support
services.
(f) 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
200,000 shares of common stock (with up to 100,000 of these shares
subject to cancellation under certain circumstances related to
continued employment) and a cash payment of $50,000. Tavisco Ltd.
designs, develops and provides state-of-the-art virus diagnostic
products for computer service professionals. Its products include
virus scanners and cleaners, a full-featured anti-virus protection
system, and a rapid screening test that prevents virus infections.
F-20
10. Subsequent events (continued):
(f) Continued:
The total purchase price of $376,000, including estimated acquisition
costs is allocated to the assets acquired based upon these relative
fair values as follows:
Software $338,400
Licenses, patents and other intangibles 37,600
--------
$376,000
========
Consideration:
Cash $ 70,000
Common shares 306,000
--------
$376,000
========
The common shares issued have been recorded at their market value at
September 15, 2000. The purchase price allocation is an estimate only
and is subject to change.
F-21
Unaudited Interim Financial Statements of
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PCSUPPORT.COM, INC. AND SUBSIDIARY
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
December 31, June 30,
2000 2000
------------ -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,780,065 $ 5,149,290
Trade receivables 482,629 -
Other receivables 20,074 89,933
Prepaid expenses 184,724 257,625
Deposits 65,111 189,348
------------ -----------
Total current assets 2,532,603 5,686,196
Property and equipment (note 3) 944,948 411,817
Deferred acquisition and finance costs 7,756 25,000
Intangible assets (notes 3 and 4) 3,415,278 7,052
------------ -----------
$ 6,900,585 $ 6,130,065
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 710,514 $ 657,050
Deferred revenue 157,372 -
------------ -----------
Total current liabilities 867,886 657,050
Stockholders' equity (note 5):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 13,171,662 shares at December 31, 2000 and 10,477,662
shares at June 30, 2000 13,122 10,478
Contingent common stock to be issued (note 3(b)) 625,000 -
Additional paid-in capital 17,116,344 13,765,041
Deferred stock compensation (83,952) (387,563)
Deficit (11,637,815) (7,914,941)
------------ -----------
Total stockholders' equity 6,032,699 5,473,015
------------ -----------
$ 6,900,585 $ 6,130,065
============ ===========
Commitments and contingencies (note 6)
Subsequent events (note 7)
See accompanying notes to interim consolidated financial statements.
F-22
PCSUPPORT.COM, INC. AND SUBSIDIARY
Interim Consolidated Statements of Operations
(Expressed in U.S. Dollars)
Six months ended Three months ended
December 31, December 31,
2000 1999 2000 1999
----------- ----------- ----------- ----------
(unaudited) (unaudited)
Revenue:
License fees $ 29,580 $ 2,320 $ 27,254 $ 1,614
Services and other 399,649 - 303,426 -
----------- ----------- ----------- ----------
429,229 2,320 330,680 1,614
Costs and expenses:
Cost of license fees and services 796,151 2,132 417,686 1,422
Development costs 677,853 372,619 383,778 151,565
Marketing and promotion 1,315,512 258,147 361,432 93,599
General and administrative 1,342,933 488,733 714,115 317,684
Stock-based compensation expense 177,751 252,611 118,772 138,953
----------- ----------- ----------- ----------
4,310,200 1,374,242 1,995,783 703,223
----------- ----------- ----------- ----------
Loss from operations (3,880,971) (1,371,922) (1,665,103) (701,609)
Interest income, net 158,097 7,984 45,600 131
----------- ----------- ----------- ----------
Loss for the period $(3,722,874) $(1,363,938) $(1,619,503) $ (701,478)
=========== =========== =========== ==========
Net loss per common share, basic and diluted $ (0.34) $ (0.23) $ (0.14) $ (0.12)
=========== =========== =========== ==========
Weighted average common shares outstanding,
basic and diluted 10,860,358 6,052,770 11,502,999 6,075,569
=========== =========== =========== ==========
See accompanying notes to interim consolidated financial statements.
F-23
PCSUPPORT.COM, INC. AND SUBSIDIARY
Interim Consolidated Statements of Stockholders' Equity
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited) and year ended June 30, 2000
Common Shares Contingent Stock Additional
Shares Amount To be Issued Paid-in Capital
--------------------------------------------------------------------
Balance, June 30, 1999 5,722,169 $ 6,007 $ - $ 1,981,782
Exercise of warrants in July, 1999 68,400 69 - 58,197
Shares issued in exchange for service 4,160 4 - 6,504
Fair value of options issued to
employees and consultants - - - 600,900
Conversion of notes payable in January,
net of $5,803 in cash financing costs 350,000 350 - 494,747
Fully paid warrants issued as financing
compensation cost - - - 1,794,000
Beneficial conversion feature of notes
payable issued in February - - - 1,000,000
Amortization of deferred stock compensation - - -
Sale of units in March and April, $2.00 per
unit, net of $38,820 in cash financing costs 666,000 666 - 1,292,514
Sale of common stock in March, $2.00 per share,
net of $36,222 in cash financing costs 2,054,000 2,054 - 4,069,724
Exercise of warrants in March for cash 140,600 141 - 188,263
Sale of common stock in April, $2.00 per share 34,000 34 - 67,966
Sale of common stock in April, $2.125 per share,
net of $175,694 in cash financing costs 645,000 645 - 1,194,286
Conversion of promissory notes payable in May 508,333 508 - 1,016,158
Net loss - - - -
------------ -------- ---------------- ---------------
Balance, June 30, 2000 10,192,662 $ 10,478 $ - $ 13,765,041
Issuance of common stock for acquisition of license 100,000 100 - 174,900
Issuance of common shares under subscription 50,000 50 - 261,750
Less: note receivable for common shares subscription - (50) - (261,750)
Exercise of stock options 44,000 44 - 43,956
Issuance of common stock for acquisition in September
(note 3(a)) 100,000 100 - 199,900
Issuance of contingent common shares (note 3(a)) 100,000 100 - 199,900
Fair value of options issued employees and consultants - - - 30,836
Adjustment to deferred stock compensation due to
cancellations - - - (256,696)
Amortization of deferred stock compensation - - - -
Sale of common stock in November, $1.50 per share, net
of $214,193 in cash financing costs 1,350,000 1,350 - 1,809,457
Issuance of common stock for acquisition in November
(note 3(b)) 1,000,000 1,000 - 1,249,000
Contingent stock to be issued (note 3(b)) - - 625,000 -
Cancellation of contingent common stock (note 3(a)) (50,000) (50) - (99,950)
Net loss - - - -
------------ -------- ---------------- ---------------
Balance, December 31, 2000 12,886,662 $ 13,122 $ 625,000 $ 17,116,344
============ ======== ================ ===============
Deferred Stock Total
Compensation Deficit Stockholders Equity
------------------------------------------------------
Balance, June 30, 1999 $ (198,909) $ (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 (600,900) - -
Conversion of notes payable in January,
net of $5,803 in cash financing costs - - 495,097
Fully paid warrants issued as financing
compensation cost (1,794,000) - -
Beneficial conversion feature of notes
payable issued in February - - 1,000,000
Amortization of deferred stock compensation 2,206,246 - 2,206,246
Sale of units in March and April, $2.00 per
unit, net of $38,820 in cash financing costs - - 1,293,180
Sale of common stock in March, $2.00 per share,
net of $36,222 in cash financing costs - - 4,071,778
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 financing costs - - 1,194,931
Conversion of promissory notes payable in May - - 1,016,666
Net loss - (6,965,445) (6,965,445)
--------------- -------------- --------------
Balance, June 30, 2000 $ (387,563) $ (7,914,941) $ 5,473,015
Issuance of common stock for acquisition of license - - 175,000
Issuance of common shares under subscription - - 261,800
Less: note receivable for common shares subscription - - (261,800)
Exercise of stock options - - 44,000
Issuance of common stock for acquisition in September
(note 3(a)) - - 200,000
Issuance of contingent common shares (note 3(a)) (200,000) - -
Fair value of options issued employees and consultants (30,836) - -
Adjustment to deferred stock compensation due to
cancellations 256,696 - -
Amortization of deferred stock compensation 177,751 - 177,751
Sale of common stock in November, $1.50 per share, net
of $214,193 in cash financing costs - - 1,810,807
Issuance of common stock for acquisition in November
(note 3(b)) - - 1,250,000
Contingent stock to be issued (note 3(b)) - - 625,000
Cancellation of contingent common stock (note 3(a)) 100,000 - -
Net loss - (3,722,874) (3,722,874)
--------------- -------------- --------------
Balance, December 31, 2000 $ (83,952) $ (11,637,815) $ 6,032,699
=============== ============== ==============
See accompanying notes to interim consolidated financial statements.
F-24
PCSUPPORT.COM, INC. AND SUBSIDIARY
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
Six months ended
December 31,
2000 1999
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Loss for the period $(3,722,874) $(1,363,938)
Items not affecting cash:
Depreciation and amortization 261,382 16,652
Amortization of deferred stock compensation 177,751 252,611
Intangible assets in exchange for services 22,000 -
Changes in operating assets and liabilities:
Trade receivables (462,454) -
Other receivables 82,541 (16,536)
Prepaid expenses 89,033 33,950
Deposits 133,833 26,410
Accounts payable and accrued liabilities (96,493) 232,367
Deferred revenue 157,372 -
----------- -----------
Net cash used in operating activities (3,357,909) (818,484)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (437,059) (154,314)
Deferred acquisition and finance costs 17,244 -
Purchase of intangible assets (1,530,962) -
----------- -----------
Net cash used in investing activities (1,950,777) (154,314)
----------- -----------
Cash flows from financing activities:
Cash acquired in acquisition 84,654 -
Proceeds from promissory notes - 500,000
Proceeds from exercise of stock options 44,000 -
Proceeds from exercise of share purchase warrants - 58,266
Net proceeds from sale of common stock 1,810,807 -
----------- -----------
Net cash provided by financing activities 1,939,461 558,266
----------- -----------
Net decrease in cash and cash equivalents (3,369,225) (414,532)
Cash and cash equivalents at beginning of period 5,149,290 795,809
----------- -----------
Cash and cash equivalents at end of period $ 1,780,065 $ 381,277
=========== ===========
Supplemental disclosure
Cash paid for interest $ 4,220 $ -
Cash paid for taxes - -
Non-cash activities:
Deferred stock compensation (125,860) 74,226
Common stock issued for acquisition of license 175,000 -
Common stock issued on acquisitions (note 3) 1,450,000 -
Contingent common stock to be issued (note 3(b)) 625,000 -
See accompanying notes to interim consolidated financial statements.
F-25
PCSUPPORT.COM, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
1. Nature of business:
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. One customer
accounted for 84% of the services and other revenue recorded in the six
months ended December 31, 2000. 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, continue to
exist, or that the Company will become profitable. Operations have
primarily been financed through the issuance of equity instruments and
debt. The Company believes it has sufficient working capital to sustain
its current level of operations until at least June 2001. The Company
does not have any commitments from third parties to provide additional
financing, and such financings may not be available or may not be
available on reasonable terms.
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 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.
F-26
PCSUPPORT.COM, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
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. 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 December 31, 2000 are warrants to purchase 2,965,838 (December
31, 1999 - 243,438) shares of common stock and options to purchase
2,428,800 (December 31, 1999 - 647,950) shares of common stock because
their effects would be anti-dilutive.
3. Acquisitions:
(a) Tavisco Ltd.:
On September 15, 2000, the Company acquired substantially all of the
assets of Tavisco Ltd. ("Tavisco"), a producer of anti-virus services
and products. The purchase price for Tavisco's assets consisted of
100,000 shares of common stock valued at $200,000, a cash payment of
$50,000 and other related acquisition costs of $24,000. 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. The total purchase price of $274,000 is allocated to the
assets acquired based upon their relative fair values as follows:
Software $252,000
Licenses, patents and other intangibles 22,000
--------
$274,000
--------
Consideration:
Cash $ 74,000
Common stock 200,000
--------
$274,000
--------
Under the terms of the acquisition, an additional 100,000 common shares
were issued to Tavisco, which were subject to cancellation under
circumstances related to continued employment of former Tavisco
employees with the Company. The issuance of these shares has been
recorded as deferred stock compensation and amortized over the vesting
period. On December 1, 2000, the Company cancelled 50,000 of the
100,000 contingent common shares upon termination of employment of the
former Tavisco employees, and removed all subject to cancellation
conditions on the remaining 50,000 common shares. The Company also
returned certain of the intangibles originally acquired.
F-27
PCSUPPORT.COM, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
3. Acquisitions (continued):
(b) MyHelpDesk, Inc.:
On November 27, 2000, the Company acquired all of the assets and
assumed certain of the liabilities of MyHelpDesk, Inc. ("MyHelpDesk"),
a provider of online, computer self-help directories. The purchase
price for MyHelpDesk's net assets consisted of 1,000,000 shares of
common stock valued at $1,250,000, cash advances of $1,356,376, other
related acquisition costs of $73,416 and 500,000 contingently issuable
common shares with a fair value of $625,000. With respect to the
500,000 contingently issuable common shares, the Company is required
within twelve months following the initial issuance of 1,000,000
common shares to issue an additional 387,500 shares of common stock to
MyHelpDesk and 112,500 shares of common stock to eight former
employees of MyHelpDesk. The number of shares to be issued in the
subsequent issuances are subject to reduction in the event of the
Company assuming additional liabilities upon certain breaches of the
representations and warranties of MyHelpDesk.
The total purchase price of $3,304,792, including the contingently
issuable common stock, is allocated to the assets acquired and
liabilities assumed based upon their relative fair values as follows:
Cash $ 84,654
Trade and other receivables 32,857
Prepaid expenses and deposits 25,728
Property and equipment 49,954
Libraries, patents and other intangibles 3,261,559
Accounts payable and accrued liabilities (149,960)
----------
$3,304,792
----------
Consideration:
Cash $1,429,792
Common stock 1,250,000
Contingent common stock to be issued 625,000
----------
$3,304,792
----------
F-28
PCSUPPORT.COM, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
3. Acquisitions (continued):
(c) Unaudited pro forma information:
The following table reflects unaudited pro-forma information, which
combines the operations of Tavisco, MyHelpDesk and the Company for the
six months ending December 31, 2000 and 1999, as if the acquisitions
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.
Six months ended Six months ended
December 31, 2000 December 31, 1999
Revenue $ 473,866 $ 2,423
Net loss for the period $ (6,307,823) $ (3,617,133)
Net loss per common share, basic and diluted $ (0.53) $ (0.50)
4. Intangibles assets:
Intangible assets consists of the following:
December 31, June 30,
2000 2000
MyHelpDesk self-help directories, trademarks and
Internet domain names $3,261,559 $ -
License for specific online support technology 275,000 -
Other 11,261 10,094
-------------------------------
3,547,820 10,094
Less accumulated amortization 132,542 3,042
-------------------------------
$3,415,278 $ 7,052
===============================
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.
F-29
PCSUPPORT.COM, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
5. Stockholders' equity:
(a) Stock options and stock-based compensation:
During the six months ended December 31, 2000, the Company granted
1,528,875 stock options with exercise prices ranging from $0.72 to
$3.44 and vesting periods ranging from immediate up to 36 months.
Stock compensation expense for the six months ended December 31, 2000
totaling $177,751 (1999 - $252,611) would be allocated $4,562 (1999 -
nil) to Cost of license fees and services, $114,333 (1999 - $10,230)
to Development costs, $19,527 (1999 - $104,887) to Marketing and
promotion costs, and $39,329 (1999 - $137,494) to General and
administrative costs.
(b) Shares and share purchase warrants:
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 online
support technology. The Company is required to issue warrants for each
incremental 100,000 licenses sold to users over 400,000 licenses.
These warrants, with exercise prices ranging from $2.00 to $4.00, will
entitle the holder for a period of five years to purchase common
shares of the Company.
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 annually, and is
payable in full on July 25, 2005.
In November 2000, the Company completed a private placement for
1,350,000 common shares for proceeds of $1,810,807, net of $214,193 of
cash financing costs.
The exercise prices of 250,000 warrants the Company agreed to issue in
April 2000 as part of a common share private placement, was dependent
on the price of a future private placement. Upon the closing of the
November 2000 common share private placement, the exercise prices
became known and range from $1.00 to $1.50. The incremental value of
the warrants, using the new exercise prices over the fair value under
the original terms of the warrants of $58,344 has been recorded as a
charge to additional paid-in capital.
6. Commitments and contingencies:
(a) In November 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:
2001 $ 121,500
2002 111,500
(b) In November 2000, the Company terminated an advertising agreement,
reducing the Company's commitments by the following annual amounts:
2001 $2,820,000
2002 750,000
F-30
PCSUPPORT.COM, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Six months ended December 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
7. Subsequent events:
(a) Subsequent to December 31, 2000, the Company completed a private
placement for 2,900,000 common shares for proceeds of $1,609,500, net
of $174,000 of cash commission costs. The Company also issued 700,000
warrants at an exercise price of $1.00 and expiring in January 2004.
As partial compensation for arranging the financing, the Company has
agreed to issue an additional 250,000 warrants to its investment
banker at an exercise price of $1.00 expiring in January 2003.
(b) In January 2001, the Company entered into a partial sublease of one of
its office premises. Under the terms of the agreement, the lessee has
operating commitments to the Company in the following annual amounts:
2001 $ 148,500
2002 198,000
2003 198,000
2004 198,000
2005 132,000
(c) In January 2001, the Company cancelled 521,250 stock options
previously granted to 5 employees whose employment with the Company
was terminated.
F-31
================================================================================
We have not authorized anyone to give any information or make any
representations, other than those contained in this prospectus. You must not
rely on any unauthorized information or representations. Only the shares
described within this prospectus are being offered, and only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................ 2
Risk Factors.............................................................. 3
Use of Proceeds........................................................... 13
Our Business.............................................................. 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 25
Directors, Executive Officers, Promoters and
Control Persons...................................................... 28
Security Ownership of Certain Beneficial
Owners and Management................................................ 31
Executive Compensation.................................................... 32
Disclosure of Commission Position of
Indemnification for Securities Act Liabilities....................... 35
Description of Securities................................................. 36
Market For Common Equity and Other
Stockholder Matters.................................................. 36
Selling Securityholders................................................... 37
Plan of Distribution...................................................... 41
Experts................................................................... 42
Legal Matters............................................................. 42
Changes In and Disagreements With
Accountants on Accounting and Financial Disclosure................... 42
Where You Can Find More Information....................................... 43
Financial Statements...................................................... 44
11,691,331 Shares of Common Stock
PCSUPPORT.COM, INC.
---------------
PROSPECTUS
-------------------
================================================================================
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with the distribution described
in this registration statement (other than brokerage commissions, discounts or
other expenses relating to the sale of the shares by the selling stockholders)
will be as set forth below. All of the expenses as set forth below that are
incurred with respect to the distribution will be paid us, and such amounts,
with the exception of the Securities and Exchange Commission registration fee,
are estimates.
SEC registration fee.................................... $ 714
Accounting fees and expenses............................ 10,000
Legal fees and expenses................................. 50,000
Printing expenses....................................... 10,000
Miscellaneous........................................... 1,500
---------
Total $ 72,214
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our by-laws provide that no officer or Director shall be personally
liable for any of our obligations or for any duties or obligations arising out
of any acts or conduct of said officer or Director performed for or on our
behalf. We indemnify and hold harmless each person who serves at any time as a
Director or officer, and his heirs and administrators, from and against any and
all claims, judgments and liabilities to which such person shall become subject
by reason of his having been a Director or officer, or by reason of any action
alleged to have been taken or omitted to have been taken by him as such Director
or officer, and shall reimburse such person for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability. We
also have the power to defend such person from all suits or claims in accord
with the Nevada General Corporation Law. However, no such person shall be
indemnified against, or be reimbursed for, any expense incurred in connection
with any claim or liability arising out of his own negligence or willful
misconduct. The rights accruing to any person under our by-laws do not exclude
any other right to which he may lawfully be entitled, and we may indemnify or
reimburse such person in any proper case, even though not specifically provided
for by the by-laws. We shall be fully protected in taking any action or making
any payment, or in refusing so to do, in reliance upon the advice of counsel, as
shall our Directors, officers, employees and agents.
Insurance. We maintain insurance on behalf of any person who is or was
our Director, officer or employee, or is or was serving at our request as a
Director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise against liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the we would have the power to indemnify him against liability
under the provisions of this section.
Settlement by the Company. The right of any person to be indemnified is
subject always to our right by our Board of Directors, in lieu of such
indemnity, to settle any such claim, action, suit or proceeding at our expense
by the payment of the amount of such settlement and the costs and expenses
incurred in connection therewith.
II-1
ITEM 16. EXHIBITS
Exhibit Number Description
- -------------- -----------
4.1 Specimen Stock Certificate. (1)
5.1 Opinion of Counsel as to the legality of securities being
registered.
23.1 Consent of Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24 Power of Attorney. (2)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (Reg. No. 333-37760) filed on May 24, 2000.
(2) Previously filed with this Registration Statement on Form SB-2 (Reg.
No. 333-51680) on December 12, 2000.
ITEM 17. UNDERTAKINGS
A. Rule 415 Offering
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Company pursuant to Section 13 or
Section
II-2
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. Filings Incorporating Annual Report
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Request for Acceleration of Effective Date
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of
Burnaby, British Columbia, Canada, on March 8, 2001.
PCSUPPORT.COM, INC.
By: /s/ Michael G. McLean
--------------------------------
Michael G. McLean
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the capacities
and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael G. McLean President, Chief Executive Officer and March 8, 2001
- ------------------------------------
Michael G. McLean Chairman (Principal Executive Officer)
/s/ David W. Rowat Vice President and Chief March 8, 2001
- ------------------------------------
David W. Rowat Financial Officer (Principal
Financial and Accounting Officer)
/s/ Steven W. Macbeth Director March 8, 2001
- ------------------------------------
Steven W. Macbeth
/s/ Bruce Nelson Director March 8, 2001
- ------------------------------------
Bruce Nelson
/s/ Jerome J. DeLuccio Director March 8, 2001
- ------------------------------------
Jerome J. DeLuccio
II-4
TABLE OF CONTENTS
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
4.1 Specimen Stock Certificate.(1)
5.1 Opinion of Counsel as to the legality of securities being
registered.
23.1 Consent of Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24 Power of Attorney. (2)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (Reg. No. 333-37760) filed on May 24, 2000.
(2) Previously filed with this Registration Statement on Form SB-2 (Reg.
No. 333-51680) on December 12, 2000.
II-5