<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-37760
Prospectus Supplement No. 1, dated September 28, 2000
to Prospectus dated June 23, 2000
PCSUPPORT.COM, INC.
This Prospectus Supplement No. 1 supplements our Prospectus, dated June 23,
2000 with respect to (i) our proposed acquisition of MyHelpDesk, Inc. and (ii)
the filing of our audited financial statements for the fiscal year ended June
30, 2000 in our Form 10-KSB for the fiscal year ended June 30, 2000, which was
filed on September 28, 2000.
Any information contained in the Prospectus shall be deemed to be modified
or superseded to the extent that information in this Prospectus Supplement
modifies or supersedes such statement. Any statement that is modified or
superseded by this Prospectus Supplement shall no longer be deemed to constitute
a part of the Prospectus, except as so modified.
This Prospectus Supplement should be read in conjunction with, and may not
be delivered or utilized without, the Prospectus.
Proposed Acquisition of MyHelpDesk, Inc.
----------------------------------------
On September 7, 2000 we agreed to acquire all of the assets and assume
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. MyHelpDesk, Inc. specializes in computer information aggregation
products and services. It has the world's largest directory of computer help and
productivity resources.
Under the terms of the agreement, we will acquire all of the assets and
assume certain liabilities of MyHelpDesk, Inc. in exchange for 1,500,000 shares
of our common stock. The acquisition is subject to customary closing conditions,
including satisfactory completion of due diligence and any required regulatory
approvals.
Financial Statements for Fiscal Year Ended June 30, 2000
--------------------------------------------------------
Our audited financial statements for the fiscal year ended June 30, 2000
are set forth below.
<PAGE>
Consolidated Financial Statements of
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
F-1
<PAGE>
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
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
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10,
1997
Year ended Year ended (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- --------------
<S> <C> <C> <C>
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
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
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
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares Additional Deferred During Total
----------------------- Paid-in Stock Development Stockholders'
Shares Amount Capital Compensation Stage Equity
---------- -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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 30, 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 30, 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 30, 2000 10,192,662 $10,478 $13,765,041 $ (387,563) $(7,914,941) $ 5,473,015
========== ======= =========== =========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10,
1997
Year ended Year ended (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- --------------
<S> <C> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
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 acquiror
for financial statement purposes.
F-7
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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
website 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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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 acquiror 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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
3. Acquisitions (continued):
<TABLE>
<CAPTION>
Period from
December 10,
Year ended 1997 (inception)
June 30, to June 30,
1999 1999
---------- ----------------
<S> <C> <C>
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)
========= ===========
</TABLE>
4. Property and equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------
2000 1999
--------- -----------
<S> <C> <C>
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
========= ===========
</TABLE>
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 8
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
Weighted
Number average
of shares exercise price
--------- --------------
<S> <C> <C>
Outstanding, July 1, 1999 - $ -
Granted 1,311,869 2.32
Exercised - -
Cancelled - -
--------- --------------
Outstanding, June 30, 2000 1,311,869 $2.32
========= ==============
</TABLE>
The following table summarizes the stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
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
----------------------- --------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$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
========= ================ ==== ======= ====
</TABLE>
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 9
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
Loss:
As reported $ (6,965,445)
Pro-forma (7,295,259)
=============
Basic loss per share:
As reported $ (1.01)
Pro-forma (1.06)
=============
</TABLE>
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:
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
Expected dividend yield -
Expected stock price volatility 70%
Risk-free interest rate 6%
Expected life of options 4 years
</TABLE>
(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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 10
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
Shares issuable on exercise of
outstanding warrants
------------------------------
Expiry dates Exercise price per share June 30, 2000 June 30, 1999
------------ ------------------------ -------------- -------------
<S> <C> <C> <C>
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
========= =======
</TABLE>
F-16
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 11
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 12
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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:
<TABLE>
<S> <C>
2001 $493,500
2002 495,500
2003 357,000
2004 280,500
2005 280,500
Thereafter 46,500
</TABLE>
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 website for a one year term. Also, the Company has agreed to
create a co-branded website 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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 13
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
8. Deferred tax assets and liabilities:
<TABLE>
<CAPTION>
June 30,
------------------------
2000 1999
----------- ---------
<S> <C> <C>
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 $ - $ -
=========== =========
</TABLE>
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 14
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 15
(Expressed in U.S. Dollars)
Years ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
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:
<TABLE>
<S> <C>
Software $338,400
Licences, patents and other intangibles 37,600
--------
$376,000
========
Consideration:
Cash $ 70,000
Common shares 306,000
--------
$376,000
========
</TABLE>
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
