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As filed with the Securities and Exchange Commission on June 19, 2000
Reg. No. 333-37760
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
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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<TABLE>
<S> <C> <C>
Nevada 7389 98-0211769
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
Suite 280, 4400 Dominion Street,
Burnaby, British Columbia, Canada V5G 4G3
(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, Finance and Business Development
PCSupport.com, Inc.
Suite 280, 4400 Dominion Street
Burnaby, British Columbia, Canada V5G 4G3
(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: As soon as practicable after
this Registration Statement becomes effective.
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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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
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<CAPTION>
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit (1) price (1) registration fee
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<S> <C> <C> <C> <C>
Common Stock, par
value $0.001 7,291,331 $3.03125 (1) $22,101,847 $6,145 (2)
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</TABLE>
(1) 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 the Company's Common Stock as reported on the OTC Electronic Bulletin Board
on May 19, 2000.
(2) Previously paid.
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The Company hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Company 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.
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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. Neither we nor the selling stockholders may
sell these securities, or accept offers to buy them, until the registration
statement becomes effective. These securities will not be sold in any state
where their offer or sale, or solicitations of offers to buy them, would be
unlawful prior to their registration or qualification under the securities laws
of any state.
PROSPECTUS
PCSUPPORT.COM, INC.
7,291,331 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 41-44 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
7,291,331 shares of common stock offered by this prospectus, selling
stockholders are selling 2,820,838 shares that are issuable upon the exercise of
outstanding warrants.
Our common stock is traded on the OTC Electronic Bulletin Board under the
symbol "PCSP." On June 15, 2000, the closing price of our common stock was
$2.0625 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 2.
The date of this prospectus is __________, 2000.
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All statements, other than statements of historical fact, included in this
prospectus, including without limitation the statements under "Our Business" and
"Plan of Operation," 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,
competition, economic conditions, availability of capital, and other risk
factors detailed under "Risk Factors" and elsewhere herein. 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
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We are a development 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 to personal computer users
worldwide. We are committed to minimizing the cost and productivity gaps
associated with software and hardware failure. We are partnering with ISPs,
Internet portals, personal computer ("PC") vendors, and corporations for the
sale and distribution of our online preventative 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 Suite 280,
4400 Dominion Street, Burnaby, British Columbia, Canada V5G 4G3, and our
telephone number is (604) 419-4490.
The Offering
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Common stock offered......................................7,291,331 shares (1)
Common stock currently outstanding.......................10,477,662 shares (2)
Common stock to be outstanding after the offering....13,298,500 shares (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 warrants for the shares of common stock
covered by this prospectus.
(2) Based on the number of shares of common stock outstanding on June 15, 2000.
This number includes 4,470,493 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 warrants, 50,000
additional shares issuable upon exercise of outstanding warrants and
901,750 shares reserved for issuance upon the exercise of options granted
under our stock option plan.
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(3) Based on the number of shares of common stock outstanding on June 15, 2000.
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 warrants, but excludes 50,000 shares issuable upon
exercise of outstanding warrants and 901,750 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
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
Our model for conducting business and generating revenue is new and
unproven. Our success will depend primarily on our ability to generate revenue
from multiple sources, including:
. Subscriptions for services
. Sale of our own related products through our Web site
. Commissions on the sale of third parties' related products through
our Web site
. Advertising
. Customization fees
. Sale of summary demographic information
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. 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. 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.
History of Operating Losses and Anticipated Losses and Negative Cash
Flow for the Foreseeable Future
To date, we have incurred operating losses and negative cash flow. We
expect our operating losses and negative cash flow to continue for the
foreseeable future and to increase significantly from current levels as we
significantly increase our expenditures for sales and marketing, content
development, and technology and infrastructure development to enhance our
business. With increased on-going operating expenses, we will need to generate
significant revenue to achieve profitability. Consequently, it is possible that
we may never achieve
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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 on our fiscal 1999 financial statements
includes an additional explanatory paragraph on these conditions that raises
substantial doubt about our ability to continue as a going concern. The
financial statements and this prospectus include management's current plans to
respond to these doubts.
Need for Additional Capital
Between February and April, 2000, we raised aggregate gross proceeds of
$6,810,625 from the sale of common stock, $188,404 from the exercise of
previously issued warrants, and $1,000,000 from the issuance of convertible
debt. However, we are planning to hire new employees continuously to fulfill
our obligations to AltaVista, Telus and other partners and to continue the
development and implementation of additional features of the PC Support Center.
The AltaVista agreement requires us to make large and continuing payments.
These commitments and plans will require working capital in excess of our cash
reserves, although we believe our existing cash reserves are sufficient to
sustain operations at their current levels until at least November 30, 2000. We
anticipate funding these additional working capital requirements either through
the proceeds from a private placement of our common stock or through revenues
generated from customers.
Although the investment banking firm which we have engaged has agreed to
use its best efforts to secure additional financing for us in the form of an
institutional private placement of our equity securities, to be followed by a
potential public offering of our securities, we do not currently have any
commitment from any third party to provide this or any other additional
financing. 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 Will Need to Be Continually Enhanced
Due to the constantly evolving nature of the Internet and related
technologies, we must continuously monitor changes in PC support technologies
and Internet-based support offerings with the goal of adding additional
functionality in new releases of the PC Support Center. Our Web site 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.
Our Agreements with Alta Vista Demand Large Payments and the Ability
to Expand Rapidly
We have entered into an agreement with Alta Vista Company to allow us to
advertise our services on Alta Vista's Web site for a one-year term. We have
also agreed to create a co-branded Web site to provide our services to Alta
Vista's customers for a two-year term. These agreements demand that we make
significant payments to Alta Vista during our current and next two fiscal years.
In addition, we may be required to expand rapidly in order to adequately service
the additional users we expect to attract as a result of these agreements.
There can be no assurance that we will be able to secure adequate capital to
both satisfy our obligations to Alta Vista and take the other steps necessary to
proceed with our current business plan. Further, there can be no assurance that
we will be able to effectively expand our operations in response to expected
increases in demand. Finally, there can also be no assurance that our
agreements with Alta Vista will produce significant revenues or any revenues at
all.
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Reliance on Agreement with ManagedStorage International
At present, the backup portion of our operations are dependent upon
ManagedStorage International, Inc., which has recently been spun out from
Storage Technologies Inc., an unrelated third party. ManagedStorage
International has inherited the business relationship with PCsupport.com,
including a service supply agreement, pursuant to which ManagedStorage
International provides us with the online backup portion of our operations
through access to ManagedStorage International's existing operations and
facilities. Previously, ManagedStorage International agreed not to compete with
us or to supply any direct competitor during the term of the service supply
agreement. At the present time, we do not intend to develop or operate our own
online backup service independent of ManagedStorage International, nor do we
have an agreement with another party to provide a similar service. Accordingly,
the negotiation of, and successful and continued operation of a service supply
arrangement with ManagedStorage International, including the covenant by
ManagedStorage International not to compete with us or supply any direct
competitor, is essential to the backup portion of our operations. The term of
our service supply agreement with ManagedStorage International expired on June
8, 2000. We have been negotiating with ManagedStorage International to renew
the agreement for an additional two-year term. ManagedStorage International has
verbally assured us that ManagedStorage International intends to agree to the
renewal, although there can be no assurance that we will be able to secure a
renewal on terms acceptable to us. Any difficulties with or termination of the
existing arrangements with ManagedStorage International would materially
adversely affect our ability to deliver backup services. In addition,
ManagedStorage International is a newly formed company which has inherited the
online backup business from StorageTek. It is uncertain what effects, if any,
ManagedStorage International's inexperience and StorageTek's current financial
difficulties and restructuring plans (which are discussed in StorageTek's
filings with the Securities and Exchange Commission) will have on our
business.
Dependence on Other Outside Agents and Distributors
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.
Control of Rapid Growth
We expect to significantly expand operations to address potential growth in
our customer bases, the breadth of our service offerings, and other
opportunities. We expect that this expansion will 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. We will need to hire additional personnel in all areas
during 2000. 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, advertisers 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.
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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, Denise Holleran-Boswell and Bruna Martinuzzi. In
addition, we believe that it is necessary to hire additional senior management
employees with sales and marketing experience in order to proceed with our
current business plan.
We have employment contracts with Messrs. McLean, Macbeth, Rowat and
McDonald, Ms. Holleran-Boswell and Ms. Martinuzzi 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 Against Our Current and Future Competitors
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 is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of our current and
potential competitors have substantial competitive advantages, including:
. significantly greater financial, technical and marketing resources
. relationships with strong partners
. longer operating histories
. greater brand name recognition
. larger existing customer bases
These 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, advertising rates and margins and loss of market share,
any of which could harm our business.
Brand Recognition
To attract users we must develop a brand identity and increase public
awareness of our Web site and the services we offer. To increase brand
awareness, traffic and revenue, we intend, to the extent we have adequate
financial and other resources to do so, to substantially increase our offline
and online advertising and promotional efforts. Our marketing activities may,
however, not result in increased revenue and, even if they do, any increased
revenue may not offset the expenses incurred in building brand recognition.
Moreover, despite these efforts we may be unable to increase public awareness of
our brands, which would have an adverse effect on our business.
Reliance on Technology Partners
Many of the online support technologies used on the PC Support Center are
licensed from unrelated third parties. We are highly reliant on these
technology partners. There can be no assurance that the technologies that
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they provide will keep pace with technological changes or that they will
continue to grant us licenses in the future. The obsolescence or loss of the
right to use one or more of these technologies may have a material adverse
effect on our business.
Technological Change
The technical features of ManagedStorage International's PowerBak online
backup software, the development of which we do not control, will in large part
determine the speed and accuracy, and hence marketability, of our online backup
service. There can be no assurance that current competitors or new market
entrants will not succeed in developing and introducing new or enhanced backup
systems having technologies and features superior to, or more effective than,
any technologies which have been or are being developed by us, or ManagedStorage
International, rendering our backup service obsolete or less marketable. There
can be no assurance that ManagedStorage International, and hence we, will be
able to keep pace with technological developments, or that our products will not
become obsolete. Technological obsolescence of the existing PowerBak technology
remains a possibility, which would have a material adverse affect on our online
backup service business.
The market for Internet products and services is characterized by rapid
change, evolving industry standards and frequent introductions of new
technological developments. These new standards and developments could make our
existing or future products or services obsolete. In addition, personal
computers, operating systems software, and applications software are constantly
improving. Computer manufacturers and software developers may develop more
robust technologies for their products which could render our services obsolete
or reduce the demand for our services below the level required to profitably
support them.
Keeping pace with 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.
Intellectual Property Protection
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, and RECON-TECH.com. The acquisition and maintenance of domain
names generally is regulated by governmental agencies and their designees and is
subject to change. The relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we could be unable to prevent third parties from acquiring or using
domain names that infringe or otherwise decrease the value of our brand name 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.
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Our success will depend in part on ManagedStorage International's ability
to obtain and enforce intellectual property protection for their back-up
technology in the United States, Canada and other countries. 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
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. The maintenance and operation of our
back-up service is dependent upon ManagedStorage International. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins, denial of
service attacks and similar events could damage these systems and interrupt our
services. Computer viruses, electronic break-ins or other similar disruptive
events also could disrupt our services. System disruptions could result in the
unavailability or slower response times of our Web site, which would lower the
quality of 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, under
our service supply agreement with ManagedStorage International, ManagedStorage
International is not liable for any consequential damage or loss it may cause to
our business due to the failure of any of ManagedStorage International's
systems, and, accordingly, we will be unable to seek reimbursement from
ManagedStorage International for any such damage or loss. 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
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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.
Development and Maintenance of the Internet and the Availability of
Increased Bandwidth to Users
The success of our business will rely on the continued improvement of the
Internet as a convenient means of consumer interaction and commerce. Our
business will depend on the ability of our customers to use our Web site without
significant delays or aggravation that may be associated with decreased
availability of Internet bandwidth and access to our Web site. This will depend
upon the maintenance of a reliable network with the necessary speed, data
capacity and security, as well as timely development of complementary products,
such as high speed modems, for providing reliable Internet access and services.
The failure of the Internet to achieve these goals may reduce our ability to
generate significant revenue.
Our penetration of a broader consumer market will depend, in part, on
continued proliferation of high speed Internet access. The Internet has
experienced, and is likely to continue to experience, significant growth in the
numbers of users and amount of traffic. As the Internet continues to experience
increased numbers of users, increased frequency of use and increased bandwidth
requirements, the Internet infrastructure may be unable to support the demands
placed on it. In addition, increased users or bandwidth requirements may harm
the performance of the Internet. The Internet has experienced a variety of
outages and other delays and it could face outages and delays in the future.
These outages and delays could reduce the level of Internet usage as well as the
level of traffic, and could result in the Internet becoming an inconvenient or
uneconomical source of products and services which would cause its revenue to
decrease. The infrastructure and complementary products or services necessary
to make the Internet a viable commercial marketplace for the long term may not
be developed successfully or in a timely manner. Even if these products or
services are developed, the Internet may not become a viable commercial
marketplace for the products or services that we offer.
We May Need to Change the Manner in Which We Conduct Our Business if
Government Regulation Increases or Changes
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues such as user privacy, pricing,
taxation, content, copyrights, distribution, security, and the quality of
products and services. For example, the 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 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
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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.
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
. 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
. the timing and uncertainty of advertising sales cycles and
seasonal declines in advertising sales
. general economic conditions, as well as economic conditions
specific to users of our services
Common Stock Price May Be Volatile
The market prices of securities of Internet and technology companies are
extremely volatile and sometimes reach unsustainable levels that bear no
relationship to the past or present operating performance of such companies.
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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
. 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
In addition to the foregoing factors, the trading prices for equity
securities in the stock market in general, and of 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 June 15, 2000, we had outstanding 10,477,662 shares of common stock
of which approximately 7,150,000 shares were "restricted securities" (as that
term is defined under Rule 144 promulgated under the Securities Act of 1933).
These restricted shares are eligible for sale under Rule 144 at various times,
with 1,474,155 of these shares becoming eligible for such sale on June 23, 2000.
Further, upon the effectiveness of the registration statement of which this
prospectus is part, 4,470,493 of these restricted shares, as well as an
additional 2,820,838 shares underlying currently exercisable warrants, will be
eligible for sale.
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.
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No Dividends
The payment of dividends on our common stock is within the discretion of
our 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.
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.
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.
Executive Officers, Directors and Major Stockholders Exercise
Significant Control
As of May 30, 2000, the executive officers, Directors and holders of 5% or
more of the outstanding common stock together beneficially owned approximately
33.2% of the 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.
Exchange Rate Risk
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.
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USE OF PROCEEDS
This prospectus relates to an aggregate of 7,291,331 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 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 which are
exercised. We intend to use these proceeds for working capital. If all of the
warrants are exercised for cash, we will receive a total of $4,834,176.
OUR BUSINESS
Business Development
--------------------
We are a development stage corporation 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.
RTI and PCS entered into a formal merger agreement on May 5, 1999, and the
following transactions were carried out to complete the Merger:
1. Each of RTI and PCS obtained shareholder approval for the Merger;
2. PCS underwent a reverse split of its common stock on a 15 old shares
for one new share basis;
3. RTI transferred its governing corporate jurisdiction from British
Columbia to Wyoming; and
4. 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 Price 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 only asset of which is a licensing
agreement with ManagedStorage International,
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as described below under "Products and Services - Global Replace." The
subsidiary has no other 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.
. Frequently, the dialler program that end-users invoke to access the
Internet using a dial-up connection becomes corrupted, preventing
them from logging on.
When PCs crash or are lost through theft or physical damage, frequently
some or all of the end-user's data can be lost, which is a catastrophic event
for those end-users who depend upon their PCs for their employment or home use.
Important files on PCs in a large office are often backed up to a central
server. PCs in small to medium enterprises ("SME") or small office / home
office ("SOHO") must rely on the end-users to use zip drives, tape drives or
online backup procedures to protect their data. Generally, only the important
files that the end-user selects are saved; not the entire contents of the end-
user's system. All of these systems rely on the end-user to remember to select
the correct files and to backup his or her data, which is bothersome and,
therefore, frequently not done. Until recently, there was no good system to
allow an end-user to automatically backup his or her entire system.
Consequently, there is a risk among individual and corporate PC end-users of the
irretrievable loss of valuable data in the event of a crash or total loss of the
PC.
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
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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 backup for files which the user selects.
. Online virus scans and download and update of virus solution
libraries.
. Knowledgebases 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 among
those launching support portals. The largest PC manufacturers, including IBM,
HP, Toshiba, Gateway and Micron, indicated their intention to develop and
introduce support portals within the coming year. Dell has already done so. In
general, these support portals aggregate a number of point solutions to solve a
broad range of PC technical problems.
We have developed and implemented, and continue to improve upon, a suite of
services to address the technical needs of PC users described above.
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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. We are marketing to these three segments.
Products and Services
Our first service offerings were Global Replace and Phoenix. Global
Replace is an Internet-based online backup program combined with a hardware
replacement option. The backup portion is applicable to both desktop and
notebook users. The hardware replacement portion is only available for notebook
users. Phoenix provides a user purchasing a new notebook with the full image,
including all data, applications, preferences, and settings, pre-loaded onto
the new machine.
More recently, our primary service offering has been a Web-based support
portal called the PC Support Center. The PC Support Center aggregates a number
of preventive maintenance and online support services designed to prevent,
ameliorate or solve PC technical problems.
As described below, we offer Global Replace and the PC Support Center
directly to PC end-users through our own Web site at www.pcsupport.com. We also
customize private-labeled versions of Global Replace and the PC Support Center
for other companies who wish to provide Global Replace's or the PC Support
Center's services to their customers under their own brand names. Phoenix
cannot currently be ordered over our Web site.
Retail prices for all services described herein may be adjusted frequently
in consideration of competitive forces. There can be no assurance that pricing
at any commercially viable level will be sufficient to allow us to earn a
profit.
PC Support Center
We have developed the PC Support Center 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 PC Support Center
aggregates various technical solutions, such as updating operating systems
software, applications software and drivers, and disk maintenance. Upon a user
visiting the site and becoming a subscriber, the PC Support Center will, at the
subscriber's option, automatically scan the user's computer at each visit to the
site to maintain an up-to-date personal profile of the user's hardware,
peripherals, software applications and settings. The PC Support Center software
will, also at the user's option, diagnose and maintain the hard drive and advise
the user of software updates that are pertinent to the user's configuration.
Such updates will be performed at the user's request. The PC Support Center
also includes a technical support forum where subscribers can ask and have
answered technical support questions. Also, the PC Support Center offers a PC
user the ability to email a technical question to a skilled technician and
receive an answer within 24 hours or less. The PC Support Center has introduced
Live Assist and Fix My PC!, services in which the end-user can engage a
technician in an online chat sessions to solve technical problems and provide
advice, and with the user's permission, a technician can take control of the
end-user's PC and solve the problem online while the end-user watches. Also,
the PC Support Center hosts an Education Center from which the end-user will be
able to access tutorials on PC issues. As a premium chargeable service, the PC
Support Center provides subscribers with the opportunity to purchase from third
parties related support products and major software upgrades online. The PC
Support Center also offers the Backup Center, from which users can download and
install the Company's Global Replace backup software described below.
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The first version of the PC Support Center was launched on our Web site,
www.pcsupport.com, in October 1999. We continue to add additional functionality
to the PC Support Center. In the first calendar quarter of 2000, we signed an
agreement with Motive Communications Inc., a prominent company providing PC
operating system and software applications repair technology. We expect
Motive's technology to enhance the ability of our technicians and the users
themselves to restore operations when a PC fails to perform. The technology
also protects the dialer function which users employ to dial into the Internet.
We intend to add new functions to the PC Support Center during the fiscal
year ending June 30, 2001, including virus scan, telephone support, hardware
upgrades wizard, computer theft and damage insurance and a user self-help
capability. We also plan to further develop the architecture of the PC Support
Center to maintain a comprehensive data base of support incidents and subscriber
statistics to provide continuous feedback to the online support process. We
also plan for future versions of the PC Support Center to regularly advise
subscribers via email to return to the Company's Web site to maintain their PCs.
See below under "Plan of Operation - Research and Development." These
maintenance and upgrade services will simplify support for the user because of
regular reminders and automatic maintenance.
We offer the PC Support Center services to end users in two ways.
Consumers can become a subscribers to the PC Support Center simply by
registering on our Web site. Currently, there is no charge to become a
subscriber and we offer most of the PC Support Center's services for free to
subscribers. Within the next four months, we plan to begin to charge a fee
either on a subscription basis or per-incident. In addition to offering the PC
Support Center directly to consumers, we also seek to enter into partnership
agreements with companies which provide technical support to end users. In this
case, we develop a branded version of the PC Support Center with the partner's
logo, look and feel. The partner then offers this version to its end users.
We expect to incur additional costs of between $1,500,000 and $2,000,000
over the next nine months in order to develop and implement additional functions
for the PC Support Center, which are expected to include the enhancements
described below under "Plan of Operation - Research and Development."
It is our intent to market the PC Support Center to all three market
segments either directly through the PC Support Center to SOHO and consumers, or
through strategic partnerships with ISPs, internet portals, and hardware
manufacturers to all three segments.
Global Replace
To provide online backup, in June 1998 our wholly-owned subsidiary entered
into a service supply agreement with StorageTek Canada Inc., a wholly owned
subsidiary of Storage Technology Corp. (collectively "StorageTek") of
Louisville, Colorado. In March 1999, StorageTek launched PowerBAK, a secure
online data service, to its U.S. and Canadian customer base. StorageTek intends
to penetrate the growing market for support of mobile workers within its
existing corporate client base. Under the terms of the service supply
agreement, StorageTek has licensed us to sell run-time licenses of the PowerBAK
software under its own brand, Global Replace. Subscribers automatically and
transparently connect to StorageTek's data center online to backup their hard
drive. In addition, StorageTek has given us an exclusive opportunity to develop
a hardware replacement business tied to StorageTek's online backup service.
StorageTek has agreed not to enter the replacement business itself, nor to enter
into a similar agreement with any other company for the two-year term of our
contract. Recently, StorageTek spun out a separate company, ManagedStorage
International, to pursue the online backup business under dedicated management.
We have been negotiating with ManagedStorage International to renew the services
agreement for an additional two-year term. ManagedStorage International has
verbally assured us that ManagedStorage International intends to agree to the
extension, although there can be no assurance that we will be able to secure an
extension on terms acceptable us, or at all.
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Combining the PowerBAK backup service with a hardware replacement option,
we have introduced our own service, Global Replace.
(i) Global Replace Suite
Global Replace is a full-service data protection program. Using
ManagedStorage International's online backup technology, Global Replace allows
users to backup their full image - operating systems, applications, data,
preferences and settings to a secure data center. The Global Replace software
is a branded version of ManagedStorage International's PowerBAK software. After
connecting the PC user to a ManagedStorage International data center, the
software examines every file on the user's system and compares them to the data
base of files in ManagedStorage International's data center. Every user file
that is either not already stored in a ManagedStorage International data center,
or has changed since the last backup, is queued for backup. In performing
backup, new files, and the segments of files that have changed, are sent online
over the Internet, in compressed and encrypted form, to the ManagedStorage
International data center, where the files or file segments are stored.
Global Replace allows PC users to restore data either online or through a
CD, and also provides, for notebook users, hardware restoration in the event
that the entire notebook is unusable. To restore a small number of files or
directories online, the Global Replace software connects users to the
ManagedStorage International data center online, where users enter a password.
The software then restores the file or files online to the user's hard drive.
If a PC user suffers a significant or total loss of data, the user may need
to restore his or her full image onto his or her hard drive. In such event, the
user contacts our help desk and requests a CD restoration. We then load the
user's full image onto a set of CDs which we then send by overnight courier to
the user. The user then follows a simple set of instructions to load the full
image from the CDs onto his or her hard drive.
If a notebook customer suffers a total failure or loss of use (including
theft), he calls our help desk. The user's full image is restored to a
temporary replacement notebook at our operations center. After we receive a
security deposit, the fully functional replacement notebook is shipped to the
user using an overnight courier company. This notebook is loaned to the user
for up to 10 business days while the original notebook is being repaired or
replaced by the user.
We launched the Global Replace service in the second calendar quarter of
1999 but have not yet generated significant orders for this service. Global
Replace comes in two different packages to suit individual needs.
(ii) Global Replace - Basic
This basic package includes only the backup software. It is applicable to
both desktop and notebook users. Users pay for the amount of data stored, as
follows:
Backup Volume: Monthly Retail Prices:
First 30 days free
Less than 100 MB $ 7.50
Less than 200 MB $11.95
Less than 300 MB $14.95
Unlimited / Full Image $17.95
A discount of approximately 15% is available to users who pay for 12
month's service in advance.
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The package includes free online data restoration for both desktop and
notebook PCs. Full image restoration is available from CD-ROM for desktop or
notebook users and from a replacement notebook for notebook users only, in
either case on a per-incident fee, as described above under "Global Replace
Suite."
(iii) Global Replace - Premium
The Premium service, available only to notebook users, is available at an
introductory monthly rate of $44.95 and includes, in addition to the services
provided in the basic package, free hardware restoration with a loaned notebook,
regardless of the number of times a replacement notebook is loaned to the user,
within reason.
PowerBAK Replace
We previously had an informal arrangement with ManagedStorage International
under which ManageStorage International's PowerBak Replace incorporated the
Global Replace Premium package. ManagedStorage International did not generate
any sales under this arrangement, which has been discontinued.
Phoenix Program
The need for increased hard drive space and faster microprocessors means
notebook users need to replace their machines frequently as the technology
improves. Upgrading to a new machine can be problematic. Users are required to
identify all of their data and programs. Common operating systems, such as
Windows 95, 98, 2000 and NT usually come installed in the new machine, but
software applications must be re-installed from disks or CDs. In addition, it
is becoming more common for software to be downloaded from the Internet. These
files are numerous and often unrecognizable to the average user. Finding and
transferring them from one machine to another is often troublesome and time-
consuming.
Given the complexities involved in upgrading, we believe many users delay
the upgrade to a new machine as long as possible. The Phoenix Program is
intended to alleviate the problems involved with upgrading to a new notebook.
With the Phoenix Program, the user purchases the new notebook and ships it to
us. Once the new notebook is delivered to us, and the user has completed a full
image backup using the Global Replace software, we load the user's full image
onto the new notebook, and deliver it to the user.
We launched the Phoenix service in the third calendar quarter of 1999 but
have not yet generated any orders for this service. The Phoenix service is
initially being provided at $299, FOB plant.
Distribution Methods of Services
We intend to employ a distribution strategy that targets the corporate
user, the SME users, and the SOHO users, with the goal of positioning ourselves
as the leading provider of online computer technical support services. We will
market the services of the PC Support Center both directly to SOHO and consumers
and through branded support portals to corporate, SME, and consumers.
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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 110
countries as of June 15, 2000.
In addition, we have entered into agreements with several companies
operating Web sites for which online technical support is an important
additional service. We have agreed to build branded support portals for them
that include many of the services of the PC Support Center. The partners have
agreed to promote the branded site and PCsupport.com. Subscribers to the
partners' branded support portals are also subscribers to the PC Support Center.
The Company believes that these agreements will increase the number of
subscribers to our support services.
In 2000, we entered into a strategic alliance with Alta Vista Company, one
of the largest portals on the Internet. AltaVista claims that over 50 million
unique visitors access its web site at www.altavista.com each month. Under the
-----------------
terms of the agreement, we will build a branded support portal for AltaVista in
which certain of our online technical support features will be bundled into a
site similar to the PC Support Center which will carry primary branding for
AltaVista and secondary "powered by PCsupport.com" branding. AltaVista has
committed to use PCsupport.com services for its Help Desk function, and to
promote the branded support portal and PCsupport.com throughout its site.
Business to Business
We also offer partnerships in the PC Support Center to companies such as PC
vendors, software vendors, ISPs and large corporations that by the nature of
their business, are required to provide technical support to their users. Many
such companies are now paying significant sums to provide support to their users
by employing traditional ineffective methods such as telephone call centers and
onsite dispatch. We believe that the partners will benefit from better support
to their customers as follows:
(i) Improved Customer Relationship
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. Customers will become more productive in the use of
their computers. Customers will also become more likely to purchase additional
products and services from the vendor.
(ii) Reduced Costs
Since many support problems will now be solved through the PC Support
Center, providers will significantly reduce their internal support costs.
(iii) Tech Support Center Becomes More Productive
The PC Support Center 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.
(iv) Comprehensive Database of Customer Profiles for Marketing
Purposes
The PC Support Center will continuously update a database on the
subscribers. This provides an opportunity to research market trends and future
product features.
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Business to Business Partners
Our potential business to business partners include the following types of
companies:
Hardware Vendors
We are negotiating with large personal computer manufacturers to bundle our
services with the sale of hardware. We intend to expand our sales activities to
offer Global Replace, Phoenix, and the PC Support Center to additional hardware
vendors. We entered into a letter of intent with one large laptop vendor in
March, 2000 in which we agreed to build a customized backup center for the
vendor and the vendor agreed to distribute a customized version of Global
Replace on its laptops. The Company intends to pursue a definitive marketing
agreement with such vendor, but there can be no assurance that any definitive
agreements will be reached with any hardware manufacturer.
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 is constantly looking
for new products and services. Our primary products of interest to resellers
are the PC Support Center and Global Replace.
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 is marketing the
Global Replace Suite under its own brand name to Unisys's corporate customers.
Unisys has agreed to pay us a fee equal to 75% of our suggested list price for
the Global Replace services, and has also agreed to use us exclusively for the
provision of such services. To date, Unisys has secured one customer for us,
representing approximately $1,000 per month in revenue for an unspecified term.
Under this agreement, Unisys is not obligated to secure any particular number of
customers or generate any revenues for us, on a best efforts basis or otherwise,
and it is therefore uncertain whether Unisys will secure additional customers or
revenues for us.
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.
Internet Vertical Portals
Internet vertical portals provide information online to a targeted
demographic audience. We have negotiated an agreement with one such portal,
PortableLife, to provide our PC Support Center services to the portal's
subscribers. There can be no assurance that any additional agreements will be
reached with any other Internet portal.
Direct Sales
We have begun to develop a direct sales force to market our services
directly to a small number of companies in the United States and Canada. As of
June 15, 2000, five sales people had been
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hired and now have begun selling directly to potential partners, supplemented by
the efforts of our senior management.
Web Promotion
Global Replace is available for purchase on the PC Support Center Web page.
We will also promote our services over the Web on other companies' Web sites.
Revenue Generation
We intend to earn revenues in any or all of the following ways:
(i) Commissioning Fees
We may private-label the PC Support Center for our partners so that the
partners can offer the services under the partners' own brand names. We will
charge a commissioning fee for such customization.
(ii) Bundling Fees
We will negotiate with our hardware vendor partners to include an icon
directing users to a web site at which our services may be accessed on the
desktops of all computers shipped. We intend to earn a bundling fee from each
unit shipped.
(iii) Subscription Fees
In lieu of a bundling fee, we may negotiate with our hardware vendor
partners and other original equipment manufacturer ("OEM") partners who
integrate PCs, Internet access and other related services with the PC Support
Center, a monthly fee for providing the PC Support Center to each end-user to
whom a PC is shipped.
(iv) Premium Services
We intend to bundle many premium services, such as email assist, Live
Assist, FixMyPC!, telephone support, onsite dispatch and other premium services
into several different packages for which we will charge either a subscription
or a fee-per-incident. We will also sell tutorials and other educational
materials.
(iv) Commissions
We earn commissions on the purchase of related support products and major
software upgrades from third party vendors.
(i) Per-incident Fees
We may sell support services individually as an end user requests them and
charge an incident fee.
(vi) Advertising
The PC Support Center may host advertisements from which we will earn fees.
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(vii) Sale of Summary Demographics
The PC Support Center will continuously update a data base documenting many
aspects of subscribers' computer usage characteristics and personal
demographics. We intend to earn revenue from the sale of summary demographic
data.
(viii) Subscriber Fees
For improving the level of customer satisfaction for these partners, and
lowering the costs of providing support to their users, the Company intends to
charge a fee per user per month. In some cases, the Company may share revenue
generated from their users with the partners.
As we have not generated any revenue from the PC Support Center to date,
there can be no assurance that we will be able to negotiate any agreements that
will generate profits for us. Failure to successfully negotiate such agreements
will have a material adverse impact on our business.
Competitive Business Conditions and the Company's Competitive Position
We are a development stage company with no history of earnings. While we
believe that the aggregation of our services is unique, there are no substantial
barriers to entering into the field of PC services, and we expect competition to
intensify. Competitors may be able to provide services similar to our services
more efficiently, and many of our potential competitors have substantially
greater financial, marketing, service, customer support and research and
development resources than we do. There can be no assurance that we will be
able to develop a market for any of our services against these competitors.
PC Support Center
There are many sellers of computer support and service components. We are
among the first to integrate several support technologies and implement a pro-
active service such as the PC Support Center which is independent of any vendor
of PCs or software. The competitive landscape is changing rapidly. Our existing
competitors frequently revise and augment their offerings and we encounter new
competitors regularly. We expect the competitive picture to continue to change
rapidly for the foreseeable future.
All.com intends to launch a support portal in the near future offering
remote repair capability based on technology licensed from Motive, which
directly competes with our similar Motive-based service. To the best of our
knowledge, all.com is not planning to offer real time services such as our Live
Assist.
Service911 offers telephone support, email support, self-help, live chat
support and dispatch (on site) support. Through partners, the company offers
free drivers, video tutorials, product support (directory of support links) and
knowledge base. These form a comprehensive set of features that rivals
PCsupport.com's support offering. Service911 has also recently launched a
"Solutions" offering that will compete with our branded support portal business.
NoWonder.com currently offers email support, live chat, collaborative
support (desktop sharing) and self help (searchable knowledgebase).
NoWonder.com does not currently utilize any remote repair solutions. The main
appeal of the company's service offer is the ease of use and lack of software
downloads.
MyHelpDesk.com offers live technical support, proactive maintenance
services, software updates, virus scans, online backup, email support
newsletters and an extensive knowledge base.
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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, and VirtualDr.com.
Macafee.com and Symantec (Norton Web Services) previously had introduced
support portals, but such competitive portals are closely tied to the software
products marketed by those companies.
There are partnerships beginning to emerge among various competitors. We
believe that Support.com, in partnership with either or both of Excite@Home and
Sykes Enterprises, a major telephone call center operator, also intends to
launch a support portal in the near future. Sykes purchased AnswerExpress, an
online support knowledgebase, from Intel in 1999, possibly signaling Sykes'
intention to provide online support services which may compete with us.
Service911 has recently announced partnerships with McAfee.com and
Support.com.
Competition also exists from firms that are selling individual features
that compete with one or more of the services of the PC Support Center. Support
software and services, which will likely be the most significant component of
the PC Support Center, are sold in competition with a number of companies
producing support software that feature extensive knowledge bases and remote
diagnoses and fixes. The prominent competitors in this group include Motive
Communications, Computer Support Technologies, and Support.com. Support.com
also provides the service technology infrastructure to allow other companies to
build their own support portal. Other firms include Aveo Inc., Full Circle
Software, and INFACT Technologies.
Companies that develop and maintain support knowledge bases include
ServiceWare and KnowledgeBroker.
Significant competition is expected from utilities manufacturers and
distributors. The PC Support Center will include diagnostic, automatic upgrades
and driver updates, disk maintenance, and virus protection software, segments
which are already well-served in the computer services marketplace. Competitors
are found in established brands such as Macafee.com, Symantec's Norton Web,
ZDNet, and Catch*Up(TM) from Manageable Software.
Further competition will come from Internet sites offering free software
downloads. Websites such as SoftSeek, ZDNet, and Ziff-Davis continually obtain
and review the latest shareware, publish rankings, and provide free copies for
anyone to use.
The technical support forum part of the PC Support Center will encounter
competition from companies providing online support tips such as ExpertCity.com,
Roadnews, Ojatex, TipWorld, Hardware Central, Experts Exchange, and Newbie-U.
Hardware and software vendors are also potential competitors. Notebook
computer manufacturers such as Compaq and IBM already bundle support services
with their product, as do other large firms in the industry such as Intel and
Microsoft. Computer manufacturers, including Compaq, Dell, Micron, Hewlett
Packard, Toshiba and Gateway, also have announced their intention to launch
support portals which could compete with the Company in the future.
There are many companies offering online helpdesks including MyHelpDesk,
Microsoft, PC Guide, PC Mechanic, and ePeople (formerly NoWonder).
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Competitors in providing telephone support include Sykes Enterprises, and
several other companies offering traditional telephone support services.
ExpertCity recently added a free telephone support and a service resembling our
LiveAssist, and has a partnership with ZDNet, a prominent Web portal.
We believe that our strongest competitors will include all.com, McAfee.com,
Service911, NoWonder, MyHelpDesk and Support.com, and the various partnerships
among them.
Online Backup Providers
There are approximately ten established online backup software
manufacturers who market their technology using a variety of channels, including
direct sales, licensing to resellers, and bundling by OEMs and hardware
manufacturers. The most widely used software is from @Backup, Connected Corp
(Connected Online Backup), and Veritas. In 1999, Veritas completed the
acquisition of Telebackup. Telebackup had previously licensed its backup
software to ManagedStorage International. Other on line backup competitors
include Atrieva (FileZonePlus), NovaStor (NovaNet-Web), Safeguard (Interactive
Backup), recently purchased by StorageTek and spunout to ManagedStorage
International, Previo (previously Stac Technologies), Vytalnet (VytalVault),
Sterling Software, and Divya (BackOnline).
Several companies are using the Web to increase the volume of data readily
accessible by companies and individuals during working sessions. Xdrive offers
100MB of free storage and Freedrive, a partner of EMC (which competes with
StorageTek) offers 50 MB free storage. These services are described as "virtual
briefcases" and are not designed to provide full-image backups for data recovery
in the way that Global Replace is positioned. IMediaIT also competes in this
space.
Currently, only Telebackup, its acquiror, Veritas, its licensee,
ManagedStorage International (and its sublicensee, PCSupport.com), and Safeguard
can provide a full image backup, but other competitors are expected to introduce
this important feature in the future.
Current industry standards on the service side are a monthly fee ranging
from $7 to $20 for online backup and restoration, and the opportunity to order a
CD for a per-incident fee of about $25 to $40 when there is need to restore
larger volumes of data. Generally speaking, online backup is offered as a stand
alone service, with no other value-added features. Certain hardware vendors
(e.g. Compaq) and OEMs (e.g. Sykes' AnswerExpress) also offer online backup as
part of a suite of services for computer users. We believe that competition
will accelerate and that prices and margins for online backup services will
decrease rapidly over the next 18 months.
We believe that there are currently no other service providers who offer
tiered service packages or temporary laptop replacement programs such as Global
Replace.
Most of the service providers have targeted individuals and SOHO end users.
Only a few possess the scalability and storage space required for accommodating
large corporate customers or offering enterprise-wide solutions. Some of the
software manufacturers (e.g. Connected and Previo) produce intranet based
versions that include dedicated servers and client licenses.
Hardware Replacement
Currently, we believe that there are no competitors who offer a service to
replace broken notebooks with another notebook loaded with the user's full
image. Computer repair companies, such as Inacom, can provide a replacement
notebook while the user's notebook is being repaired, but such replacement
notebook will not be loaded with the customer's image. Similarly, the hardware
manufacturers themselves offer warranty programs in which a broken notebook can
be replaced, but such replacement will not be loaded with the customer's image.
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Phoenix
We believe that the Phoenix service is unique. The extended warranties
offered by hardware vendors can be considered as partial competitors, but even
though they may reload common applications before shipping the unit back to the
customer, they are not able to reconstruct personal settings and configurations
or data files. Regular backup is still the responsibility of the user.
Repair services such as Inacom can repair and quickly return the notebook
to its owner, but cannot install the user's data and personal settings.
Notebook replacement has to be done in conjunction with online backup in order
for the recovery of a full image. Accordingly, the Phoenix program carries a
distinct advantage over depot and manufacturer repair services.
The chief source of competition for the Phoenix program comes from large
corporations that set up in-house solutions through network-based backups and by
carrying an inventory of spare laptops. Such corporations can replace a
notebook quickly with a standard set of applications, but generally are unable
to reconstruct personal settings and configurations or data files.
Sources of Materials
The only significant materials which we require to carry on our operations
are compact disks (also known as CD's) and notebook computers. CD's are readily
available from a variety of competing distributors. We will initially lease
notebook computers, which are also available from a variety of sources.
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 and RECON-TECH.com. We
are also applying for certain similar domain 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 name PCSUPPORT.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
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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, and
for the nine-month period ended March 31, 2000, we and our predecessor, RTI,
expended approximately $2,814, $17,646, and $556,719, respectively, on the
development of our services. We expect to significantly increase research and
development expenditures during the fiscal year ending June 30, 2001.
Employees and Contractors
As of June 15, 2000, we had 52 full-time employees and one part-time
contractor employed as follows:
Part-Time
Employees Contractors
--------- -----------
Administration 11 1
Research and Development 16 -
Marketing and Sales 12 -
Client Services 1 -
Technical Support 12 -
Principal Business Facilities
We maintain our principal place of business at Suite 280, 4400 Dominion
Street, Burnaby, British Columbia, Canada V5G 4G3, which consists of
approximately 7,347 square feet which we currently sub-lease for (Cdn)$5.00 per
square foot per year, plus operating costs of approximately (Cdn)$10.00 per
square foot per year. 2,800 square feet of this space was rented free of charge
in the first year, which ended on June 1, 2000. The sub-lease expires on
November 29, 2002 and the price per square foot per year increases in the second
year to (Cdn)$6.00, and to (Cdn)$6.50 in the third year. We have entered into
another sub-lease for an additional 2,494 square feet at 4400 Dominion Street
for (Cdn)$12.00 per square foot per year, plus operating costs of approximately
(Cdn)$10.00 per square foot per year. This additional sub-lease expires on
November 29, 2002. We have entered into an agreement to lease approximately
24,750 sq. ft. at 3750 Gilmore Street, Burnaby, at a rate of (Cdn.) $17.00 per
sq. ft., plus operating costs of approximately (Cdn.) $7.00 per sq. ft. This
lease will expire on August 31, 2005. We also have access to office space at
1875 Charleston Road, Mountain View, California 94043 at $210 per month under a
month-to-month service agreement. Some sales and marketing activities take place
from this Mountain View office, but the majority of our operations, sales,
services and administration are conducted from our offices in Burnaby. We expect
that the space provided by these offices will be sufficient to meet our
requirements for the next twelve months.
Investment Policies
We do not currently have any 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.
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PLAN OF OPERATION
The following describes in general terms our plan of operation and
development strategy for the next twelve-month period (the "Next Year"). During
the Next Year, our primary focus will be to expand marketing efforts for our
services, continue to enhance the PC Support Center, and to develop and/or
contract to provide the infrastructure necessary to deliver our services to
subscribers and customers.
Current Services
----------------
We currently offer three services. Our current primary service, the PC
Support Center, is a Web-based support portal for PCs which aggregates a number
of support technologies, including software and driver updates, hard disk
maintenance, a technical support forum, and others. Global Replace combines an
on-line backup service for notebook and desktop computers with three methods of
restoring data in the event of a PC failure. Phoenix allows a notebook user to
transfer a full-image of all data, applications, preferences and settings to a
new notebook.
Cash Flow Requirements
----------------------
Between February and April, 2000, we raised aggregate gross proceeds of
$6,810,625 from the sale of common stock, $188,404 from the exercise of
previously issued warrants, and $1,000,000 from the issuance of convertible
debt. However, we are planning to hire new employees continuously to fulfill our
obligations to AltaVista, Telus and other partners and to continue the
development and implementation of additional features of the PC Support Center.
The AltaVista agreement requires us to make large and continuing payments. These
commitments and plans will require working capital in excess of our cash
reserves, although we believe our existing cash reserves are sufficient to
sustain operations at their current levels until at least November 30, 2000. We
anticipate funding these additional working capital requirements either through
the proceeds from a private placement of our common stock or through revenues
generated from customers.
Although the investment banking firm which we have engaged has agreed to
use its best efforts to secure additional financing for us in the form of an
institutional private placement of our equity securities, to be followed by a
potential public offering of our securities, we do not currently have any
commitment from any third party to provide this or any other additional
financing. 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 competitive position.
Sales and Marketing
-------------------
We plan to increase marketing efforts for our services through direct and
indirect channels, including the following:
Web Portals. We have successfully negotiated agreements or letters of
intent with several companies to offer our PC Support Center services
through a branded support portal to their users, the largest of which are
AltaVista (with whom we have an agreement), Telus (with whom we have a non-
binding letter of intent) and Pivotal Corp (with whom we have a non-binding
letter of intent). We are continuing to develop additional partnership
agreements with other Web portals. However, there can be no assurance
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that an agreement will be reached with any other Web portal companies or
that the existing agreements (which have not yet generated revenues for us)
will generate significant revenues in the future.
PC Manufacturers. We are negotiating with PC manufacturers to market our
services to the manufacturers' customers, and we plan to expand our
marketing efforts to other top PC manufacturers during the Next Year. No
definitive agreements have yet been reached with any PC manufacturer, and
there can be no assurance that any such agreements can be reached on terms
favorable to us or at all.
OEMS. We are negotiating with companies which integrate PCs with Internet
access and other related services and sell them to PC end-users via a
monthly payment schedule over a number of years, typically three, to
include our services.
Computer Service Companies. There are several international companies which
provide a comprehensive range of computer services that permit large
corporations to out-source some or all of their PC support requirements.
Our services complement and extend the range of such support services. In
April 1999 we entered into an agreement with Unisys, an international
computer service company, to private label Global Replace under the Unisys
brand name for resale to Unisys' corporate customers. We intend to market
our services to other international service companies during the Next Year,
although there can be no assurance that we will be able to negotiate any
agreements with computer service companies.
Direct Sales. We are marketing to a small number of large and small
corporations on a direct basis. Although no contracts have been secured to
date, we intend to expand our direct marketing efforts to a select number
of large corporations in the United States and Canada. There can be no
assurance that any contracts will be reached with any company on a direct
basis.
Research and Development
------------------------
Our primary research and development effort over the Next Year will be to
continue to add features to the PC Support Center (which we launched in October
1999) 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 in new
releases of the PC Support Center. An Education Center was added to the PC
Support Center in January, 2000, which provides self-administered tutorials for
PC users. A service called "FixMyPC" was also added to the PC Support Center in
January, 2000, which allows a technician to take control of the user's PC with
the user's permission and to perform preventive maintenance and solve technical
problems using an online chat session. We also entered into a partnership with
Micro Warranty Services which will enable us to offer extended warranty and
onsite service in the future.
Among the functions and services we expect to add to the PC Support Center
over the Next Year are: email notification of driver and other recommended
updates, virus scan, telephone support, PC performance
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enhancement, enhanced platform maintenance, asset-tracking, anti-theft
deterrent, theft and damage insurance, and repair co-ordination. There can be no
assurance, however, that all or any of these features will be added. We expect
to incur costs of between $1,500,000 and $2,000,000 over the Next Year in order
to develop and implement these additional functions of the PC Support Center.
Operations
----------
We expect the number of subscribers to the PC Support Center and branded
portals to increase rapidly over the Next Year. To deliver the services in
support of the PC Support Center, we plan to rapidly expand the number of
technicians we employ directly and also expect to enter into one or more
outsourcing agreements with third parties to provide technical support. In
addition, we plan to hire employees in other departments as well, as discussed
below under "Employees." We anticipate that there will be a significant lag
between incurring the expenses to support the PC Support Center and generating
revenues from these expenditures because the PC Support Center's basic services
are currently offered free of charge.
To support the Global Replace program, we will expand our capability to
restore full image backups onto replacement notebooks. During the Next Year, we
plan to develop infrastructure internally to provide the capacity to restore
three to five notebooks per working day. To increase capacity beyond this level
to meet future demand, we will contract the restoration process to an external
computer services firm.
Employees
---------
During the Next Year, we plan to hire additional employees in every
department, including senior management employees in sales and marketing, as
well as additional technical, operations, sales and marketing, and
administrative staff as required to expand its service offerings, sales and
marketing efforts, and to maintain service levels to its then existing and new
subscribers. The number and skill sets of individual employees will be primarily
dependent on the relative rates of growth of its different services, and the
extent to which sales and marketing, operations, and development are executed
internally or contracted to outside parties. Subject to the availability of
sufficient working capital and assuming significant customer acceptance of our
products, we currently plan to increase staffing to approximately 130 people
during the Next Year, although there can be no assurance that such hiring will
take place or will be adequate to execute the growth plans as described herein.
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 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.
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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 30, 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.
W. Benjamin Catalano, age 35, has been one of our Directors since the
Merger. Mr. Catalano has, since 1986, been self employed in personal business
ownership as well as participating as a licensed professional in the investment
brokerage and real estate industries. Mr. Catalano is currently Vice President
of Corporate Affairs and a Director of Themescapes, Inc., a technology company
developing three-dimensional acoustic products.
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 Official Payments Corporation, iTurf Inc.
and Euro American Capital Partners.
David W. Rowat, age 44, has been our Vice President, Finance and Business
Development 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
speciality 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.
30
<PAGE>
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.
Denise Holleran-Boswell, age 40, was appointed our Vice President, Client
Services on April 7, 2000. During the four years prior to joining us, Ms.
Holleran-Boswell held several positions with Pricewaterhouse Coopers LLP
("PwC"), a large globally integrated professional services organization. Most
recently, Ms. Holleran-Boswell was PwC's Technology Solution's Practice Leader
in their Consumer and Industrial Products Practice, responsible for business
development of the technology solutions services in Western Canada and ensuring
client satisfaction of services. Before PwC, from August of 1993 to March 1996,
Ms. Holleran-Boswell was a Project Director with SHL Systemhouse Inc., another
international professional services organization specializing in systems
integration. She was responsible for defining and delivering innovative system
solutions to complex business problems, while reducing the risks to the
business. Prior to this Ms. Holleran-Boswell was the Director of Business
Systems for Bear Creek Corporation, an international direct marketing retailer,
where she was responsible for ensuring the selection and implementation of
appropriate technology to satisfy the business' current and future requirements.
During the twelve years prior to her work at Bear Creek, Ms. Holleran-Boswell
has experience in progressively more senior information systems management
positions ranging from services, operations, development to implementations,
servicing a variety of industries for both private industry and vendors.
Bruna Martinuzzi, age 52, has been our Vice President, Human Resources and
Administration since May 8, 2000. She is a Certified Human Resources
Professional, earned her B.A. from the University of British Columbia in 1981
and her M.A. from the University of British Columbia in 1984. She is the
recipient of several awards and scholarships including the Izaak Killam
Predoctoral Fellowship and an award for unusual innovation in the workplace.
She has a broad background in human resources, including strategic planning,
recruitment, compensation, training and development, employee recognition and
retention programs, benefits, payroll and administration. She started her
career in 1974 with the British Columbia Petroleum Corporation (BCPC), a Crown
corporation which bought and sold natural gas. She remained with the company
until it was privatized in 1990. From 1990 to 1997, she was Human Resources and
Administration Manager for CanWest Gas Supply Inc., a marketing company which
managed the largest portfolio of natural gas in British Columbia. In 1999, she
joined Olympic Resource Management, a leading North American forestry consulting
and timberland management firm, as their Human Resources Manager.
Family Relationships
--------------------
There are no family relationships among Directors, executive officers or
any nominees to these positions.
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 May 30, 2000, by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's
outstanding voting securities; (ii) each of the Company's Directors; (iii) the
Company's Chief Executive Officer; and (iv) all executive officers and Directors
of the Company as a group:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Amount of Common Stock & Approximate Percent
Nature of Beneficial of Ownership of
Name & Address/(1)/ Ownership/(2)/ Common Stock
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Advanced Financial Services Inc./(3)/ 576,029 5.5%
----------------------------------------------------------------------------------------------------
The Dromond Technologies Group, Inc./(4)/ 553,440 5.3%
----------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Amount of Common Stock & Approximate Percent
Nature of Beneficial of Ownership of
Name & Address/(1)/ Ownership/(2)/ Common Stock
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CGTF, LLC/(5)/ 590,000/(6)/ 5.5%
----------------------------------------------------------------------------------------------------
Richard and Laurie Kraniak JTWROS/(7)/ 600,000/(8)/ 5.4%
----------------------------------------------------------------------------------------------------
M & J Investment Trust/(9)/ 600,000/(8)/ 5.4%
----------------------------------------------------------------------------------------------------
Michael G. McLean 644,665/(10)/ 6.1%
----------------------------------------------------------------------------------------------------
Steven W. Macbeth 651,165/(10)/ 6.2%
----------------------------------------------------------------------------------------------------
W. Benjamin Catalano 66,421/(11)/ *
----------------------------------------------------------------------------------------------------
Bruce S. Nelson 0 0
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
All executive officers and Directors as a group 1,641,418/(12)/ 15.4%
(5 persons)
----------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
(1) Unless otherwise indicated, the address of each person is c/o the Company
at Suite 280, 4400 Dominion Street, Burnaby, British Columbia, Canada V5G
4G3.
(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 common stock
subject to options, warrants or convertible securities that are currently
exercisable, or exercisable within 60 days of May 30, 2000, 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.
(3) Advanced Financial Services Inc. is located at P.O. Box 3340 Road Town,
Tortola, British Virgin Islands.
(4) The Dromond Technologies Group, Inc. ("Dromond") is located at Suite 305,
2692 Clearbrook Road, Abbotsford, British Columbia, Canada V2T 2Y8.
Dromond is owned 50% by Michael McLean and 50% by Steven Macbeth.
(5) CGTF, LLC is located at 200 North Westlake Blvd., Suite 205, Westlake
Village, California 91362.
(6) Includes 240,000 shares issuable upon exercise of warrants.
(7) The address of Mr. and Ms. Kraniak is 3260 Wellington Court, West
Bloomfield, Michigan 48324.
(8) Consists of shares issuable upon exercise of warrants.
(9) The address of M & J Investment Trust is 14 Woodbridge Road, Hingham,
Massachusetts 02043.
(10) 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 19,445 shares of common stock issuable pursuant to options
that are currently exercisable, or exercisable within 60 days of May 30,
2000.
(11) Includes 11,667 shares of common stock issuable pursuant to options that
are currently exercisable, or exercisable within 60 days of May 30, 2000.
(12) Includes 129,724 shares of common stock issuable pursuant to options that
are currently exercisable, or exercisable within 60 days of May 30, 2000.
Also includes the 553,440 shares of
32
<PAGE>
common stock owned by Dromond, as to which Messrs. McLean and Macbeth have
shared voting and investment power.
Changes in Control
------------------
We are aware of no arrangements that could result in a change of control of
our ownership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships Between the Company and Certain Directors and Officers
--------------------------------------------------------------------
Employment Agreements
We have entered into employment contracts with Messrs. McLean, Macbeth,
Rowat and McDonald, Ms. Holleran-Boswell and Ms. Martinuzzi as described below
under "Executive Compensation - Employment Contracts."
Private Placement of Common Shares
The following current and former Directors and officers of PCSupport.com
participated in a private placement of common stock of PCS completed in April
1999 at a price of $0.01 per share as set forth below. This private placement
was conducted before the completion of the Merger of PCS and RTI (with issuance
of the securities in this offering being subject to completion of the Merger),
at a time when the Directors and officers above were not directors and officers
of PCS, but were directors and officers of RTI. A total of 3,222,255 shares were
sold in the private placement. 1,500,000 of these shares were sold to directors
and officers of RTI at a price of $0.01 per share, as detailed in the chart
below. An additional 593,000 shares were sold at a price of $0.01 per share,
399,000 shares were sold at a price of $0.50 per share, and the remaining
730,255 shares were sold at a price of $1.00 per share to persons who were not
affiliated with PCS or RTI.
--------------------------------------------------------------------------
Name of Director or Officer Number of PCS Shares Acquired
--------------------------------------------------------------------------
Michael G. McLean 362,500
--------------------------------------------------------------------------
Steven W. Macbeth 362,500
--------------------------------------------------------------------------
Alan Ackerman/(1)/ 275,000
--------------------------------------------------------------------------
David W. Rowat 200,000
--------------------------------------------------------------------------
Gary Yurkovich/(2)/ 300,000
--------------------------------------------------------------------------
Total: 1,500,000
--------------------------------------------------------------------------
(1) Mr. Ackerman resigned as a director on June 23, 1999.
(2) Mr. Yurkovich's employment with us ended on June 28, 1999, and we
repurchased 285,000 of these shares for $0.01 per share.
Stock Pooling and Escrow Agreement
Pursuant to a Stock Pooling and Escrow Agreement dated July 31, 1999
("Pooling Agreement"), and amended on March 6, 2000, Messrs. McLean, Macbeth,
Rowat, Rowlands and Ackerman, and Dromond and
33
<PAGE>
Advanced have agreed to pool an aggregate of 2,179,429 shares of common stock
and options and warrants to purchase 266,666 shares of common stock. These
securities may not be sold or transferred until they are released from the pool.
If Messrs. McLean, Macbeth or Rowat cease to participate on a full-time basis in
our business, we have the option to repurchase certain of their shares at a
price of $0.01 per share. Such right of repurchase lapses as to a certain number
of shares each month depending upon the individual, and lapses completely on
January 1, 2002.
The shares, options and warrants will be released from pool in accordance
with the following schedule:
March 6, 2000 May 25, 2000 November 25, 2000 May 25, 2001
Shares 100,000 500,000 850,000 729,429
Options 133,334 66,666 66,666
Transactions Involving Promoters
--------------------------------
As the founding shareholders of RTI, Dromond and Advanced were our original
promoters. Advanced initially acquired 510,000 common shares of RTI at a price
of $0.13 per share. Dromond was initially issued 489,800 common shares of RTI,
at a price of $0.01 per share, in consideration for services rendered by Dromond
in connection with the establishment of the business of RTI. Advanced also
provided RTI with a non-interest bearing loan facility. An aggregate of $110,043
was drawn against such loan and such loan was converted to 66,029 common shares
of RTI at the rate of one common share for each $1.67 principal amount of such
loan. In addition, Advanced provided a bridge loan facility to RTI in the amount
of $34,200. The bridge loan was repaid in full from the proceeds of a private
placement completed by RTI on January 26, 1999. In consideration for making such
bridge loan, Advanced received warrants to purchase 20,000 common shares of RTI
for a period of one year expiring January 26, 2000, at a price of $0.85 per
share; such warrants expired unexercised. Additionally, Dromond was issued
63,440 common shares of RTI in consideration for services rendered by Dromond in
connection with the establishment of our business.
All of the shares issued by RTI to Dromond and Advanced were exchanged for
shares of our common stock in connection with the Merger on the basis of five
RTI shares for each share of our common stock. The share numbers and prices set
forth in the previous paragraph reflect this exchange ratio. The warrants held
by Advanced were exchanged for warrants to purchase 20,000 shares of our common
stock at a price of $0.85 per share, exercisable until January 26, 2000. Any
shares issued upon exercise will be subject to the pooling arrangements set
forth in "Certain Relationships and Related Transactions - Stock Pooling and
Escrow Agreement."
EXECUTIVE COMPENSATION
Persons Covered
---------------
The following table sets forth the compensation which we paid to our Chief
Executive Officer for the fiscal years ended June 30, 1998 and 1999. No other
officer received a combined salary and bonus in excess of $100,000 during the
last fiscal year. As we completed the Merger 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.
------------------------------------------------------------------------------
Annual Annual All Other
Name & Principal Position Year/(1)/ Salary Bonus Compensation
34
<PAGE>
--------------------------------------------------------------------------------
Michael G. McLean 1999 $45,565/(2)/ $-0- $151,274/(3)/
CEO & President 1998 $26,176/(2)/ $-0- $ 29,388/(4)/
--------------------------------------------------------------------------------
(1) For 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 $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 $42,639
for fiscal 1999 and $15,388 for fiscal 1998. See "Certain Relationships and
Related Transactions."
(3) Includes the difference between the price paid by Mr. McLean in April, 1999
for shares of common stock of PCS 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).
(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
-------------------------
There are no standard arrangements by which our Directors are compensated
for their services as Directors, except for the grant of stock options, and none
of the Directors received compensation for their services as Directors during
the most recently completed financial year. We compensate certain of our
Directors for their services as consultants. See "Certain Relationships and
Related Transactions - Management Contracts."
Stock Option Plan
-----------------
We adopted a stock option plan on July 2, 1999 (the "Plan"). The Plan
authorizes the grant of stock options to our Directors, officers, consultants
and employees. Under the terms of the Plan, at no time may the number of shares
subject to options result in:
1. the number of shares reserved for issuance pursuant to stock options
granted to insiders exceeding 15% of our issued and outstanding
shares;
2. this 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
3. the issuance to any one individual, within a one year period, of a
number of shares exceeding 15% of our issued and outstanding shares.
The Plan provides that the exercise price of options granted under the Plan
shall be the average market price for the twenty trading days immediately prior
to the date of grant. The term of any option may not exceed five years from the
date of grant. In certain cases, a change of control would accelerate the
exercisability of options granted under the Plan.
The Plan provides that the options vest monthly over a certain number of
years, typically three. If the person to whom options were granted leaves his or
her employment or directorship before the options have vested, then the unvested
portion will be forfeited. Such person also must exercise the vested options
within 30 days of leaving his or her employment or directorship, or else such
vested options will be forfeited.
35
<PAGE>
The Plan was amended on November 30, 1999 to provide that, in the event of
a change of control of our ownership, all unvested options will immediately
vest. The optionee must elect to exercise the accelerated options at that time,
or allow them to continue to vest according to the Plan.
Option Grants
-------------
From July, 1999 through April, 2000, our Board approved the granting of the
following options to purchase shares of common stock to Directors, officers, and
significant employees, with the options vesting monthly over a three-year period
following the date of grant:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Number of Shares Exercise Grant Expiration
Name Under Options Price Date Date
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael G. McLean 50,000 $1.00 July 2, 1999 July 2, 2004
-----------------------------------------------------------------------------------------------------
Steven W. Macbeth 50,000 $1.00 July 2, 1999 July 2, 2004
-----------------------------------------------------------------------------------------------------
David W. Rowat 150,000 $1.00 July 2, 1999 July 2, 2004
-----------------------------------------------------------------------------------------------------
Clifford Rowlands (1) 150,000 $1.00 July 7, 1999 July 7, 2004
-----------------------------------------------------------------------------------------------------
Ben Catalano 30,000 $1.00 July 2, 1999 July 2, 2004
-----------------------------------------------------------------------------------------------------
Bruce McDonald 75,000 $1.00 November 30, 1999 November 30, 2004
-----------------------------------------------------------------------------------------------------
Denise Holleran-Boswell 60,000 $5.50 April 7, 2000 April 7, 2005
-----------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Rowlands' employment with us ended in May 2000. His options will
continue to vest until August 31, 2000, at which point he will hold options to
purchase 62,500 shares of our common stock. The balance of his options will
terminate at that time.
Employment Agreements
---------------------
We have entered into employment agreements with Messrs. McLean, Macbeth,
Rowat and McDonald and Ms. Holleran-Boswell. The respective agreements provide
that Messrs. McLean, Macbeth, Rowat and McDonald will each be paid (Cdn)$8,300
per month, and an annual cash bonus of 0-60% of their annual salary, subject to
their performance against mutually agreed objectives. Effective April 1, 2000,
Mr. McLean's salary was increased to (Cdn)$12,500 per month, and the salaries of
Messrs. Macbeth, Rowat and McDonald was increased to (Cdn)$10,417 per month.
Ms. Holleran-Boswell is paid a salary of (Cdn)$10,417 per month, and an annual
cash bonus of 0-60% of her annual salary, subject to her performance against
mutually agreed objectives. The agreements also provide that all unvested shares
or options held by Messrs. McLean, Macbeth, Rowat, McDonald and Ms. Holleran-
Boswell will vest upon any change in control of the ownership of PCSupport.com.
We have also entered into an employment agreement with Ms. Martinuzzi, which
provides for an annual salary of (Cdn) $90,000, as well as an annual cash bonus
targeted at 30% of the annual salary.
All of the employment agreements described above may be terminated by us or
by the respective employee at any time, with or without cause.
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 obligations of PCSupport.com, Inc. or for any duties or obligations
arising out of any acts or conduct of said officer or Director performed for or
on behalf of PCSupport.com, Inc. Our by-laws also provide that we will
indemnify and hold
36
<PAGE>
harmless each person who serves at any time as a Director or officer of
PCSupport.com, Inc., 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 of
PCSupport.com, Inc., 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.
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. As of
June 15, 2000, there were 10,477,662 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.
<TABLE>
<CAPTION>
Quarter Ended High Low
<S> <C> <C>
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
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
March 31, 2000 9.6875 0.97
</TABLE>
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.
As of June 15, 2000, we had warrants outstanding to purchase an aggregate
of 82,838 shares of common stock at a price per share of $2.00. The warrants
are each exercisable to acquire one share of common stock for a period expiring
three months after the completion of an initial public offering of our common
stock, at a price of $2.00 per share. If, at any time prior to the expiration
of these warrants, we complete a financing for gross proceeds of more than
(Cdn)$400,000 and issues shares of common stock at a price which is higher than
the exercise price of these warrants, the warrant holders have ten days to
exercise the warrants, after which the exercise price is increased to the price
at which the securities were sold.
As of June 15, 2000, the Company also had warrants outstanding to purchase
240,000 shares of common stock at $1.40 per share, exercisable on or before
January 11, 2002; warrants outstanding to purchase 333,000 shares of common
stock at $2.00 per share, exercisable on or before March 7, 2001; warrants
outstanding to purchase 1,000,000 shares of common stock, exercisable at a price
of $1.25 from March 7, 2000 to March 7, 2001 and $1.75 from March 8, 2001 to
March 10, 2002; warrants outstanding to purchase 500,000 shares of common stock,
exercisable at a price of $2.00 from March 8, 2000 to March 8, 2001 and $2.50
from March 9, 2001 to March 10, 2002; warrants to purchase 10,000 shares of
common stock, exercisable at a price of $1.05 from January 11, 2000 to January
11, 2003; warrants to purchase 50,000 shares of common stock, exercisable at a
price of $5.47 from April 21, 2000 to April 21, 2003; and a commitment to issue
warrants to purchase 500,000 shares of common stock, exercisable at a price of
$2.00 from March 24, 2000 to March 24, 2001.
As of June 15, 2000, an aggregate of 848,750 shares of common stock were
issuable upon exercise of outstanding stock options.
Holders
-------
As of June 15, 2000, we had 209 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.
38
<PAGE>
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 on June 15, 2000. 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.
<TABLE>
<CAPTION>
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
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 2.2% 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 (c) 35,000 * 35,000 0 0
-------------------------------------------------------------------------------------------------------------------
CGTF, LLC 590,000(9) 5.5% 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 112,500(10) 1.1% 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
-------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Friend Family Trust Reg. (f) 125,000 1.2% 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 56,250(15) * 56,250(15) 0 0
----------------------------------------------------------------------------------------------------------------
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) 1.4% 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) 300,000 2.9% 300,000 0 0
----------------------------------------------------------------------------------------------------------------
ICE Holdings North America, LLC (l) 45,000 * 45,000 0 0
----------------------------------------------------------------------------------------------------------------
Frank 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(21) 5.4% 600,000(21) 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 (m) 40,000(22) * 40,000(22) 0 0
----------------------------------------------------------------------------------------------------------------
Lloyds TSB Bank plc 145,000 1.4% 145,000 0 0
----------------------------------------------------------------------------------------------------------------
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 Revocable Living Trust 33,042 * 33,042 0 0
----------------------------------------------------------------------------------------------------------------
Joseph B. Marsh 127,083 1.2% 127,083 0 0
----------------------------------------------------------------------------------------------------------------
Patrick J. Mason, Trustee 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(23) * 4,000(23) 0 0
----------------------------------------------------------------------------------------------------------------
Brett McLean (n) 4,000 * 4,000 0 0
----------------------------------------------------------------------------------------------------------------
Don and Barb McLean (o) 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 (p) 600,000(24) 5.4% 600,000(24) 0 0
----------------------------------------------------------------------------------------------------------------
Anthony Murray 25,000 * 25,000 0 0
----------------------------------------------------------------------------------------------------------------
National Bank Financial 34,000 * 34,000 0 0
----------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mike Newman 4,000 * 4,000 0 0
----------------------------------------------------------------------------------------------------------------
Aaron Nielsen (q) 7,500(25) * 7,500(25) 0 0
----------------------------------------------------------------------------------------------------------------
Kerry Noon (r) 2,000 * 2,000 0 0
----------------------------------------------------------------------------------------------------------------
Odulm Brown Ltd. (s) 2,000 * 2,000 0 0
----------------------------------------------------------------------------------------------------------------
Irwin Olian (t) 385,000(26) 3.6% 385,000(26) 0 0
----------------------------------------------------------------------------------------------------------------
Danielle Oliver 35,000 * 35,000 0 0
----------------------------------------------------------------------------------------------------------------
Curtis Palmer 52,500(27) * 52,500(27) 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
----------------------------------------------------------------------------------------------------------------
Peter Reid 4,000 * 4,000 0 0
----------------------------------------------------------------------------------------------------------------
David Risley 4,160 * 4,160 0 0
----------------------------------------------------------------------------------------------------------------
Harry Ross 75,000(28) * 75,000(28) 0 0
----------------------------------------------------------------------------------------------------------------
Paul T. Rubery, Jr. 51,000(29) * 51,000(29) 0 0
----------------------------------------------------------------------------------------------------------------
Wayne Leslie Saxby 6,000 * 6,000 0 0
----------------------------------------------------------------------------------------------------------------
Ken H. Schaeffers 38,000 * 38,000 0 0
----------------------------------------------------------------------------------------------------------------
Edwin B. Shaw and Felicia P. Shaw, 25,417 * 25,417 0 0
Joint Tenants
----------------------------------------------------------------------------------------------------------------
Edwin B. Shaw, Robert B. Nelson and Dawn 25,417 * 25,417 0 0
E. Kidd, Trustees
----------------------------------------------------------------------------------------------------------------
Lyle H. Shuert 25,417 * 25,417 0 0
Revocable Living Trust
----------------------------------------------------------------------------------------------------------------
Matthew Charles Shuert and Kelly Rosa 12,708 * 12,708 0 0
Shuert, Joint Tenants
----------------------------------------------------------------------------------------------------------------
Mark R. Siewart 112,500(30) 1.1% 112,500(30) 0 0
----------------------------------------------------------------------------------------------------------------
Sitrick & Company, Inc. (u) 34,000 * 34,000 0 0
----------------------------------------------------------------------------------------------------------------
Andrew P. Smith (v) 25,000 * 25,000 0 0
----------------------------------------------------------------------------------------------------------------
Edyta Smith (w) 25,000 * 25,000 0 0
----------------------------------------------------------------------------------------------------------------
Robert A. Spence 4,000 * 4,000 0 0
----------------------------------------------------------------------------------------------------------------
Paul S. Stanley 127,083 1.2% 127,083 0 0
----------------------------------------------------------------------------------------------------------------
Roma Stewart 35,000 * 35,000 0 0
----------------------------------------------------------------------------------------------------------------
William Trimble 34,000 * 34,000 0 0
----------------------------------------------------------------------------------------------------------------
Troy & Gould Profit Sharing Plan FBO
William D. Gould (x) 47,250(31) * 47,250(31) 0 0
----------------------------------------------------------------------------------------------------------------
Valor Invest Ltd. 50,000 * 50,000 0 0
----------------------------------------------------------------------------------------------------------------
Pamela Anne Vandy 34,000 * 34,000 0 0
----------------------------------------------------------------------------------------------------------------
The William H. Vanover Revocable Trust 12,708 * 12,708 0 0
----------------------------------------------------------------------------------------------------------------
Harjit Virk 35,000 * 35,000 0 0
----------------------------------------------------------------------------------------------------------------
Richard M. Wilson 4,000 * 4,000 0 0
----------------------------------------------------------------------------------------------------------------
David and Terry Wohlberg (y) 160,000(32) 1.5% 150,000(32) 10,000 *
----------------------------------------------------------------------------------------------------------------
Wolverton Securities Ltd. (z) 504,000(33) 4.6% 504,000(33) 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 7,291,331(34)
----------------------------------------------------------------------------------------------------------------
</TABLE>
_________________________
* Indicates less than 1% beneficial ownership.
(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 has served as a financial consultant for us since August 1999.
(c) Bill Catalano is the father of Ben Catalano, who is one of our Directors.
(d) We have employed Mr. Donnelly as Sales Director since December 1999.
(e) Mr. Elbaum has served as a financial consultant for us since June 1999.
41
<PAGE>
(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 as Investor Relations Coordinator 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 has provided us with investment banking
services since December 1999.
(m) Mr. Levy has served as a financial consultant for us since August 1999.
(n) Brett McLean is a cousin of Michael McLean, who is our President and CEO.
(o) Don and Barb McLean are an uncle and aunt, respectively, of Michael McLean,
who is our President and CEO.
(p) 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.
(q) We have employed Mr. Nielsen as Manager, Finance and Investor Relations
since May 1999.
(r) Ms. Noon has served as our Controller since our inception in December 1997.
(s) Odulm Brown provided us with financial consulting services in connection
with our private offering of common stock in April 1999.
(t) Mr. Olian has served as a financial consultant for us since June 1999.
(u) Sitrick and Company provided us with investor relations services from
October 2000 to May 2000.
(v) Mr. Smith is a managing director of ICE Holdings North America LLC, which
has provided us with investment banking services since December 1999.
(w) 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.
(x) 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.
(y) 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.
(z) 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 warrants.
(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.
(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) Consists of shares issuable upon exercise of warrants.
(22) Consists of shares issuable upon exercise of warrants.
(23) Consists of shares issuable upon exercise of warrants.
(24) Consists of shares issuable upon exercise of warrants.
(25) Includes 2,500 shares issuable upon exercise of warrants.
(26) Consists of shares issuable upon exercise of warrants.
42
<PAGE>
(27) Includes 17,500 shares issuable upon exercise of warrants.
(28) Includes 25,000 shares issuable upon exercise of warrants.
(29) Includes 17,000 shares issuable upon exercise of warrants.
(30) Includes 37,500 shares issuable upon exercise of warrants.
(31) Includes 15,750 shares issuable upon exercise of warrants.
(32) Includes 50,000 shares issuable upon exercise of warrants.
(33) Consists of shares issuable upon exercise of warrants.
(34) Includes 2,820,838 shares issuable upon exercise of warrants.
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
. 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 of 1933.
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.
43
<PAGE>
EXPERTS
Our financial statements for the year ended June 30, 1999 and the period
from December 10, 1997 (inception) to June 30, 1998, 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.
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. Certain members and of counsel of Troy & Gould
Professional Corporation 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 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.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Audited Annual Financial Statements
-----------------------------------
<S> <C>
Independent Auditors' Report to Annual Financial Statements.................................................................... F-2
Balance Sheets as of June 30, 1999 and 1998.................................................................................... F-3
Statements of Operations for the Year Ended June 30, 1999, the Period from December 10, 1997 (inception) to June 30, 1998 and
the Period from December 10, 1997 (inception) to June 30, 1999................................................................ F-4
Statements of Stockholders' Equity for the Year Ended June 30, 1999 and the Period from
December 10, 1997 (inception) to June 30, 1998................................................................................. F-5
Statements of Cash Flows for the Year Ended June 30, 1999, the Period from December 10, 1997 (inception) to June 30, 1998 and
the Period from December 10, 1997 (inception) to June 30, 1999................................................................ F-6
Notes to Annual Financial Statements........................................................................................... F-7
Unaudited Interim Financial Statements
--------------------------------------
Balance Sheets as of March 31, 2000 and June 30, 1999.......................................................................... F-17
Statements of Operations for the Nine Months Ended March 31, 2000 and 1999, the Three Months Ended March 31, 2000 and 1999 and
the Period from December 10, 1997 (inception) to March 31, 2000............................................................... F-18
Statements of Stockholders' Equity for the Nine Months Ended March 31, 2000 and the Period from December 10, 1997 (inception)
to March 31, 2000............................................................................................................. F-19
Statements of Cash Flows for the Nine Months Ended March 31, 2000 and 1999 and the Period from December 10, 1997 (inception) to
March 31, 2000................................................................................................................ F-20
Notes to Interim Financial Statements.......................................................................................... F-21
</TABLE>
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, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year ended June 30, 1999, the period from December 10,
1997 (inception) to June 30, 1998 and for the period from December 10,1997
(inception) to June 30, 1999. 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 United States generally accepted
auditing standards. 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
(a Development Stage Enterprise) as of June 30, 1999 and 1998, and the results
of their operations and their cash flows for the year ended June 30, 1999, the
period from December 10, 1997 (inception) to June 30, 1998 and for the period
from December 10, 1997 (inception) to June 30, 1999, in conformity with United
States generally accepted accounting principles.
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.
Signed "KPMG LLP"
Chartered Accountants
Vancouver, Canada
August 20, 1999
F-2
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 795,809 $ -
Accounts receivable 14,728 -
Prepaid expenses 33,950 -
Other current assets 49,256 242
---------- ---------
Total current assets 893,743 242
Property and equipment (note 4) 11,210 2,702
Intangible asset (note 5) 2,697 -
---------- ---------
$ 907,650 $ 2,944
========== =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 68,266 $ 3,710
Convertible debt (note 6(a)) - 47,729
---------- ---------
Total current liabilities 68,266 51,439
Stockholders' equity (deficit) (note 6):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 6,007,169 shares in 1999 and 1,000,000
shares in 1998 6,007 1,000
Additional paid-in capital 1,981,782 132,799
Deferred stock compensation (198,909) -
Deficit accumulated during the development stage (949,496) (182,294)
Treasury stock, 285,000 shares in 1999 - -
---------- ---------
Total stockholders' equity (deficit) 839,384 (48,495)
---------- ---------
Commitments and contingencies (note 7)
Subsequent events (note 12)
$ 907,650 $ 2,944
========== =========
</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 Period from
December 10, December 10,
1997 1997
Year ended (inception) to (inception) to
June 30, 1999 June 30, 1998 June 30, 1999
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenue $ 99 $ - $ 99
Cost of services 86 - 86
---------- --------- ---------
Gross profit 13 - 13
---------- --------- ---------
Operating expenses:
Research and development 17,646 2,814 20,460
Marketing and promotion 477,103 120,918 598,021
General and administrative 265,953 58,562 324,515
---------- --------- ---------
760,702 182,294 942,996
---------- --------- ---------
Loss from operations (760,689) (182,294) (942,983)
Interest expense, net 6,513 - 6,513
---------- --------- ---------
Loss for the period $ (767,202) $(182,294) $(949,496)
========== ========= =========
Net loss per common share, basic and diluted $(.46) $(.22)
========== =========
Weighted average common shares outstanding,
basic and diluted 1,659,455 857,171
========== =========
</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 (Deficit)
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Deferred During Total
Common Shares Paid-in Stock Development Treasury Stock Stockholders'
----------------- ---------------------
Shares Amount Capital Compensation Stage Shares Amount Equity (Deficit)
--------- ------ ---------- ------------ ----------- ------- ------ ----------------
<S> <C> <C> <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, $.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 (note 6(a)) 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 - - (148,200) 148,200 - (285,000) - -
Net loss - - - - (767,202) - - (767,202)
--------- ------ ---------- --------- --------- -------- -------- ------------
Balance, June 30, 1999 6,007,169 $6,007 $1,981,782 $(198,909) $(949,496) (285,000) $ - $ (839,384)
========= ====== ========== ========= ========= ======== ======== ============
</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 Period from
December 10, December 10,
1997 1997
Year ended (inception) to (inception) to
June 30, 1999 June 30, 1998 June 30, 1999
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $ (767,202) $(182,294) $ (949,496)
Items not affecting cash:
Depreciation and amortization 5,336 620 5,956
Common stock issued in exchange
for services 486,191 65,647 551,838
Discount on notes payable 8,407 - 8,407
Changes in operating assets and liabilities:
Accounts receivable (14,728) - (14,728)
Prepaid expenses (33,950) - (33,950)
Other current assets (49,014) (242) (49,256)
Accounts payable and accrued liabilities 64,556 3,710 68,266
---------- --------- ----------
Net cash used in operating activities (300,404) (112,559) (412,963)
---------- --------- ----------
Cash flows from investing activities:
Purchase of property and equipment (13,055) (3,322) (16,377)
Purchase of intangible asset (3,486) - (3,486)
---------- --------- ----------
Net cash used in investing activities (16,541) (3,322) (19,863)
---------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 62,314 47,729 110,043
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
Net proceeds from sale of common stock 161,508 68,152 229,660
---------- --------- ----------
Net cash provided by financing activities 1,112,754 115,881 1,228,635
---------- --------- ----------
Net increase in cash and cash equivalents 795,809 - 795,809
Cash and cash equivalents at beginning of period - - -
---------- --------- ----------
Cash and cash equivalents at end of period $ 795,809 $ - $ 795,809
========== ========= ==========
Supplemental disclosure of non-cash financing activities:
Notes payable converted into common stock $ 110,043 $ - $ 110,043
Deferred stock compensation 198,909 - 198,909
Income taxes paid - - -
Interest paid - - -
</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)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
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 has no substantive operations. In
June 1999, PCS merged with Reconnaissance, with PCsupport.com, Inc. (the
"Company") being the surviving corporation (note 2(a)). The Company is
currently in the business of developing and commercializing support services
for the personal computer market. The Company believes that its first
commercial applications will be 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 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, 1999, 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. The Company does not have sufficient working
capital to sustain operations until the end of the year ended June 30, 2000.
It is management's plan to raise additional debt or equity financing, but
such financing 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, PCSupport.Com, Inc. 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)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
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 financial position, results of operations and cash flows of
Reconnaissance from the date of its incorporation on December 10, 1997
under the Company Act (British Columbia). On June 20, 1999,
Reconnaissance continued its incorporation into Wyoming. The historical
stockholders' equity gives effect to the shares issued to the
stockholders of Reconnaissance. The 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
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.
(d) Contract revenue recognition:
Earned revenue from support service contracts is recognized on the
percentage-of-completion method of accounting. Contract revenues earned
are recorded using the percentage of contract costs incurred to date to
total estimated contract costs.
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)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
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) Property and equipment:
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives ranging from two
to seven years.
(h) Major customers:
All of the Company's revenues were from one Canadian customer for the
year ended June 30, 1999.
(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.
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.
F-9
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
2. Significant accounting policies (continued):
(j) Research and development:
Research and development costs are expensed when incurred.
(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 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, 1999 are warrants to purchase 311,838 shares of common
stock because their effects would be anti-dilutive. Also excluded from
the computation of diluted earnings per share for the period from
December 10, 1997 (inception) to June 30, 1998 are 40,528 shares of
potential common stock resulting from the assumed conversion of the
convertible notes payable 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 fair 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).
SFAS No. 123, Accounting for Stock Based Compensation, required entities
that continue to apply the provision 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.
F-10
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
3. Acquisitions:
In June, 1999, PCS merged with Reconnaissance. The acquisition was a reverse
take-over with Reconnaissance being the deemed accounting acquiror for
financial statements purposes.
The acquisition was recorded using the purchase method. Net assets acquired
through the issuance of common stock consisted of cash and cash equivalents
with a fair value of $935,685. Cash and cash equivalents held by PCS were
obtained through a private placement which was contingent on this
acquisition being completed. 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 proforma information which combines
the operations 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 proforma adjustments required in combining this information of these
two entities. This proforma information does not reflect any non-recurring
charges or credits directly attributable to the transaction. This proforma
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.
_______________________________________________________________________________
Period from
December 10,
1997
Year ended to (inception) to
June 30, June 30,
1999 1998
-------------------------------------------------------------------------------
Revenue $ 99 $ -
Cost of service 86 -
-------------------------------------------------------------------------------
Gross profit 13 -
Expenses
Research and development 17,646 2,814
Marketing and promotion 477,103 120,918
General and administrative 317,685 63,562
Interest, net 6,513 -
-------------------------------------------------------------------------------
Net loss for the period $(818,947) $(187,294)
-------------------------------------------------------------------------------
Net loss per share $(0.14) $ (0.04)
-------------------------------------------------------------------------------
F-11
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
4. Property and equipment:
Property and equipment consists of the following:
June 30,
---------------
1999 1998
------- ------
Computer equipment $14,173 $2,295
Furniture and office equipment 1,584 1,027
------- ------
15,757 3,322
Less accumulated depreciation 4,547 620
------- ------
$11,210 $2,702
======= ======
5. Intangible asset:
Intangible assets includes the cost of acquiring the Company's World Wide
Web domain name and is amortized straight line over a three year period.
6. Stockholders' equity:
(a) Convertible notes payable:
The Company had outstanding a $47,729 convertible note payable to a
shareholder at June 30, 1998 and was advanced an additional $62,314
between July, 1998 and January, 1999. The notes were non-interest
bearing and were converted into 66,029 shares of common stock in
January, 1999.
(b) Stock options, stock-based compensation and share-purchase warrants:
i) Stock options
In 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. As of June 30, 1999, no options
have been granted under the plan.
F-12
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
6. Stockholders' equity (continued):
(b) Stock options, stock-based compensation and share-purchase warrants
(continued):
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 $.01 per
share to certain stockholders and officers of the Company. The fair
value of the common shares was estimated at $.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 are exerciseable immediately at an
exercise price of $.85 per share and expire in January, 2000. The
fair value of the warrants granted is estimated using the Black-
Scholes option pricing model with the following assumptions:
Expected volatility of 70%, risk-free interest rate of 4.8%,
expected life of 3 years, and a 0% dividend yield.
In January, 1999, the Company issued 52,848 shares of common stock
in exchange for services relating to share issuance. The fair value
of these services was estimated based upon the estimated fair value
of the shares at $.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.
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 $.85 per share at the time of the
transaction.
In April, 1999, the Company recorded non-cash compensation expense
and deferred compensation expense of $631,800 related to the
issuance of 1,500,000 shares of common stock at no cost certain
officers and stockholders. The value of the shares was estimated at
$.52 per share. A certain portion of these shares are subject to
vesting over a period of time. Compensation expense 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.
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.
F-13
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 8
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
________________________________________________________________________________
6. Stockholders' equity (continued):
<TABLE>
<CAPTION>
iii) Share purchase warrants:
<S> <C> <C>
Outstanding warrants
----------------------------
Expiry dates Exercise price per share June 30, 1999 June 30, 1998
------------ ------------------------ ----------------------------
January, 2000 (6ii) $0.85 20,000 -
various (a) $0.85 291,838 -
------- -------------
311,838 -
======= =============
</TABLE>
(a) 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. If the
Company completes a financing of common shares for gross proceeds in
excess of $400,000 Cdn. prior to the expiry of the warrants and the
common shares are sold in excess of the exercise price, the warrant
exercise price will increase to the offering price per share if the
warrants are exercised within 10 days.
(c) Reverse stock split:
In June 1999, the Company authorized a 1-for-5 reverse stock split of
the Company's common stock. All share and per share information has been
adjusted for all periods presented to reflect the reverse stock split.
7. Operating leases:
The Company leases office facilities in British Columbia under an operating
lease agreement that expires November, 2002. Rent under the agreement
increases 20% and 8.3% after the first and second years, respectively.
Minimum lease payments under operating leases are as follows:
2000 $178,278
2001 351,732
2002 381,039
2003 158,766
Rent expense totalled $9,587 and $7,273 for the year ended June 30, 1999 and
the period from December 10, 1997 (inception) to June 30, 1998, respectively.
F-14
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 9
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
--------------------------------------------------------------------------------
8. Deferred tax assets and liabilities:
<TABLE>
<CAPTION>
June 30,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Operating loss carry forward $ 228,000 $ 56,000
Share issue costs and other 46,500 300
--------- --------
Total deferred tax assets before valuation allowance 274,500 56,300
Valuation allowance (274,500) (56,300)
--------- --------
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 carryforwards for income tax purposes at June
30, 1999 of approximately $530,000 (1998 - $123,000). Operating losses begin
to expire in fiscal year 2002.
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.
F-15
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 10
(Expressed in U.S. Dollars)
Year ended June 30, 1999
Period from December 10, 1997 (inception) to June 30, 1998
--------------------------------------------------------------------------------
10. Related party transactions:
In December, 1997, the Company entered into a contract with stockholders to
provide the duties of President and of Chief Technical Officer. This
contract was subsequently amended and restated on June 23, 1999. The
contract expires in December 1999, with a twelve month renewal option. The
Company incurred cash compensation expense of $88,204 and $41,564 and non-
cash compensation expense of $302,548 and $58,776 during the year ended
June 30, 1999, and the period from December 10, 1997 (inception), to June
30, 1998, respectively.
In 1999, the Company has entered into a contract with a consulting company
owned by a stockholder to provide the duties of Chief Financial Officer.
The Company incurred cash compensation expense of $19,686 and non-cash
compensation expense of $32,987 during the year ended June 30, 1999.
11. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. The Company is currently
working on their Year 2000 preparations. However, it is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. Subsequent events
Subsequent to year-end, the Company granted 430,750 stock options to
officers, directors and employees with an exercise price of $1.00 per
share.
F-16
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,016,277 $ 795,809
Accounts receivable 30,731 14,728
Prepaid expenses - 33,950
Deposits and advances 36,783 49,256
----------- ----------
Total current assets 6,083,791 893,743
Property and equipment 195,248 11,210
Intangible asset 1,643 2,697
----------- ----------
$ 6,280,682 $ 907,650
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 152,355 $ 68,266
Convertible promissory notes of $1,000,000, less
unamortized deemed discount of $500,000 (note 3(b)) 500,000 -
----------- ----------
Total current liabilities 652,355 68,266
Stockholders' equity (note 4):
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued 6,429,729 shares at March 31, 2000 and 6,007,169
shares at June 30, 1999 6,430 6,007
fully paid share subscriptions for 2,812,600 shares at
March 31, 2000 (notes 4(c)(i) and (ii), 4(d)) and nil shares
at June 30, 1999 5,487,005 -
Additional paid-in capital 5,567,897 1,981,782
Deferred stock compensation (980,265) (198,909)
Treasury stock, 285,000 shares at March 31, 2000 and
June 30, 1999 - -
Deficit accumulated during the development stage (4,452,740) (949,496)
----------- ----------
Total stockholders' equity 5,628,327 839,384
----------- ----------
$ 6,280,682 $ 907,650
=========== ==========
</TABLE>
Commitments and contingencies (note 5)
Subsequent events (note 4(c)(i), 5(a) and 6)
See accompanying notes to interim consolidated financial statements.
F-17
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10,
Nine months ended Three months ended 1997
March 31, March 31, (inception) to
---------------------------- ------------------------ March 31,
2000 1999 2000 1999 2000
----------- ---------- ----------- ---------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 7,358 $ - $ 5,038 $ - $ 7,457
Cost of services 51,942 - 49,810 - 52,028
----------- ---------- ----------- ---------- -----------
Gross profit (loss) (44,584) - (44,772) - (44,571)
----------- ---------- ----------- ---------- -----------
Operating expenses:
Research and development 556,719 11,505 173,570 4,963 577,179
Marketing and promotion 624,655 24,954 261,621 18,129 1,222,676
General and administrative 879,349 124,951 253,122 59,261 1,203,864
----------- ---------- ----------- ---------- -----------
2,060,723 161,410 688,613 82,353 3,003,719
----------- ---------- ----------- ---------- -----------
Loss from operations (2,105,307) (161,410) (733,385) (82,353) (3,048,290)
Interest income (expense), net
(note 3(b)) (1,397,937) 571 (1,405,921) 544 (1,404,450)
----------- ---------- ----------- ---------- -----------
Loss for the period $(3,503,244) $ (160,839) $(2,139,306) $ (81,809) $(4,452,740)
=========== ========== =========== ========== ===========
Net loss per common share,
basic and diluted $ (0.57) $ (0.15) $ (0.33) $ (0.06) $ (1.51)
=========== ========== =========== ========== ===========
Weighted average common
shares outstanding, basic
and diluted 6,175,408 1,106,407 6,390,810 1,323,950 2,952,290
=========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-18
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Stockholders' Equity
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Shares Additional Deferred During Total
----------------- Share Paid-in Stock Development Stockholders'
Shares Amount Subscriptions Capital Compensation Stage Equity
------ ------ ------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 10, 1997
(inception) 200 $ - $ - $ - $ - $ - $ -
Issuance of common stock for
compensation in January, valued at
$0.13 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,
$0.85 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 $0.85 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 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 68,400 69 - 58,197 - - 58,266
Shares issued to consultant in
settlement of accrued liability 4,160 4 - 6,504 - - 6,508
Fair value of options issued to
employees and consultants - - - 226,864 - - 226,864
Conversion of notes payable in
January 350,000 350 - 500,550 - - 500,900
Fully paid warrants to be issued
as financing compensation cost
(note 3(b)) - - - 1,794,000 (1,794,000) - -
Beneficial conversion feature of
notes payable issued
in February (note 3(b)) - - - 1,000,000 - - 1,000,000
Amortization of deferred stock
compensation - - - - 1,012,644 - 1,012,644
Fully paid unit subscription in
March, net of $20,399 in
cash financing costs (note 4
(c)(i)) - - 1,215,601 - - - 1,215,601
Fully paid share subscription in
March, net of $25,000 in cash
financing costs (note 4(c)(ii)) - - 4,083,000 - - - 4,083,000
Fully paid exercise of warrants,
shares unissued (note 4(d)) - - 188,404 - - - 188,404
Net loss - - - - - (3,503,244) (3,503,244)
--------- ------ ------------- ---------- ------------ ----------- -----------
Balance, March 31, 2000 6,144,729 $6,430 $5,487,005 $5,567,897 $ (980,265) $(4,452,740) $ 5,628,327
========= ====== ============= ========== ============ =========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-19
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Interim Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Period from
December 10, 1997
Nine months ended (inception) to
March 31, March 31,
2000 1999 2000
----------- --------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $(3,503,244) $(160,839) $(4,452,740)
Items not affecting cash:
Depreciation and amortization 43,824 2,113 49,780
Stock options issued to employees and contractors 232,437 - 232,437
Common stock issued in exchange for services - 71,330 551,838
Warrants issued for services 6,088 - 6,088
Deemed discount amortization on promissory note 500,000 - 500,000
Amortization of deferred stock compensation 1,012,644 - 1,012,644
Discount on notes payable - 8,407 8,407
Loss on debt extinguishment and other (4,323) - (4,323)
Changes in operating assets and liabilities:
Accounts receivable (16,003) (7,363) (30,731)
Prepaid expenses 33,950 - -
Deposits and advances 12,473 242 (36,783)
Accounts payable and accrued liabilities 84,089 14,885 152,355
----------- --------- -----------
Net cash used in operating activities (1,598,065) (71,225) (2,011,028)
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment (226,808) (11,907) (243,185)
Purchase of intangible asset - - (3,486)
----------- --------- -----------
Net cash used in investing activities (226,808) (11,907) (246,671)
----------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable - 62,314 110,043
Proceeds from issuance of bridge loan - - 17,088
Repayment of bridge loan - - (17,088)
Cash acquired in acquisition - - 888,932
Proceeds from promissory notes 1,500,000 - 1,500,000
Proceeds from exercise of share purchase warrants 246,740 - 246,740
Net proceeds from sale of common stock 5,298,601 116,354 5,528,261
----------- --------- -----------
Net cash provided by financing activities 7,045,341 178,668 8,273,976
----------- --------- -----------
Net increase in cash and cash equivalents 5,220,468 95,536 6,016,277
Cash and cash equivalents at beginning of period 795,809 - -
----------- --------- -----------
Cash and cash equivalents at end of period $ 6,016,277 $ 95,536 $ 6,016,277
=========== ========= ===========
Supplemental disclosure of non-cash financing activities:
Notes payable converted into common stock and
warrants $ 500,000 $ 110,043 $ 610,043
Deferred stock compensation 1,794,000 - 1,992,909
Common stock issued to settle accrued liability 6,508 - 6,508
Income taxes paid - - -
Interest paid 2,584 - 2,584
=========== ========= ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-20
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
--------------------------------------------------------------------------------
1. Nature of development stage activities:
These interim consolidated financial statements have been prepared on a
going concern basis in accordance with United States generally accepted
accounting principles. The going concern basis of presentation assumes the
Company will continue in operation for the foreseeable future and will be
able to realize its assets and discharge its liabilities and commitments in
the normal course of business. Certain conditions, as discussed below,
currently exist which raise substantial doubt upon the validity of this
assumption. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The Company's future operations are dependent upon the market's acceptance
of its services and the Company's ability to secure cost-effective third
party license service supply agreements. There can be no assurance that the
Company's services will be able to secure market acceptance or that cost
effective license and service supply agreements will exist or continue to
exist. As of March 31, 2000, the Company is considered to be in the
development stage as the Company has not generated significant revenues and
is continuing to develop its business. Operations have primarily been
financed through the issuance of equity instruments and debt. The Company
does not have sufficient working capital to sustain operations until March
31, 2001. Additional debt or equity financing will be required to fund
operations and may not be available on reasonable terms or on any terms at
all.
2. Basis of presentation:
(a) These interim consolidated financial statements have been prepared
using generally accepted accounting principles in the United States.
The interim financial statements include the accounts of the Company's
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-SB filed with the Securities
and Exchange Commission for the year ended June 30, 1999, and should
be read in conjunction therewith. Certain comparative figures have
been reclassified to conform to the presentation adopted in the
current period.
F-21
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
--------------------------------------------------------------------------------
2. Basis of presentation (continued):
(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.
(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 March 31, 2000 are warrants to purchase 2,141,838 (March
31, 1999 -311,838) shares of common stock, options to purchase 819,750
(March 31, 1999 - nil) shares of common stock and fully paid share
subscriptions for 2,812,600 shares of common stock (March 31, 1999 -
nil), because their effects would be anti-dilutive.
Also excluded from the computation of diluted loss per share for the
periods ended March 31, 2000 are 500,000 (March 31, 1999 - nil) shares
of potential common stock resulting from the assumed conversion of
convertible notes payable because their effects would be anti-
dilutive.
3. Debt financings:
(a) Revolving debt facility:
On January 11, 2000, the Company negotiated a $1,000,000 revolving
debt facility. No funds were drawn against this facility before it was
rescinded by mutual consent of the Company and the lender prior to
March 31, 2000.
F-22
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
--------------------------------------------------------------------------------
3. Debt financings (continued):
(b) 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 bear interest at
an annual rate of 10% and are payable monthly. The notes are
convertible, together with accrued interest, any time by the holders
and are convertible by the Company 60 days after their issuance date.
The promissory notes mature 120 days after their issuance and may be
secured by a General Security Agreement covering all assets of the
Company.
These notes carry a beneficial conversion feature valued at
$1,225,000, 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 is being
amortized to interest expense over the period to the earliest
conversion date. Interest expense recognized upon amortization totaled
$500,000 during the period ended March 31, 2000 and the remaining
unamortized balance of the conversion feature of $500,000 is recorded
as a discount on the convertible promissory notes.
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 in
the first year and $1.75 in the second year. Each "B" warrant entitles
the holder to acquire one common share at an exercise price of $2.00
per share in the first year and $2.50 in the second year. The
estimated fair value of the warrants of $1,794,000 was recorded as
deferred finance costs and is being amortized to interest expense over
the period to the earliest conversion date.
The Company has committed to register with the United States
Securities and Exchange Commissions ("SEC") all shares issuable upon
exercise of the "A" and "B" warrants and all shares issuable upon
conversion of this debt facility (note 5(c)).
F-23
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 4
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
--------------------------------------------------------------------------------
4. Stockholders' equity:
(a) Stock options and stock-based compensation:
During the three months ended March 31, 2000, the Company recorded
non-cash compensation expense of approximately $51,000 (March 31,
1999 - nil) related to the issuance of options to purchase shares of
common stock to employees and consultants. The options have exercise
prices ranging from $1.00 to $6.06 and have a vesting period ranging
from immediate up to 36 months.
(b) Conversion of notes payable into equity:
On January 11, 2000, the Company agreed to convert outstanding
promissory notes totaling $500,000 into 350,000 common shares and
warrants to purchase 240,000 common shares at a price of $1.40 per
share. The warrants expire January 2002. The loss on extinguishment of
debt was approximately $900. The Company has committed to register
these common shares and common shares issuable upon exercise of the
warrants with the SEC (note 5(c)).
(c) Subscriptions:
(i) Shares and warrants:
In March 2000, the Company completed a private placement issuing
618,000 units to investors for proceeds of $1,215,601, net of
$20,399 of cash financing costs. Each unit consists of one common
share of the Company and one warrant to purchase an additional
one-half of one common share at an exercise price of $1.00 per
one-half share. As at March 31, 2000, the 618,000 common shares
were fully paid for, but were not issued. The warrants expire
March, 2001.
Subsequent to March 31, 2000, the Company sold an additional
48,000 units to investors for net proceeds of $96,000.
F-24
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 5
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
--------------------------------------------------------------------------------
4. Stockholders' equity (continued):
(c) Subscriptions (continued):
(ii) Shares:
Also in March 2000, the Company completed a private placement
relating to the subscription for 2,054,000 common shares of the
Company for proceeds of $4,083,000, net of $25,000 of cash
financing costs. As at March 31, 2000, the 2,054,000 common
shares were fully paid for, but were not issued. The Company
agreed to issue warrants to purchase 500,000 common shares at
$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 cost of the
private placement as a charge to additional paid-in capital.
The Company has committed to issue and register these common
shares and also register any common shares issuable upon the
exercise of the warrants with the SEC (note 5(c)).
(d) Warrants exercised:
In March, 2000, investors exercised warrants to purchase 140,600
shares of the Company's common stock for proceeds of $188,404. As at
March 31, 2000, these shares were not issued.
5. Commitments:
(a) Internet portal advertising agreement:
Subsequent to March 31, 2000, 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 is committed to paying $570,000 under the
agreement for the remainder of fiscal year 2000, $2,460,000 in fiscal
year 2001, and $2,250,000 in fiscal year 2002.
F-25
<PAGE>
PCSUPPORT.COM, INC. AND SUBSIDIARY
(A Development Stage Enterprise)
Notes to Interim Consolidated Financial Statements, page 6
(Unaudited)
(Expressed in U.S. Dollars)
Nine months ended March 31, 2000
Period from December 10, 1997 (inception) to March 31, 2000
--------------------------------------------------------------------------------
5. Commitments (continued):
(b) 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 SEC (note 5(c)) 1,000,000 warrants as consideration
for their services. As at March 31, 2000 no warrants were earned.
(c) Registration of shares:
The Company has committed to file with the SEC a registration
statement to register all common shares or common shares issuable upon
the exercise of warrants and all other shares issuable upon conversion
of Convertible Promissory Notes issued or committed to be issued
during the three months ended March 31, 2000.
6. Subsequent events:
(a) Subsequent to March 31, 2000, the Company completed a private
placement for the subscription of 645,000 common shares at a price per
share of $2.125. The gross proceeds of $1,370,625 were received by the
Company on closing.
(b) Subsequent to March 2000, the Company entered into an operating lease
for office space. The lease has a 5 year term commencing September 1,
2000 and requires annual non-cancellable lease payments of $595,000.
The Company is in the process of negotiating the cancellation or sub-
lease of its existing premise agreement.
F-26
<PAGE>
================================================================================
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 2
Use of Proceeds............................................................ 12
Our Business............................................................... 12
Plan of Operation.......................................................... 27
Directors, Executive Officers, Promoters and Control Persons............... 29
Security Ownership of Certain Beneficial Owners and Management............. 31
Certain Relationships and Related Transactions............................. 33
Executive Compensation..................................................... 34
Disclosure of Commission Position of Indemnification for Securities Act
Liabilities................................................................ 36
Description of Securities.................................................. 37
Market For Common Equity and Related Stockholder Matters................... 37
Selling Securityholders.................................................... 39
Plan of Distribution....................................................... 43
Experts.................................................................... 44
Legal Matters.............................................................. 44
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................. 44
Where You Can Find More Information........................................ 44
Financial Statements....................................................... F-1
</TABLE>
7,291,331 Shares of Common Stock
PCSUPPORT.COM, INC.
_______________
PROSPECTUS
_______________
_____________, 2000
================================================================================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws provide that no officer or Director shall be
personally liable for any obligations of the Company or for any duties or
obligations arising out of any acts or conduct of said officer or Director
performed for or on behalf of the Company. The Company indemnifies and hold
harmless each person who serves at any time as a Director or officer of the
Company, 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 of the Company, 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. The
company also has 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 the Company's By-laws do not
exclude any other right to which he may lawfully be entitled, and the Company
may indemnify or reimburse such person in any proper case, even though not
specifically provided for by the by-laws. The Company, its Directors, officers,
employees and agents 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.
Insurance. The Company may purchase and maintain insurance on behalf of any
person who is or was a Director, officer or employee of the Company, or is or
was serving at the request of the Company 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 Company would have the
power to indemnify him against liability under the provisions of this section.
The Company currently does not maintain any such insurance.
Settlement by the Company. The right of any person to be indemnified is
subject always to the right of the Company by its Board of Directors, in lieu of
such indemnity, to settle any such claim, action, suit or proceeding at the
expense of the Company by the payment of the amount of such settlement and the
costs and expenses incurred in connection therewith.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates 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 by the
Company, and such amounts, with the exception of the Securities and Exchange
Commission registration fee, are estimates.
SEC registration fee............................................ $ 6,145
Accounting fees and expenses.................................... 10,000
Legal fees and expenses......................................... 40,000
Printing expenses............................................... 10,000
Miscellaneous................................................... -
-------
Total........................................................ $66,145
=======
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
a. On February 17, 1997, PCS (then Mex Trans) issued 600,940 shares of common
stock for aggregate gross proceeds of $89,381 to 17 investors. This
offering was made without registration under the Securities Act of 1933, as
amended (the "Act") in reliance upon the exemptions from registration
afforded by Sections 4(2) and 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder.
b. On January 31, 1999, PCS (then Mex Trans) issued 38,666 shares of common
stock at a deemed aggregate price of $49,000, for services rendered by a
former director of PCS. This offering was made without registration under
the Act in reliance upon the exemptions from registration afforded by
Sections 4(2) and 3(b) of the Act and Rule 504 of Regulation D promulgated
thereunder.
c. On April 7, 1999, PCS issued an aggregate of 214,817 shares of common stock
for aggregate proceeds of $951,000 to 140 investors. This placement was
completed in connection with the Merger, and the purchasers included
certain directors and officers of RTI. This offering was made without
registration under the Act in reliance upon the exemptions from
registration afforded by Sections 4(2) and 3(b) of the Act and Rule 504 of
Regulation D promulgated thereunder.
All share and per share information set forth above in (a), (b), and (c)
has been adjusted to reflect PCS's one-for-fifteen reverse split in connection
with the Merger.
d. On June 23, 1999, the Company issued 1,474,155 shares of common stock to
the former shareholders of RTI (50 Canadian residents and one U.S.
resident) and 311,838 warrants to purchase an aggregate of 311,838 shares
of common stock to the former warrant holders of RTI (44 Canadian residents
and one U.S. resident), in connection with the Merger. Of the warrants,
20,000 are exercisable to acquire one share of common stock each until
January 26, 2000, at a price of $0.85 per share. The remaining 291,838
warrants are each exercisable to acquire one share of common stock for a
period expiring three months after the completion of an initial public
offering of the Company's common stock, at a price of $1.34 per share. If,
at any time prior to the expiration of these warrants, the Company
completes a financing for gross proceeds of more than (Cdn)$400,000 and
issues shares of common stock, at a price which is higher than the exercise
price of these warrants, the warrant holders have ten days to exercise the
warrants, after which the exercise price is increased to the price at which
the securities were sold. The shares and warrants issued to the former RTI
shareholders were issued without registration under the Act, in reliance on
the exemptions from registration contained in Regulation S and Section 4(2)
of the Act due to the foreign nationality of the investors (except for one
accredited U.S. investor), in exchange for an aggregate of 7,370,775 shares
of the common stock of RTI, and 1,559,190 warrants of RTI.
The shares and warrants of RTI were originally issued as follows (as
adjusted to reflect the one-for-five exchange ratio in the subsequent Merger):
(1) On December 10, 1997, RTI issued 200 shares of common stock to Dromond, in
connection with the incorporation of RTI. These shares were issued
pursuant to the exemption from registration contained in Regulation S under
the Act due to the foreign nationality of the investor and RTI.
(2) On January 6, 1998, RTI issued an aggregate of 999,800 common shares to
Dromond and Advanced for aggregate gross cash proceeds of $74,965 and
services rendered having an
II-2
<PAGE>
aggregate value of $58,834. These shares were issued pursuant to Regulation
S under the Act due to the foreign nationality of the investors and RTI.
(3) On January 16, 1999, 63,440 common shares of RTI were issued to Dromond for
services rendered having an aggregate value of $53,924. These shares were
issued pursuant to Regulation S under the Act due to the foreign
nationality of the investor and RTI.
(4) On January 6, 1999, RTI issued an aggregate of 66,029 common shares to
Advanced for aggregate gross proceeds of $110,043. These shares were
issued pursuant to Regulation S under the Act due to the foreign
nationality of the investor and RTI.
(5) Between January 26, 1999 and February 18, 1999, RTI issued an aggregate of
291,838 units, each unit consisting of one (1) common share and one (1)
common share purchase warrant, to 45 investors, for aggregate gross
proceeds of $248,062. Each warrant entitled the holder to acquire a
further common share of RTI for a period expiring three (3) months after
the completion of an initial public offering of RTI's common shares, at a
price of (Cdn)$1.25, if exercise on or before July 18, 1999, and thereafter
at a price of (Cdn)$2.00 per share. If RTI completed a second financing
for proceeds of (Cdn)$400,000 before the expiration of the warrants in
which the common shares of RTI were sold at a price greater than the
exercise price of the warrants, the warrant holders had ten (10) days to
exercise the warrants, after which the exercise price increased to the
price at which the shares were sold in the financing. RTI paid finders'
fees of: (i) 4,496 common shares and (Cdn)$5,620 to Odlum Brown Ltd., of
1800, 609 Granville Street, Vancouver, British Columbia; and (ii) 4,352
common shares and (Cdn)$5,440 to Wolverton Securities Inc., of 17th Floor,
777 Dunsmuir Street, Vancouver, British Columbia for services provided, in
connection with locating investors for RTI. Odlum Brown Ltd. and Wolverton
Securities Inc. are securities dealers based in Vancouver, B.C. These
shares were issued pursuant to Regulation S and Section 4(2) of the Act due
to the foreign nationality of the investors (except for one accredited U.S.
investor).
(6) On January 26, 1999, RTI issued 30,000 common shares to a consulting firm
in connection with the provision of corporate finance advice which
culminated in the completion of the financing described in paragraph (5)
above. On May 19,1999, RTI issued 6,000 common shares to the same firm in
connection with the provision of further financial advice. These shares
were issued pursuant to Regulation S under the Act due to the foreign
nationality of the investor and RTI.
(7) On January 26, 1999, RTI issued 20,000 warrants to Advanced in
consideration for the non-interest bearing credit facility in the amount of
(Cdn)$50,000 provided by Advanced to RTI until completion of the financing
set out in paragraph (5) above. Each warrant entitled Advanced to acquire
one common share of RTI for a period of one year expiring January 26, 2000,
at a price of (Cdn)$1.25 per share. These securities were issued pursuant
to Regulation S under the Act due to the foreign nationality of the
investor and RTI. These warrants expired unexercised.
(8) On January 26, 1999, RTI issued an aggregate of 8,000 common shares to the
law firm of Anfield, Sujir, Kennedy, and Durno in consideration of legal
advice which culminated in the completion of the financing described in
paragraph (5) above. These shares were issued pursuant to Regulation S
under the Act due to the foreign nationality of the investor and RTI.
e. On July 17, 1999, the Company issued 68,400 shares of common stock to 14
investors upon the exercise of 68,400 warrants, for aggregate gross
proceeds of $58,266. These shares were issued pursuant to Regulation S
under the Act due to the foreign nationality of the investors.
II-3
<PAGE>
f. On December 27, 1999, the Company agreed to issue 4,160 shares of common
stock to an online publisher of PC maintenance and support information in
consideration of such publisher's agreement to make such information
available to the Company for publication on the Company's Web site. This
offering was made without registration under the Act in reliance upon the
exemption from registration afforded by Section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder.
g. On January 11, 2000, the Company issued 350,000 shares of common stock and
240,000 warrants to a private investor who agreed to accept these
securities in discharge of $500,000 in indebtedness owing to such investor
by the Company. This offering was made without registration under the Act
in reliance upon the exemption from registration afforded by Section 4(2)
of the Act and Rule 506 of Regulation D promulgated thereunder.
h. On January 11, 2000, the Company issued 10,000 warrants to two individuals
in connection with corporate finance services, including the introduction
of the Company to ICE Holdings North America LLC. These warrants enable the
holders to purchase 10,000 common shares at a price of $1.05 for three
years. This offering was made without registration under the Act in
reliance upon the exemption from registration afforded by Section 4(2) of
the Act and Rule 506 of Regulation D promulgated thereunder.
i. On February 29, 2000, the Company issued promissory notes convertible into
common shares to 13 investors for aggregate gross proceeds of $1,000,000.
These notes carried a coupon of 10% payable in common shares at a rate of
$2.00 per common share. These notes were also convertible into 500,000
common shares (plus accrued interest payable at a rate of $2.00 per common
share) at anytime at the holder's option, and at the Company's option at
any time after April 29, 2000. The Company converted these notes on May 1,
2000. On March 8, 2000, the Company issued 1,000,000 two-year "A" warrants
and 500,000 two-year "B" warrants to Mike Lee and Associates, an adviser,
in consideration of ongoing financial consulting services provided to the
Company, including services in connection with the placement of the
convertible notes described above and other related services. The "A"
warrants are exercisable into common shares at a price of $1.25 in the
first year and $1.75 in the second year. The "B" warrants are exercisable
into common shares at a price of $2.00 in the first year and $2.50 in the
second year. These offerings were made without registration under the Act
in reliance upon the exemption from registration afforded by Section 4(2)
of the Act and Rule 506 of Regulation D promulgated thereunder.
j. Between February 29, 2000 and April 21, 2000, the Company issued an
aggregate of 666,000 units, each unit consisting of one (1) common share
and one-half (1/2) common share purchase warrant, to 16 investors, for
aggregate gross proceeds of $1,332,000. Each warrant entitles the holder to
acquire a further common share for a period expiring twelve (12) months
after its original issuance at a price of $2.00 per share. This offering
was made without registration under the Act in reliance upon the exemption
from registration afforded by Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder.
k. On March 21, 2000, the Company issued 2,054,000 shares of common stock to
42 investors for aggregate gross proceeds of $4,108,000. This offering was
made without registration under the Act in reliance upon the exemption from
registration afforded by Section 4(2) of the Act and Rule 506 of Regulation
D promulgated thereunder. On March 24, 2000, the Company agreed to issue
500,000 warrants to Wolverton Securities, in consideration of financial
consulting services provided to the Company in connection with the sales of
the 2,054,000 shares described above. These offerings were made without
registration under the Act in reliance upon the exemption
II-4
<PAGE>
from registration afforded by Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder.
l. On March 31, 2000, the Company agreed to issue 140,600 shares of common
stock to 29 investors upon the exercise of 140,600 warrants, for aggregate
gross proceeds of $188,404. These shares were issued pursuant to Regulation
S under the Act due to the foreign nationality of the investors.
m. On April 20, 2000, the Company agreed to issue 645,000 shares to 9
investors for aggregate gross proceeds of $1,370,625. This offering was
made without registration under the Act in reliance upon the exemption from
registration afforded by Section 4(2) of the Act and Rule 506 of Regulation
D promulgated thereunder.
n. On April 21, 2000, the Company agreed to issue 50,000 warrants to two
individuals in connection with corporate finance services, including the
introduction of the Company to ICE Holdings North America LLC. These
warrants enable each individual to purchase 25,000 common shares at a price
of $5.47 for three years. This offering was made without registration under
the Act in reliance upon the exemption from registration afforded by
Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.
o. On April 25, 2000, the Company agreed to issue 34,000 shares of common
stock to an investor for aggregate gross proceeds of $68,000. This offering
was made without registration under the Act in reliance upon the exemption
from registration afforded by Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder.
ITEM 27. EXHIBITS
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation of the Company dated as of April 5,
1999.*
3.2 Articles/Certificate of Merger of the Company dated as of
April 5, 1999.*
3.3 Certificate of Correction of the Company dated as of June 2,
1999.*
3.4 Articles of Merger of the Company dated as of June 21, 1999.*
3.5 Bylaws of the Company.*
4.1 Specimen Stock Certificate****
4.2 Form of Warrant issued to former RTI warrantholders in
connection with the Merger.*
4.3 Form of Warrant issued to Advanced in connection with the
Merger.*
4.4 Warrant issued on January 11, 2000 to CGTF, LLC.**
4.1 Form of Warrants issued on January 11, 2000 to Irwin Olian and
Stanley Elbaum.***
4.2 Form of Warrants issued to Purchasers in February, 2000 Unit
Offering.***
II-5
<PAGE>
4.3 Form of Convertible Notes issued on February 29, 2000.***
4.4 Form of "A" Warrant issued on March, 10, 2000 to Mike Lee &
Associates.***
4.5 Form of "B" Warrant issued on March, 10, 2000 to Mike Lee &
Associates.***
5.1 Opinion of Counsel as to the legality of securities being
registered.****
10.1 Plan of Reorganization and Merger dated as of May 5, 1999 between the
Company and RTI.*
10.2 Contract for Services dated as of June 23, 1999 between the Company and
The Dromond Technologies Group.*
10.3 Notice of Termination dated as of March 31, 2000 from the Company to The
Dromond Technologies Group, Inc.***
10.4 Consulting Contract dated as of April 1, 1999 between RTI and Strategic
Catalysts Inc.*
10.5 Termination Letter dated as of December 31, 1999 from the Company to
SCI.**
10.6 Employment Agreement dated as of March 1, 2000 between the Company and
Michael McLean.***
10.7 Employment Agreement effective January 1, 2000 between the Company and
Steve Macbeth.**
10.8 Employment Agreement effective January 1, 2000 between the Company and
David Rowat.**
10.9 Employment Agreement dated as of November 17, 1999 between the Company
and Bruce McDonald.**
10.10 Employment Agreement dated as of April 6, 2000 between the Company and
Denise Holleran-Boswell.****
10.11 Employment Agreement dated as of April 25, 2000 between the Company and
Bruna Martinuzzi.****
10.12 Directors, Officers and Employee Stock Option Plan, as amended by the
Company's Board of Directors on November 30, 1999.***
10.13 Standard Form of Stock Option Agreement, as amended by the Company's
Board of Directors on November 30, 1999.***
10.14 Stock Pooling and Escrow Agreement dated as of July 31, 1999 among the
Company, Advanced Financial Services Inc., Alan Ackerman, David Rowat,
Clifford Rowlands, Michael McLean, Steve Macbeth, The Dromond Group Ltd.,
and Owen, Bird.*
II-6
<PAGE>
10.15 Amendment dated as of March 7, 2000 to the Stock Pooling and Escrow
Agreement among the Company, Advanced Financial Services Inc., Alan
Ackerman, David Rowat, Clifford Rowlands, Michael McLean, Steve Macbeth,
The Dromond Group Ltd., and Owen, Bird.***
10.16 Offer to Sub-Lease dated as of April 22, 1999 among Electronic Arts
(Canada), Inc., RTI, and Beutel Goodman Real Estate Group.*
10.17 Lease dated as of March, 26, 1992 between The Canada Life Assurance
Company and Osiware Inc.*
10.18 Assignment Agreement dated as of July 29, 1997 among Infonet Software
Solutions Inc., Electronic Arts (Canada), Inc., and 547495 Ontario
Limited.*
10.19 Service Supply Agreement dated as of June 8, 1998 between RTI and
StorageTek Canada Inc.*
10.20 Service Contract dated as of April 1, 1999 between the Company and Unisys
of Canada Inc.*
10.21 Letter of Intent dated as of October 6, 1999 between the Company and Go
Figure Technology Inc.*
10.22 Consulting Contract dated as of August 6, 1999 between the Company and
M.A. Levy & Assoc.*
10.23 Consulting Agreement dated as of September 1, 1999 between the Company
and Irwin Olian.*
10.24 Engagement Letter dated as of October 6, 1999 between the Company and
Sitrick and Company.**
10.25 Service Agreement dated as of January 7, 2000 between the Company and Go
Figure Technology, Inc.**
10.26 Agreement to Convert Notes Into Stock and Warrants dated as of January
11, 2000 between the Company and CGTF, LLC.**
10.27 Term Sheet dated as of February 24, 2000 between the Company and Mike Lee
& Associates.***
10.28 Purchasing Schedule No. 2 dated as of March 13, 2000 between the Company
and Motive Communications, Inc.***
10.29 Engagement Letter dated as of March 21, 2000 between the Company and ICE
Holdings North America, L.L.C.****
10.30 Content License Agreement, dated as of April 4, 2000, between the Company
and AltaVista Company.****+
10.31 Advertising Agreement, dated as of April 7, 2000, between the Company and
AltaVista Company.****+
II-7
<PAGE>
10.32 Lease, dated as of June 1, 2000, between the Company and Discovery Parks
Incorporated.
23.1 Consent of Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24 Power of Attorney (see page 82).
27 Financial Data Schedule.***
* Incorporated by reference to the Company's Form 10-SB filed on
October 18, 1999.
** Incorporated by reference to the Company's Amendment No. 2 to Form 10-SB
filed on January 12, 2000.
*** Incorporated by reference to the Company's Report on Form 10-QSB filed on
May 15, 2000.
**** Previously filed with the Company's Form SB-2 filed on May 24, 2000.
+ Certain portions of this exhibit have been omitted pursuant to a request
for confidential treatment. Omitted portions have been filed separately
with the Securities and Exchange Commission.
ITEM 28. 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 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
II-8
<PAGE>
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. 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-9
<PAGE>
SIGNATURES
In accordance with 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 of filing on Form SB-2 and has authorized this Pre-Effective
Amendment No. 1 to Form SB-2 be signed on its behalf by the undersigned, in the
City of Barnaby, British Columbia, Canada, on June 19, 2000.
PCSUPPORT.COM, INC.
By /s/ Michael G. McLean
---------------------
Michael G. McLean
President and Chief Executive Officer
POWER OF ATTORNEY
The officers and directors of PCSupport.com, Inc., whose signatures appear
below, hereby constitute and appoint Michael G. McLean and David W. Rowat, and
each of them, their true and lawful attorneys and agents, each with power to act
alone, to sign, execute and cause to be filed on behalf of the undersigned any
amendment or amendments, including post-effective amendments, to this Pre-
Effective Amendment No. 1 to Form SB-2. Each of the undersigned does hereby
ratify and confirm all that said attorneys and agents shall do or cause to be
done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael G. McLean President, Chief Executive Officer and June 19, 2000
-----------------------------------------------
Michael G. McLean Chairman (Principal Executive Officer)
/s/ David W. Rowat Vice President, Finance and June 19, 2000
-----------------------------------------------
David W. Rowat Business Development (Principal
Financial and Accounting Officer)
/s/ Steven W. Macbeth Director June 19, 2000
-----------------------------------------------
Steven W. Macbeth
/s/ W. Benjamin Catalano Director June 19, 2000
-----------------------------------------------
W. Benjamin Catalano
Director June , 2000
-----------------------------------------------
Bruce Nelson
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation of the Company dated as of April 5,
1999.*
3.2 Articles/Certificate of Merger of the Company dated as of April
5, 1999.*
3.3 Certificate of Correction of the Company dated as of June 2,
1999.*
3.4 Articles of Merger of the Company dated as of June 21, 1999.*
3.5 Bylaws of the Company.*
4.1 Specimen Stock Certificate****
4.2 Form of Warrant issued to former RTI warrantholders in
connection with the Merger.*
4.3 Form of Warrant issued to Advanced in connection with the
Merger.*
4.4 Warrant issued on January 11, 2000 to CGTF, LLC.**
4.1 Form of Warrants issued on January 11, 2000 to Irwin Olian and
Stanley Elbaum.***
4.2 Form of Warrants issued to Purchasers in February, 2000 Unit
Offering.***
4.3 Form of Convertible Notes issued on February 29, 2000.***
4.4 Form of "A" Warrant issued on March, 10, 2000 to Mike Lee &
Associates.***
4.5 Form of "B" Warrant issued on March, 10, 2000 to Mike Lee &
Associates.***
5.1 Opinion of Counsel as to the legality of securities being
registered.****
10.1 Plan of Reorganization and Merger dated as of May 5, 1999
between the Company and RTI.*
10.2 Contract for Services dated as of June 23, 1999 between the
Company and The Dromond Technologies Group.*
10.3 Notice of Termination dated as of March 31, 2000 from the
Company to The Dromond Technologies Group, Inc.***
10.4 Consulting Contract dated as of April 1, 1999 between RTI and
Strategic Catalysts Inc.*
10.5 Termination Letter dated as of December 31, 1999 from the
Company to SCI.**
<PAGE>
10.6 Employment Agreement dated as of March 1, 2000 between the
Company and Michael McLean.***
10.7 Employment Agreement effective January 1, 2000 between the
Company and Steve Macbeth.**
10.8 Employment Agreement effective January 1, 2000 between the
Company and David Rowat.**
10.9 Employment Agreement dated as of November 17, 1999 between the
Company and Bruce McDonald.**
10.10 Employment Agreement dated as of April 6, 2000 between the
Company and Denise Holleran-Boswell.****
10.11 Employment Agreement dated as of April 25, 2000 between the
Company and Bruna Martinuzzi.****
10.12 Directors, Officers and Employee Stock Option Plan, as amended by
the Company's Board of Directors on November 30, 1999.***
10.13 Standard Form of Stock Option Agreement, as amended by the
Company's Board of Directors on November 30, 1999.***
10.14 Stock Pooling and Escrow Agreement dated as of July 31, 1999
among the Company, Advanced Financial Services Inc., Alan
Ackerman, David Rowat, Clifford Rowlands, Michael McLean, Steve
Macbeth, The Dromond Group Ltd., and Owen, Bird.*
10.15 Amendment dated as of March 7, 2000 to the Stock Pooling and
Escrow Agreement among the Company, Advanced Financial Services
Inc., Alan Ackerman, David Rowat, Clifford Rowlands, Michael
McLean, Steve Macbeth, The Dromond Group Ltd., and Owen, Bird.***
10.16 Offer to Sub-Lease dated as of April 22, 1999 among Electronic
Arts (Canada), Inc., RTI, and Beutel Goodman Real Estate Group.*
10.17 Lease dated as of March, 26, 1992 between The Canada Life
Assurance Company and Osiware Inc.*
10.18 Assignment Agreement dated as of July 29, 1997 among Infonet
Software Solutions Inc., Electronic Arts (Canada), Inc., and
547495 Ontario Limited.*
10.19 Service Supply Agreement dated as of June 8, 1998 between RTI and
StorageTek Canada Inc.*
10.20 Service Contract dated as of April 1, 1999 between the Company
and Unisys of Canada Inc.*
<PAGE>
10.21 Letter of Intent dated as of October 6, 1999 between the Company
and Go Figure Technology Inc.*
10.22 Consulting Contract dated as of August 6, 1999 between the
Company and M.A. Levy & Assoc.*
10.23 Consulting Agreement dated as of September 1, 1999 between the
Company and Irwin Olian.*
10.24 Engagement Letter dated as of October 6, 1999 between the Company
and Sitrick and Company.**
10.25 Service Agreement dated as of January 7, 2000 between the Company
and Go Figure Technology, Inc.**
10.26 Agreement to Convert Notes Into Stock and Warrants dated as of
January 11, 2000 between the Company and CGTF, LLC.**
10.27 Term Sheet dated as of February 24, 2000 between the Company and
Mike Lee & Associates.***
10.28 Purchasing Schedule No. 2 dated as of March 13, 2000 between the
Company and Motive Communications, Inc.***
10.29 Engagement Letter dated as of March 21, 2000 between the Company
and ICE Holdings North America, L.L.C.****
10.30 Content License Agreement, dated as of April 4, 2000, between the
Company and AltaVista Company.****+
10.31 Advertising Agreement, dated as of April 7, 2000, between the
Company and AltaVista Company.****+
10.32 Lease, dated as of June 1, 2000, between the Company and
Discovery Parks Incorporated.
23.1 Consent of Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24 Power of Attorney (see page 82).
27 Financial Data Schedule.***
* Incorporated by reference to the Company's Form 10-SB filed on October 18,
1999.
** Incorporated by reference to the Company's Amendment No. 2 to Form 10-SB
filed on January 12, 2000.
*** Incorporated by reference to the Company's Report on Form 10-QSB filed on
May 15, 2000.
<PAGE>
**** Previously filed with the Company's Form SB-2 filed on May 24, 2000.
+ Certain portions of this exhibit have been omitted pursuant to a request
for confidential treatment. Omitted portions have been filed separately
with the Securities and Exchange Commission.