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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 1999
Registration No. 333-87353
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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STUPIDPC, INC.
(Name of Small Business Issuer in its Charter)
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GEORGIA 3571 58-2321232
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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6690 JONES MILL COURT, SUITE A
NORCROSS, GEORGIA 30092
(770) 448-4150
(770) 448-2356 (FACSIMILE)
(Address and Telephone Number of Principal Executive Offices)
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STEPHEN B. BRANNON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STUPIDPC, INC.
6690 JONES MILL COURT, SUITE A
NORCROSS, GEORGIA 30092
(770) 448-4150
(770) 448-2356 (FACSIMILE)
(Name, Address and Telephone Number of Agent for Service)
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COPIES TO:
MICHAEL R. SIAVAGE, ESQ.
JON H. KLAPPER, ESQ.
RED HOT LAW GROUP OF ASHLEY LLC
THE BILTMORE, SUITE 400
817 W. PEACHTREE STREET
ATLANTA, GEORGIA 30308-1138
(404) 575-1900
(404) 575-1901 (FACSIMILE)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this form is filed to register additional securities for any offering
pursuant to Rule 462(b) 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(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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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common stock, no par value per share 1,200,000(2) $5.06 $6,072,000 $1,688.02
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Common stock, no par value per share 220,000(3) $5.50 $1,210,000 $336.38
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Common stock, no par value per share 115,710 $1.69 $ 195,550 $ 51.63
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Total -- -- -- $2,076.03(4)
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Represents shares that may be acquired by the Selling Securityholders
named herein (the "Selling Securityholders") upon conversion of the
Registrant's Convertible 8% Debentures (the "Debentures"), assuming a
conversion price of $1.00 per share. The number of shares of Common
Stock issuable upon conversion of the Debentures is equal to the lower
of (a) 80% of the market price at the conversion date (as defined) or
(b) $6.25 per share. The conversion price would have been $1.07 if the
date of conversion was December 20, 1999.
(3) Represents shares issuable upon exercise of warrants (the "Warrants")
issued to the Selling Securityholders in connection with the issuance
and sale of the Debentures. Includes an indeterminate number of shares
which may become issuable in the event of a stock split, stock dividend
or similar transaction involving the Common Stock pursuant to the
antidilution provisions of the Warrants.
(4) $2,024.40 was previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITHOUT THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 28, 1999
STUPIDPC, INC.
1,535,710 SHARES
COMMON STOCK
The selling securityholders named in this prospectus are offering and
selling up to 1,535,710 shares of the common stock of StupidPC, Inc.
Our common stock is quoted on the over-the-counter bulletin board under
the symbol STPX.
YOU SHOULD READ THE DESCRIPTION OF CERTAIN RISKS UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 4 BEFORE PURCHASING OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________________, 1999.
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TABLE OF CONTENTS
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Summary................................................................................................. 3
Risk Factors............................................................................................ 4
Special Note Regarding Forward-Looking Statements....................................................... 14
Market for Common Equity and Related Stockholder Matters................................................ 15
Capitalization.......................................................................................... 16
Selected Financial Data................................................................................. 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................... 18
Business................................................................................................ 23
Management.............................................................................................. 29
Principal and Selling Shareholders...................................................................... 31
Certain Transactions.................................................................................... 33
Description of Capital Stock............................................................................ 34
Shares Eligible for Future Sale......................................................................... 37
Plan of Distribution.................................................................................... 39
Legal Matters........................................................................................... 40
Experts................................................................................................. 40
Where You Can Find More Information..................................................................... 40
Index to Consolidated Financial Statements.............................................................. F-1
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SUMMARY
STUPIDPC, INC.
StupidPC designs, assembles and sells affordably-priced customized
personal computer systems. We also provide a broad range of related services,
including installation, consulting, training, networking and customer support.
Our primary target market consists of cost-conscious, first time and/or
"computer-phobic" personal computer purchasers who may be intimidated by the
high-cost and multitude of computer products and services currently available.
We market our products and services from two retail locations in the Atlanta
area. In addition, consumers may order and pay for our products and services
through our web site at www.stupidpc.com.
Our principal executive offices are located at 6690 Jones Mill Court,
Suite A, Norcross, Georgia 30092, and our telephone number is (770) 448-4150.
This prospectus does not incorporate by reference any information on our
website.
THE OFFERING
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Common stock to be offered by the
selling securityholders ................................ 1,535,710 shares, 1,200,000 of
which will be issued upon
conversion of our 8% convertible
debentures, 220,000 of which will
be issued upon exercise of
warrants and 115,710 of which are
currently outstanding.
Proceeds to be received by the Company ................... None, except for proceeds on the
exercise of the warrants, if any.
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RISK FACTORS
You should carefully consider the risk factors described below before
purchasing our common stock. If any of the following risks actually occurs, our
business, financial condition and operating results could be adversely affected.
If that happens, the trading price of our common stock could decline, and you
could lose part or all of your investment.
RISKS RELATED TO STUPIDPC.COM
WE ARE IN AN EARLY STAGE OF DEVELOPMENT WITH AN UNPROVEN BUSINESS MODEL AND THIS
LIMITED OPERATING HISTORY CREATES FINANCIAL RISKS AND MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS.
We were incorporated in May 1997 and our business model continues to
evolve. As a result, your evaluation of us and our prospects is based on a
limited operating history and an unproven business model. You must consider the
risks, expenses and difficulties frequently encountered by companies like us
that are in their early stage of development. Some of the risks, which we may
face as an early stage company include our ability to:
- execute our unproven business model and strategy and revise
them as necessary;
- rapidly expand market share and geographic coverage;
- maintain and enhance our product delivery and installation
systems;
- attract and retain additional qualified personnel;
- establish brand recognition and a reputation for value with
consumers;
- provide effective customer support and service;
- further develop business relationships with low cost computer
component manufacturers and suppliers;
- enhance and expand our Internet-based e-commerce distribution
solution; and
- respond to our competition, which may seek to adopt some of
our strategies.
We cannot be certain that we will successfully address these risks. If
we cannot do so, our business operations and financial results will be seriously
harmed.
WE MAY NOT BE ABLE TO ATTRACT CONSUMERS TO PURCHASE OUR PRODUCTS, WHICH IS OUR
EXCLUSIVE SOURCE OF REVENUES.
Our business is in the highly competitive market of personal computer
assembly and sales. We must widely market our products and accomplish acceptance
of the value-added services which we offer in a market that has become
exceedingly cost driven. We cannot predict whether we will achieve the
wide-scale acceptance of our products that will be required for us to achieve
our plans and the revenues and margins required for the success of these plans.
Because of these and other factors, we cannot forecast revenues or the rate at
which we will attract new customers with any degree of accuracy. The failure to
achieve or sustain desired pricing levels or achieve or sustain broad market
acceptance will result in serious harm to our business operations and financial
results.
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WE MAY NOT BE PROFITABLE IN THE FUTURE.
We may never be profitable. Since we began our operations in September
1997, we have incurred significant start-up and other expenses and have incurred
substantial losses as a result. We incurred a net loss of approximately $436,000
in 1998 and $1.0 million for the first nine months of 1999. At September 30,
1999, we had an accumulated deficit of over $1.6 million. Because of our losses,
our independent certified public accountants have added an explanatory paragraph
to their report on our financial statements for the year ended December 31, 1998
which makes reference to the uncertainties regarding our ability to continue as
a going concern.
We expect to continue to incur substantial losses for the foreseeable
future because we intend to continue to invest heavily in inventory, marketing,
advertising and promotion, rapidly increase the number of our employees and
acquire additional technology. We will not become profitable unless the number
of consumers who purchase our products at acceptable gross margins significantly
increases.
OUR FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY NOT MEET EXPECTATIONS
WHICH MAY CAUSE THE PRICE OF OUR STOCK TO FALL.
Our future operating results will depend on many factors, some of which
are beyond our control. If our financial results are below the expectations of
securities analysts or our investors in some future quarter, it is likely our
stock price will decline, perhaps significantly. Factors that affect our
operating results may include:
- rate and price at which customers purchase our products;
- amount and timing of capital expenditures and other costs
relating to the expansion of our services and infrastructure;
- the introduction of new products and services by us or our
competitors;
- price competition by competitors;
- unavailability of product components;
- loss of key employees and the time required to train
replacements;
- the overall and long-term acceptance of the Internet by
individuals and organizations for e-commerce; and
- general economic conditions that might cause a decrease in
personal computer sales;
In addition, we plan to increase significantly our operating expenses
to quickly expand our inventory, personnel and infrastructure, open new retail
outlets and improve our operational and financial systems. If our revenues do
not increase along with these expenses, our financial condition could be
seriously harmed.
Our future operating results are likely to be adversely affected by
these and other factors. Accordingly, we believe that quarter-to-quarter
comparisons of operating results for prior periods are not meaningful. You
should not rely on the results of any one quarter as an indication of our future
performance.
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THE SKILLED EMPLOYEES THAT WE NEED MAY BE DIFFICULT AND EXPENSIVE TO HIRE AND
RETAIN IN TODAY'S TIGHT LABOR MARKET
Our future success depends on our ability to attract, retain and
motivate highly skilled technical, managerial, sales and marketing and customer
service personnel. The failure to attract, train and retain the necessary
personnel could seriously harm our business, financial condition and results of
operations. In particular, our growth strategy and future success is heavily
dependent on rapidly increasing the size of our sales force, including skilled
sales management. Competition for such sales and other personnel is extremely
intense, not only in the Atlanta area, where our headquarters are located, but
also nation-wide. The computer industry is also characterized by a high level of
employee mobility and aggressive recruiting of skilled personnel. As a result,
we may be unsuccessful in attracting, training or retaining qualified personnel.
WE MUST INCREASE BRAND AWARENESS OF STUPIDPC TO REMAIN COMPETITIVE.
Establishing and maintaining the goodwill associated with our brand
name is a critical aspect of attracting and expanding our customer base. We have
not yet developed a strong brand name and if we fail to do so it could seriously
harm our business. The importance of brand recognition will increase with
competition. Promotion and enhancement of our brand will depend largely on our
success in continuing to provide high quality and affordably priced products and
services, which we cannot guarantee. If users do not perceive our products and
services to be comprehensive and of high quality, or if we introduce new
features, or enter into new business ventures that are not favorably received by
users, we will risk diluting the value of our brand name. If we are unable to
provide high quality products and services, or otherwise fail to promote and
maintain our brand name, or if we incur excessive expenses in an attempt to
improve our products and services, or promote and maintain our brand name, our
future results of operations and financial condition could be seriously harmed.
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OUR OPERATING RESULTS DEPEND ON OUR RELATIONSHIP WITH A LIMITED NUMBER OF
SUPPLIERS.
We currently purchase all of our equipment and components from
relatively few suppliers, most of which are located abroad, particularly in
Taiwan. Although multiple manufacturers currently produce or are developing
equipment that will meet our current and anticipated requirements we cannot
guarantee that our suppliers will be able to manufacture and deliver the
amount of equipment ordered or that such supply will be sufficient to meet
demand. In addition, the pricing of the equipment purchased by us may
substantially increase over time, increasing the costs paid in the future by us
or decrease over time, providing later market entrants with a cost advantage
over us. The availability and pricing of the equipment purchased by us may be
adversely affected if our suppliers enter into competition with us, or if our
competitors enter into exclusive or restrictive arrangements with suppliers. Any
interruptions in the supply of this equipment resulting from natural, political
or commercial causes could seriously harm our business, financial condition and
results of operations.
BECAUSE WE PURCHASE COMPUTER COMPONENTS FROM THIRD PARTY VENDORS, WE ARE SUBJECT
TO INVENTORY RISK.
We purchase computer components from third-party vendors. As a result
of the purchases, we assume the risk of inventory damage, theft and
obsolescence.
IF A CATASTROPHIC EVENT OCCURS AT OUR CURRENT WAREHOUSE AND FULFILLMENT
FACILITY, WHICH IS OUR SOLE LOCATION FOR OUR PRODUCT INVENTORY, OUR BUSINESS
WOULD BE SERIOUSLY HARMED.
All of our product inventory is stored at our sole warehouse and
fulfillment facility. If all or a substantial portion of this inventory is
damaged from fire, flood, tornado or other similar catastrophic event, our
business, financial condition and results of operation will be seriously harmed.
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BECAUSE WE RELY HEAVILY ON TECHNOLOGY DEVELOPED AND MAINTAINED BY THIRD PARTIES,
OUR INABILITY TO PREVENT INTERRUPTIONS AND IMPLEMENT NEW TECHNOLOGY COULD CREATE
A COMPETITIVE DISADVANTAGE.
The industry in which we compete is subject to rapid and significant
changes in technology. The effect of technological changes on our business, such
as continuing developments in computer chip architecture cannot be predicted. We
rely in part on third parties, including certain of our competitors and
potential competitors, for the development of and access to technology. We
cannot predict the effect technological changes will have on our business. We
believe our future success will depend, in part, on our ability to anticipate or
adapt to such changes and to offer, on a timely basis, services that meet
customer demands and evolving industry standards. We cannot guarantee that we
will obtain access to new technology on a timely basis or on satisfactory terms
or that we will be able to adapt to such technological changes, offer such
services on a timely basis, or establish or maintain a competitive position. Any
technological change, obsolescence or failure to obtain access to important
technologies could seriously harm our business.
In addition, our success, in particular our ability to successfully
receive and fulfill online orders and provide high-quality customer service,
largely depends on the efficient and uninterrupted operation of our computer
software and hardware systems, most of which are owned and maintained by third
parties. These third parties' systems may experience interruptions in service or
be vulnerable to damage from power loss, fire, flood or similar catastrophic
events. Because we do not control the software or hardware systems owned by
these third parties, we may have difficulties in implementing new and enhanced
technology on a timely basis in the future to remain competitive. Our failure to
do so could seriously harm our business, financial condition and operating
results.
WE MAY ACQUIRE TECHNOLOGY OR COMPUTER COMPONENTS THAT BECOME OUTDATED FASTER
THAN WE ANTICIPATE OR THAT DOES NOT WORK AS WE EXPECT WHICH MAY SERIOUSLY HARM
OUR BUSINESS.
We acquire technology components by purchasing or licensing it. We may
be unable to use the technology or components effectively if it becomes outdated
or because it does not perform as well as we thought it would. Dealing with
unexpected technology or component problems may distract our management or
impair our ability to provide our products or the e-commerce solution we have
promised our clients. Any of these problems could seriously harm our business.
YEAR 2000 PROBLEMS COULD DISRUPT OUR OPERATIONS AND CAUSE US TO LOSE REVENUE.
Our failure or the failure by third parties that provide our computer
hardware and software to correct any programs or hardware with a year 2000
problem could result in system failures or miscalculations causing disruptions
of our operations and seriously harm our business, financial condition and
results of operations. We may do business with and communicate electronically
with suppliers that also face year 2000 problems. We cannot guarantee that they
will remediate any year 2000 problems they have in a timely manner. If they fail
to remediate their year 2000 problems, they may experience material disruptions
in their business, which could seriously harm our ability to provide products
and services to our customers and would seriously
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harm our business, financial condition and results of operations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN STEPHEN B. BRANNON AND OTHER KEY
PERSONNEL.
Our future success depends, in significant part, upon the continued
services of our senior management and other key personnel. The loss of the
services of Stephen B. Brannon, our President and Chief Executive Officer, or
one or more of our other key employees could seriously harm our business.
Neither Mr. Brannon, nor any of our other employees have employment agreements
with us. In addition, we do not have "key person" life insurance policies on Mr.
Brannon or any other employee.
WE FACE SIGNIFICANT COMPETITION FROM COMPANIES THAT MAY HAVE GREATER
RESOURCES THAN WE DO.
The e-commerce market is new, rapidly evolving and intensely
competitive. The personal computer manufacturing and sales industry is more
mature but is also very competitive as well as highly fragmented. We expect
competition to persist and intensify in the future from existing competitors and
companies that enter our existing or future markets. Barriers to entry into the
e-commerce market are relatively low. Moreover, all of the products that we sell
are available through traditional distribution methods. In addition, recently,
with the growth in the use of the Internet, certain of our competitors have
begun to offer low-price computer systems bundled with long-term commitments
with Internet service providers. Accordingly, we must compete with both
companies in the e-commerce market and in the traditional retail distribution of
personal computers.
Most of our competitors and potential competitors have longer operating
histories, more customers, greater brand recognition and substantially greater
financial and other resources than we do. Our competitors may be able to acquire
merchandise from vendors on more favorable terms. In addition, our competitors
may be able to respond more quickly to changes in customer preferences, spend
more on marketing and promotional campaigns, adopt more aggressive pricing and
inventory policies and devote more resources to developing their e-commerce
solutions for the sale of personal computers.
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TO EXECUTE OUR STRATEGY WE WILL REQUIRE ADDITIONAL CAPITAL THAT MAY NOT BE
AVAILABLE ON FAVORABLE TERMS OR AT ALL.
The expansion and development of our business will require significant
capital to fund capital expenditures, working capital and operating losses.
While we currently anticipate that our available cash resources will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the next 12 months, we will need to raise additional
funds through public or private financings. We may be unable to obtain
sufficient additional financing on favorable terms, if at all. If we raise
additional funds by selling our equity securities, the relative ownership of our
existing investors could be diluted or the new investors could obtain terms more
favorable than those of our existing investors. If we raise additional funds
through debt financing, we could incur significant borrowing costs. If
sufficient financing is not available or is not available on favorable terms,
our business, financial condition and results of operations would be seriously
harmed.
WE MAY BE UNABLE TO PROTECT AND DEFEND OUR INTELLECTUAL PROPERTY RIGHTS, AND
THESE RIGHTS MAY BE CHALLENGED BY OTHERS, WHICH COULD SUBJECT US TO SIGNIFICANT
LIABILITY FOR DAMAGES AND INVALIDATION OF OUR INTELLECTUAL PROPERTY RIGHTS.
Legal standards relating to the protection of intellectual property
rights in Internet-related industries are uncertain and still evolving. As a
result, the future viability or value of our intellectual property rights, as
well as those of other companies in the Internet industry, is unknown. We cannot
be certain that the steps we have taken to protect our intellectual property
rights will be adequate or that third parties will not infringe or
misappropriate our proprietary rights. Any such infringement or misappropriation
could seriously harm our future financial results. In addition, we cannot be
certain that our business activities will not infringe upon the proprietary
rights of others, or that other parties will not assert infringement claims
against us. We might be forced to pay substantial costs to prosecute or defend
any litigation of this nature, which could divert the attention of our
management from other important matters.
IF CERTAIN LITIGATION IN WHICH STUPIDPC IS INVOLVED IS RESOLVED
UNFAVORABLY, OUR BUSINESS AND OPERATING RESULTS COULD BE SERIOUSLY HARMED.
We have received a claim by a former officer and director alleging
entitlement to the exercise of 750,000 options of our common stock and $6.5
million. We believe we have adequate defenses to this claim, but if it is
resolved adversely to us, it could seriously harm our business, operating
results and financial condition.
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RISKS RELATED TO E-COMMERCE COMPANIES
THE POSSIBLE SLOW ADOPTION OF INTERNET SOLUTIONS BY CONSUMERS COULD HARM OUR
BUSINESS.
We will not be successful unless consumers continue to adopt the
Internet as a means of buying and selling products and services. Because
Internet usage is continuing to evolve, it is difficult to estimate with any
assurance the size of this market and its growth rate, if any. To date, many
consumers have been deterred from utilizing the Internet for a number of
reasons, including:
- security concerns;
- limited access to the Internet;
- lack of availability of cost-effective, high-speed service;
and
- inconsistent quality of service.
THE INTERNET MAY NOT BE ABLE TO ACCOMMODATE GROWTH IN E-COMMERCE FOR COMPANIES
SUCH AS STUPIDPC.
We expect that in the future we will depend more significantly upon the
Internet to conduct our business and any problems in the functioning of the
Internet could adversely affect our business. To the extent that the Internet
continues to experience significant growth in the number of users, their
frequency of use or their speed and quality-of-service requirements, it is
possible that the infrastructure for the Internet will not be able to support
the demands placed upon it. If the infrastructure for the Internet does not
effectively support growth that may occur, our future financial results will be
seriously harmed. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and adversely affect usage of the Internet
generally and our services in particular. Even if the required Internet
infrastructure, standards and protocols are developed, we may be required to
incur substantial expenditures in order to adapt our services to changing or
emerging technologies, which could seriously harm our future results of
operations and financial condition.
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POTENTIAL IMPOSITION OF GOVERNMENT REGULATION ON INTERNET-BASED E-COMMERCE AND
LEGAL UNCERTAINTIES COULD LIMIT OUR GROWTH BY INCREASING THE COSTS OF DOING
BUSINESS ON THE INTERNET AND NEGATIVELY AFFECT THE SALES OF OUR PRODUCTS.
Few laws or regulations currently are directly applicable to access to
or commerce on the Internet and we are not subject to direct government
regulation, other than regulations applicable to businesses generally. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our products and services, increase the cost of our doing business or
otherwise seriously harm our future results of operations and financial
condition. A number of legislative and regulatory proposals relating to Internet
commerce are under consideration by federal, state, local and foreign
governments and, as a result, a number of laws or regulations may be adopted
with respect to Internet user privacy, taxation, pricing, quality of products
and services and intellectual property ownership. There is also uncertainty as
to how existing laws will be applied to the Internet in areas such as state and
local sales tax, property ownership, copyright, trademark, trade secret,
obscenity and defamation.
POSSIBLE E-COMMERCE SECURITY BREACHES COULD HARM OUR BUSINESS.
We rely on encryption and authentication technology to effect secure
transmission of confidential information, such as payment instruction sets. It
is possible that the security measures we use to protect our clients'
confidential information will not prevent security breaches due to advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments. If any such compromise of our security were to occur, it
could seriously harm our reputation and future results of operations and
financial condition, and expose us to litigation and possible liability.
RISKS RELATED TO THE OFFERING
OUR STOCK HAS A LIMITED PUBLIC MARKET, ITS PRICE MAY BE VOLATILE AND YOU MAY
EXPERIENCE INVESTMENT LOSSES.
While our common stock trades on the over-the-counter bulletin board,
any trades that take place are sporadic. Our market capitalization is relatively
small, and we cannot predict how liquid the market for our shares will be. For
that reason and because our business is to a significant degree
technology-related, the trading price of our common stock could be subject to
significant fluctuations. Volatility in our stock price could also result from
the following factors, among others:
- quarterly variations in operating results;
- announcements of technological innovations or new services or
products by us or our competitors;
- changes in financial estimates by securities analysts;
- the operating and stock price performance of other companies;
and
- general economic conditions.
In particular, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of companies within
certain industry groups, such as technology companies. These fluctuations may
materially affect the trading price of our common stock. We
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cannot guarantee that you will be able to sell your shares at or above the
initial public offering price. In the past, following periods of volatility in
the market price for a company's securities, shareholders have often instituted
securities class action litigation. Litigation of that type could result in
substantial costs and the diversion of management's attention and resources,
which could seriously harm our business, financial condition and operating
results.
OUR EXISTING SHAREHOLDERS WILL BE ABLE TO CONTROL SHAREHOLDER ACTIONS AFTER THIS
OFFERING.
When this offering is completed, our present directors, executive
officers and current holders of more than 5% of the common stock will
beneficially own enough shares to control the outcome of any shareholder vote if
they vote as a group. Specifically, these persons will own over 80%
of the outstanding common stock. They could use this power to delay or prevent a
change in control, even if a majority of the other shareholders desired such a
change.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE CAUSING INVESTOR LOSSES.
Current shareholders hold a substantial number of shares that currently
are freely tradeable or that they may be able to sell in the public market in
the near future. If our shareholders sell large amounts of our common stock in
the public market, the market price of our common stock could fall. Those sales
also could make it harder for us to sell equity securities in the future at a
time or price that we believe is fair.
THE CONVERSION OF OUR 8% CONVERTIBLE DEBENTURES WILL HAVE A DILUTIVE IMPACT ON
OUR SHAREHOLDERS.
In July 1999 we sold $1.2 million of our 8% convertible debentures to
certain of the selling securityholders. The issuance of shares of our common
stock upon the conversion of these debentures will have a dilutive impact on our
shareholders. As a result, our net income per share could be materially
decreased in future periods, and the market price of our common stock could
drop.
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<PAGE> 15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus, including some statements in
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," are
forward-looking statements about what may happen in the future. They include
statements regarding our current beliefs, goals and expectations about matters
such as our expected financial position and operating results, our business
strategy and our financing plans, These statements can sometimes be identified
by our use of forward-looking words such as "anticipate," "estimate," "expect,"
"intend," "may," "will" and similar expressions. We cannot guarantee that our
forward-looking statements will turn out to be correct or that our beliefs and
goals will not change. Our actual results could be very different from and worse
than our expectations for various reasons. including those discussed in "Risk
Factors."
14
<PAGE> 16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded over-the-counter on the over-the-counter
bulletin board under the symbol "STPX.". The reported high- and low-bid prices
for our common stock are shown below for the period from December 14, 1998 (the
date of our merger with World Net Holdings):
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
1999
- ----
<S> <C> <C>
First Quarter................................................. $4.13 $2.00
Second Quarter................................................ 9.75 1.95
Third Quarter................................................. 7.56 2.06
Fourth Quarter (through December 24, 1999).................... 3.88 1.25
1998
- ----
Fourth Quarter (from December 14, 1998)....................... $4.63 $3.75
</TABLE>
The last reported sale price of our common stock as of December 20,
1999 was $1.88 per share, as reported by Nasdaq. The prices represented above
are bid and ask prices which represent prices between broker-dealers, do not
include retail mark-ups, mark-downs or any commissions to broker-dealers and do
not reflect prices in actual transactions. As of December 20, 1999, there were
approximately 50 record owners of our common stock.
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the development and growth of
our business. Payment of future dividends, if any, will be at the discretion of
our board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
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<PAGE> 17
CAPITALIZATION
The following table describes our capitalization as of September 30,
1999. You should read this table in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Shares Eligible
for Future Sale," our financial statements and the related notes to them and the
other financial information appearing in other places in this prospectus. The
information provided below describes our capital structure after our
shareholders approved amendments to our articles of incorporation modifying our
capital structure at a special meeting held on September 23, 1999. The
information provided below does not include shares to be issued upon conversion
of the debentures as well as 2,770,323 shares to be issued pursuant to
outstanding options and warrants.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
(unaudited)
<S> <C>
Short-term debt:
Notes payable ........................................................ $ 100,873
Current maturities of long-term debt ................................. 7,675
-----------
Total short-term debt ............................................ 108,548
-----------
Long-term debt, net of current maturities ............................ 925,180
-----------
Shareholders' deficit:
Capital stock, no par value per share, 95,000,000 shares
authorized: 6,210,250 shares issued and outstanding.................. 1,431,859
Accumulated deficit................................................... (1,601,715)
-----------
Total shareholders' deficit....................................... (169,856)
-----------
Total capitalization ........................................... $ 863,872
===========
</TABLE>
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<PAGE> 18
SELECTED FINANCIAL DATA
You should read the following data along with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes to them included at the end of this prospectus. Our
selected financial data for the seventeen weeks ended December 31, 1997 and the
year ended December 31, 1998 are derived from our consolidated financial
statements, which have been audited by Grant Thornton LLP, independent auditors.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEVENTEEN WEEKS YEAR ENDED SEPTEMBER 30,
ENDED DECEMBER 31, DECEMBER 31, ----------------------------
1997 1998 1999 1998
------------------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Product sales ........................ $ 1,441,401 $ 4,034,002 $ 2,727,455 $ 2,870,987
Costs of product sales ............... 1,359,858 3,623,688 2,253,134 2,570,613
Selling, general and administrative
expenses .......................... 253,939 841,169 1,093,828 613,536
----------- ----------- ----------- -----------
Operating loss ....................... (172,396) (430,855) (619,507) (313,165)
Net loss ............................. $ (172,259) $ (436,387) $ (993,069) $ (313,397)
=========== =========== =========== ===========
Net loss per common share (basic and
diluted) ............................. $ (0.05) $ (0.12) $ (0.16) $ (0.09)
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
-------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 338,220
Working capital ................ 174,976
Total assets ................... 1,389,872
Total debt, including current
maturities .................. 1,033,728
Total shareholders' deficit .... (169,856)
</TABLE>
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<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those discussed in these forward-looking statements as a result of various
factors, including those set forth in "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read in conjunction with the
financial statements and accompanying notes included elsewhere in this
prospectus.
OVERVIEW
StupidPC designs, assembles and sells affordably-priced customized
personal computer systems. We provide the intimidated consumer a means for
entering the high-tech world of computers without apprehension of investing in
machinery and peripherals in which they have little or no experience. We market
our products and services from two retail locations in the Atlanta area as well
as on our web site at www.stupidpc.com.
RESULTS OF OPERATIONS
Since our inception in June 1997, we have engaged principally in the
development of the technology and activities related to the commencement of our
business operations. Accordingly, our historical results of operations are not
indicative of, and should not be relied upon as an indicator of, our future
performance.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues for the nine months ended September 30, 1999 were
approximately $2.7 million, a 5% decrease from revenues of approximately $2.9
million for the nine months ended September 30, 1998. Revenues decreased during
this period as a result of a decrease in average sales price per unit.
Cost of Product Sales. Cost of products were approximately $2.3 million
for the first nine months of 1999, a decrease of 12% from cost of product sales
of approximately $2.6 million for the first nine months of 1998. We were able to
lower our product costs during the first nine months of 1999 as a result of
decreasing computer chip prices and other hardware costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $1.1 million for the first nine
months of 1999, an increase of 78% from selling, general and administrative
costs of approximately $614,000 for the first nine months of 1998. These
expenses increased primarily as a result of increased costs for additional
personnel, accounting and legal services.
Other Income (Expense). During the nine months ended September 30,
1999, we incurred $375,000 of interest and financing costs related to the July
1999 issuance of our 8% convertible debentures. We did not incur a similar
expense during the nine months ended September 30, 1998.
Income Taxes. Income taxes will consist of federal, state and local
taxes, when applicable. We expect significant net losses for the foreseeable
future which should generate net
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<PAGE> 20
operating loss carryforwards ("NOL"). However, utilization of NOL's is subject
to substantial annual limitations. In addition, income taxes may be payable
during this time due to operating income in certain tax jurisdictions. We
recognized no provision for taxes for the nine months ended September 30, 1999
and 1998 as we generated net losses.
Net Loss. For the reasons stated above, we incurred a net loss of
approximately $993,000, or $0.16 per share, for the nine months ended September
30, 1999 compared with a net loss of approximately $313,000, or $0.09 per share,
for the nine months ended September 30, 1998.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE SEVENTEEN WEEKS ENDED
DECEMBER 31, 1997
Revenues. We commercially introduced our services in August 1997.
Revenues were first recognized in October 1997. Revenues for 1998 were
approximately $4.0 million. Revenues for the 17 weeks ended December 31, 1997
were approximately $1.4 million. Revenues for 1998 were significantly higher due
to our operations during the entire year as compared to only 17 weeks of 1997.
Cost of Product Sales. Cost of products were approximately $3.6 million
in 1998 and $1.4 million for the 17 weeks ended December 31, 1997. These costs
consisted primarily of the purchase of components for personal computer systems
acquired for resale to our customers. The increase during 1998 was due to sales
activity for all of 1998 compared to only 17 weeks of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $840,000 in 1998 and $254,000 for the
17 weeks ended December 31, 1997. These expenses consist primarily of salaries
and related expenses for the development of our business, technology and
software, the establishment of our management team, the development of corporate
identification, promotional and advertising materials and the commencement of
our operations. These expenses are expected to continue to significantly
increase as we expand our business.
Income Taxes. Income taxes will consist of federal, state and local
taxes, when applicable. We expect significant net losses for the foreseeable
future which should generate net operating loss carryforwards. However,
utilization of NOLs is subject to substantial annual limitations. In addition,
income taxes may be payable during this time due to operating income in certain
tax jurisdictions. We recognized no provision for taxes for 1998 and 1997 as we
generated net losses.
Net Loss. For the reasons stated above, we incurred a net loss of
approximately $436,000 for the year ended December 31, 1998, or $0.12 per share,
compared with a net loss of approximately $172,000, or $0.05 per share, for the
17 weeks ended December 31, 1997.
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<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operations and from the sale of our securities. As of September 30, 1999, we had
an accumulated deficit of approximately $1.6 million and cash and cash
equivalents of approximately $338,000.
Net cash used in our operating activities was $1.0 million and $151,925
for the first nine months of 1999 and the year ended December 31, 1998,
respectively. The net cash used in operations during these periods was primarily
due to net losses and increases in current assets, offset by increases in
accounts payable and accrued liabilities.
We believe that the net proceeds from the sale of our 8% debentures and
cash from operations will be sufficient to fund our aggregate capital
expenditures and working capital requirements, including operating losses, for
at least the next 12 months. While we believe that these funds will be
sufficient to finance our current needs, we may need to secure additional
financing to open new retail locations or to meet higher-than-expected product
sales. We may obtain additional funding through the sale of public or private
debt and/or equity securities or through securing a bank credit facility. We
cannot guarantee that we will be able to obtain additional financing, or that it
will be on satisfactory terms. For a description of our 8% debentures, see
"Description of Capital Stock."
We expect to experience substantial negative cash flow for at least the
next several months due to continued development of our products and our
Internet distribution channel, including the costs of advertising and marketing
associated with these. Our future cash requirements, as well as our revenues,
will depend on a number of factors including:
- - the number of retail locations opened, the timing of the opening
and products offered;
- - the rate at which customers purchase our products and the pricing of
such products;
- - the level of marketing required to attract and retain customers and to
attain a competitive position in the marketplace;
- - the success or failure of any joint marketing programs; and
- - the rate at which we invest in engineering and development and
intellectual property with respect to existing and future technology.
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<PAGE> 22
YEAR 2000 COMPLIANCE
Some computers, software and other equipment include programming code
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if, for example, "00" is interpreted to mean 1900,
rather than 2000. These problems are widely expected to increase in frequency
and severity as the year 2000 approaches and are commonly referred to as the
"Year 2000 problem."
OUR STATE OF READINESS
The Year 2000 problem could affect computers, software and other
equipment that we use. Accordingly, we have reviewed our internal computer
programs and systems to determine if they will be Year 2000 compliant. We
believe that our computer systems will be Year 2000 compliant in a timely
manner.
Internal Infrastructure. We believe that we have identified
substantially all of the major computers, software applications and related
equipment used in connection with our internal operations that must be modified,
upgraded or replaced to minimize the possibility of a material disruption to our
business. We have modified, upgraded and replaced systems that we have
identified as potentially being adversely affected and completed this process.
The costs related to these efforts have been less than $25,000.
Systems Other Than Information Technology Systems. In addition to
computers and related systems, the operation of our office and facilities
equipment, such as fax machines, photocopiers, telephone switches, security
systems, elevators and other common devices may be affected by the Year 2000
problem. We have assessed the potential effect of the Year 2000 problem and have
completed a compliance program with regard to remediating known non-compliance.
We estimate that our total cost of completing any required modifications will be
less than $5,000.
Suppliers. We acquire our technology components by purchasing the
hardware and software components and licensing certain software components from
third parties. It is possible that certain hardware components, the operating
software or other software loaded on a computer by us would not be Year 2000
compliant. If this were to occur, it could result in significant disruption of
our business in that our products could be defective in the users' hands and/or
alternate supplies of hardware and software products which were Year 2000
compliant would have to be obtained by us with resulting disruption. In
addition, our supply chain is comparatively elongated in that many of the
components placed into our computers originate in Asia. Disruptions in
transportation and delivery, therefore, as a result of Year 2000 non-compliance
by third party suppliers and vendors could have a serious disruption of our
ability to sell our products.
We have gathered information from our suppliers on their state of Year
2000 readiness. The computer operating systems themselves and much of the
software loaded on the computers are produced by Microsoft, Inc. which has
confirmed categorically that its products have been rendered compliant. In
addition, our hardware suppliers have advised that any of the internal hardware
components, such as the computer time clock, have been tested and comply.
We have not confirmed, however, the effect Year 2000 problems may cause
on the transportation supply chain. While the major carriers in this chain have
confirmed that there will not be Year 2000 difficulty, there are most probably
links in this chain which have not been checked by us and, in fact, cannot be
identified.
COSTS TO ADDRESS OUR YEAR 2000 ISSUES
Current expenditures on Year 2000 issues have been directed as internal
operations and total less than $30,000. If we were to experience customer
warranty issues arising from the sale of non-compliant components, the
components would be replaced and there would be a significant impact and cost
estimated at up to $500,000.
If a supplier-related non-compliance created a break in our supply
chain, an alternate supplier would be selected, but the disruption could have
a negative impact estimated at up to $100,000.
THE RISKS OF OUR YEAR 2000 ISSUES
We believe that we have resolved all internal Year 2000 problems that
could materially adversely affect our business, financial condition or operating
results. In addition, all of our current products have been tested for Year 2000
compliance and have passed the tests performed. We believe that it is not
possible, however, to determine with complete certainty that we have identified
or corrected all Year 2000 problems affecting us. The number of devices that
could be affected and the interactions among these devices are simply too
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<PAGE> 23
numerous. In addition, we cannot accurately predict how many failures related
to the Year 2000 problem will occur or the severity, duration or financial
consequences of such failures.
We believe the most likely consequences of a failure by us to make our
products Year 2000 compliant would be a decrease in sales of our products, an
increase in allocation of resources to address Year 2000 problems without
additional revenue commensurate with such dedication of resources, or an
increase in litigation costs relating to losses suffered due to such Year 2000
problems. We believe the most likely consequences of a failure of our internal
systems or the systems of third-party suppliers or service providers would be
our inability to process orders, issue invoices, and develop products. Should
any of these problems occur, we could be required to devote significant
resources to correct them.
OUR CONTINGENCY PLANS
We have completed our contingency planning. These contingency plans
could include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of backup equipment and software;
- increased work hours for our personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000
problems which arise or to provide manual workarounds for
information systems;
- plans to quickly change from any supplier whose goods we
found to be non-compliant, or whose supply of goods has been
disrupted by Year 2000 problems, to a supplier whose compliance
alleviates these problems;
- plans to replace non-compliant hardware and software in StupidPC
products in customer hands which are under warranty; and
- other similar approaches.
If we are required to implement any of these contingency plans, such
plans could have a material adverse effect on our business, financial condition
or operating results.
The estimates and conclusions included in this discussion contain
forward-looking statements and are based on our management's best estimates of
future events. Our expectations about risks, future costs and the timely
completion of our required Year 2000 modifications may turn out to be incorrect
and any variance from these expectations could cause actual results to differ
materially from our above discussion. Factors that could influence risks, amount
of future costs and the effective timing of remediation efforts include our
success in identifying and correcting potential Year 2000 issues and the ability
of third parties to address their Year 2000 issues. The discussion above is a
"Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and
Readiness Disclosure Act of 1998, however, compliance with this act does not
preclude any claims against us that arise under the federal securities laws.
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<PAGE> 24
BUSINESS
StupidPC designs, assembles and sells affordably-priced customized
personal computer systems. We also provide a broad range of related services,
including installation, consulting, training, networking and customer support.
The retail price of most of our computer systems does not exceed $900 and
includes one hour of in-home computer installation and training conducted by a
StupidPC sales technician. Our primary target market consists of cost-conscious,
first time and/or "computer-phobic" personal computer purchasers who may be
intimidated by the high-cost and multitude of computer products and services
currently available. We market our products and services from two retail
locations in the Atlanta area. In addition, we recently began offering consumers
an e-commerce Internet-based method for ordering and paying for our products and
services through our web site at www.stupidpc.com.
CORPORATE HISTORY
StupidPC was incorporated in June 1997 in the State of Georgia. In
December 1998, we participated in a recapitalization through the reverse merger
described below with World Net Holdings, Inc., formerly known as Handyphone,
Inc.
Handyphone, Inc., was incorporated under the laws of the State of
Florida in May 1996. Handyphone was in the business of providing an
informational service link between handicapped and other impaired people in
various service, medical, and transportation professionals. On July 11, 1997,
Handyphone changed its name to World Net Holdings, Inc.
In September 1997, Home Alert Security Corporation of Georgia agreed to
sell all of its assets to World Net in return for shares of World Net stock.
Home Alert Security Corporation of Georgia was in the business of engaging in
home automation and security alarm monitoring.
In November 1998, World Net sold the assets of Home Alert Security
Systems to Donald H. Sigler. Later in November 1998, StupidPC and World Net
entered into a share exchange agreement whereby World Net issued shares of its
common stock to all the shareholders of StupidPC in exchange for all the issued
and outstanding stock of StupidPC.
In December 1998, World Net merged itself into its wholly owned
subsidiary, StupidPC. StupidPC issued sufficient shares to effect a one-for-one
share exchange for shares of World Net.
INDUSTRY BACKGROUND
The Personal Computer Industry. During the last decade, the personal
computer industry has grown rapidly as increased functionality combined with
lower pricing have made personal computers valuable and affordable tools for
business and personal use. Recent advances in technology, including the
development of high-speed CD-ROM drives, high-speed data transmission hardware,
multimedia, graphics and animation, have increased the potential market
dramatically. This trend has been further augmented by the introduction of
faster microprocessors and the introduction of high performance chips, new
caching techniques and low power consumption features. In addition, many older
machines are no longer adequate to deal with state-of-the-art software, and many
existing computer owners will be upgrading their equipment over the next few
years. We believe that a significant portion of the currently installed computer
user base consists of older 486 and lower version personal computers and that as
much as half of sales over the next five years will be replacements of existing
equipment. We believe that the growth in the personal computer industry will
continue for the foreseeable future.
Growth of the Internet and Business-to-Consumer e-Commerce. The
Internet has emerged as the fastest growing communication medium in history and
is dramatically changing how businesses and individuals communicate and share
information. International Data Corporation, a leading technology/Internet
industry research organization, estimates that over the next four years the
number of Internet users worldwide will grow at a compound annual rate of 34.8%,
reaching 320 million in 2002 from 97 million in 1998. The widespread acceptance
of the Internet as a business communication platform has created opportunities
for business-to-business electronic commerce that enables organizations to
streamline processes, lower costs and improve productivity.
We believe that the potential economic benefits of the Internet have
driven and should continue to drive the growth in online commerce, including
business-to-consumer or person-to-person electronic commerce. According to
Forrester Research, U.S. consumers will spend $184 billion online by 2004, an
increase from $20 billion in 1999.
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<PAGE> 25
STRATEGY
As part of our operating strategy, we will endeavor the following:
Expansion of Inventory and Products. We intend to expand our inventory
in an amount sufficient to keep pace with our expected sales volume. We believe
that increased purchases of certain products will permit us to realize economies
of scale as a result of more favorable pricing. We continually evaluate new
products in the industry, the demand for our current products, and our overall
product mix, and seek to develop distribution relationships with vendors that
will enhance our product offerings. With respect to the expansion of inventory
and products, we evaluate all possible sources of market informational data to
develop opportunities for new products. This information is gathered from trade
shows, industry informational magazines, networking, strategic relationships
and other sources of information. When possible strategic new products are
identified, we evaluate the revenue producing potential of the product and the
potential market against cost of production.
Expansion of Direct Marketing Program Through the Internet. We
originally focused our marketing for computer equipment and related products on
a traditional retail distribution method in the Atlanta area. With the
development of our e-commerce ordering solution, we are committed to moving even
greater volumes of product sales, service and support to the Internet through
our web site. The use of the Internet to research and purchase our products
provides greater convenience and efficiency to our customers. We believe that
sales from our website will help us to become one of the lowest cost providers
of personal computer systems in the industry. We believe our website gives us
broad access to new customers, which will enable us to drive down customer
acquisition costs and drive up the revenue yield from the acquisition efforts.
By utilizing an e-commerce solution for ordering and purchasing and by
automating the fulfillment of our clients' orders, we believe we can achieve
significant cost savings and productivity enhancements. We also plan to pursue
strategic relationships with other Internet shopping websites to carry our
products.
Expansion of Retail Distribution Channels. We intend to continue to
develop our Internet-based distribution channel as well as plan to increase our
traditional retail distribution outlets in Atlanta and other southeastern U.S.
cities. We recently opened a retail store in Charlotte, North Carolina. We plan
to assess the viability of additional retail outlets in Atlanta and elsewhere in
the southeastern U.S. as opportunities arise, based on the demand for our
products and our ability to purchase inventory and publicize our brand.
Establishment of the Company's Brands and Trade Names. We intend to
further establish our StupidPC(TM) and other brand and trade names as recognized
and reliable brands for personal computer systems. Our marketing efforts to
establish brand recognition have included and will continue to involve
advertising on the radio, in newspapers, on billboards and through direct
marketing mailings.
Further Enhance Site Functionality. We currently believe that the
design of our web site makes the purchase of personal computer systems extremely
easy and efficient. However, we intend to further enhance the shopping
experience by adding technology driven enhancements that will increase the
functionality of our web site and make the user interface more intuitive,
efficient and cost-effective.
We have no current plans to pursue any acquisitions.
PRODUCTS AND SERVICES
We are totally committed to customer satisfaction and currently provide
our products and services based on a high value, low cost price model, with the
largest degree of current and future technical customizing possible to the
consumer. Only nationally known brand name components are used in assembly. Our
personal computers are assembled in a number of
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<PAGE> 26
different configurations using standard component parts. Customization enables
us to accommodate customer computer needs with respect to storage capacity,
speed, price, applications, size, configuration and a range of other
considerations that can be accommodated in whole or in part by the selection of
appropriate components. We believe that delivering custom built computers is the
best method for providing solutions that are truly relevant to a customer's
needs. This method also allows us to achieve faster inventory turnover and
reduced inventory levels. It also assists us to rapidly incorporate new
technologies and components into our products. We also recently began a pilot
program of offering free Internet access through Cable & Wireless as part of
the package in purchasing one of our systems.
We currently assemble the computer systems at our facility in Norcross,
Georgia and as sales volume increases will assemble at independently owned
companies capable of following our requirements as to technological advances and
price changes rapidly at competitive cost and acceptable profit margins to us.
These companies would be required to be responsible for their own risk
management and product development and could become candidates for acquisition
if they complement our business plans. Our facility currently has a capacity to
produce around 2,000 computers a month.
We offer a full complement of services which are designed to meet our
goals of providing a turnkey solution to our customers. The services offered
include installation and set up, consulting, training, networking and customer
support. Our services begin with a free one hour in-home installation and
training session conducted by one of our sales technicians.
PROCUREMENT
We stock most of the component parts used in the manufacture of our
computer systems. We purchase from numerous sources that meet our strict quality
and delivery standards. We generally select suppliers based on cost, quality and
responsiveness. All of the computer components we purchase are protected by
various basic patents owned by others and which are produced by licensed
domestic and foreign manufacturers under their own trademarks in the United
States or abroad. We do not own any patents or trademarks that protect such
components and the cost for research and development of these components are
born by the patent holders and the various manufacturers. At this time we are
not involved in research and development for new components. The cost of design
and development of various computer configurations we use in our marketing
efforts are minimal and have no material impact upon the cost of doing business.
We do not have any long term agreements with our suppliers with respect
to the price or supply of components purchased by us. The cost of some
components used in the computers, such as central processing units and memory,
can fluctuate from week to week or from one day to the next, and for this
reason, we try not to stock these items for use over a long period of time. We
generally seek to purchase these price sensitive items within about two weeks
advance of use. To date, we have not experienced any difficulty in receiving the
needed items on connection with the computers are obtained from a number of
different sources. We believe that we are not dependent on any single source, as
alternative sources are available.
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SALES AND MARKETING
Our products and services are marketed and sold principally through our
retail locations in Marietta and Norcross, Georgia, suburbs of Atlanta. Orders
received at the retail location are transmitted to our headquarters, where
products are ordered or assembled for delivery. Our other method of distribution
is through our website. Through our web site, customers and potential customers
can access a wide range of information about our products and services, can
configure and purchase systems online and can access customer support
information. Although we have adopted a "just in time" inventory management
system, we have been successful in delivering products ordered by customers in
an average of three to seven days. If required, we can have components delivered
by overnight delivery, at an additional charge to the customer.
We market our products and services by advertising on radio stations,
in newspapers, on billboards and by direct marketing mailings. Our radio
campaigns have proved to be the most effective method of publicizing our brand
and products.
QUALITY ASSURANCE AND CUSTOMER SERVICE
We address quality assurance at all stages of the production process.
First, components considered for use in standard systems are tested for
compatibility by our technical staff. Second, incoming components receive a
physical damage inspection on receipt and again at the start of the production
process. A statistical sampling of components in every category is
electronically tested prior to assembly. Each complete unit is then functionally
tested at the end of the production process to demonstrate that all components
are engaged and fully operational.
Thereafter, each complete unit is "burned-in" for a period of time.
This process involves running a test program which sequentially tests each
component to verify prescribed operation.
Through an agreement with Integrated Automation International, Inc. of
California, we offer 24-hour a day, seven days a week toll-free telephone
support service to our customers. We also offer an on-site service to our
customers for a fee.
COMPETITION
There are many companies selling computers that may be regarded as our
competitors. Computers are sold directly by manufacturers such as IBM, Hewlett
Packard, Dell, Compaq, Gateway and Apple, by large retail outlets such as Best
Buy, Circuit City, Office Depot and Staples, by mail order houses, electronic
equipment catalogues and by assemblers and entities like us selling computers
under their own names. Many of these companies have substantially greater
financial, sales, marketing, technical and other competitive resources than we
do. As a result, these competitors may be able to devote greater resources than
we can to the sale and service of computer products. Some of these companies, by
themselves, have the economic power to control prices and the technical
expertise to develop and bring to market improved versions of existing products
long before they become available to us. Our market share represents a small
percentage of the market. We believe that existing competitors are likely to
expand their product and service offerings and that new competitors are likely
to enter the
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<PAGE> 28
market and attempt to integrate electronic commerce and other services,
resulting in greater competition for us. Such competition could seriously harm
our business, financial condition and results of operations.
INTELLECTUAL PROPERTY RIGHTS
We seek to protect its proprietary rights by obtaining nondisclosure
and confidentiality agreements from our employees and consultants. We protect
our intellectual property through cease and desist letters to potential
infringers. We have trademark registrations for "StupidPC" and a pending
application for "StudentPC." None of our principal products enjoys patent
protection.
EMPLOYEES
We employ 16 persons full-time, consisting of four persons at the
corporate level, four in the actual production of computers, three persons in
computer sales, three in administration, and three delivery drivers. We also
employ five part-time delivery drivers.
FACILITIES
We currently occupy under a lease which expires on October 31, 2002,
approximately 12,000 square feet in an office/warehouse building in which we use
for manufacturing computers and as our corporate headquarters. This lease
provides for an annual rent of $51,000 the first year, $58,704 the second year
and $60,468 the third. We also lease an aggregate of 1,000 square feet in
Marietta, Georgia for our second retail location. The lease for this space,
which ends on December 31, 2000, provides for an annual rent of approximately
$12,000.
GOVERNMENT REGULATION
Few laws or regulations currently are directly applicable to access to
or commerce on the Internet and we are not subject to direct government
regulation, other than regulations applicable to businesses generally. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet. A number of legislative and
regulatory proposals relating to Internet commerce are under consideration by
federal, state, local and foreign proposals relating to Internet commerce are
under consideration by federal, state, local and foreign governments and, as a
result, a number of laws or regulations may be adopted with respect to Internet
user privacy, taxation, pricing, quality of products and services and
intellectual property ownership. There is also uncertainty as to how existing
laws will be applied to the Internet in areas such as state and local sales
tax, property ownership, copyright, trademark, trade secret, obscenity and
defamation.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business.
Gary German v. StupidPC, Inc., Superior Court of Gwinnett County Civil
Action File No. 99-A-5697-4. Gary German was one of our co-founders, and is a
former officer, director and shareholder. Mr. German also entered into a stock
option agreement with us, entitling him to exercise an additional 750,000 shares
of our stock under certain conditions. Later, pursuant to a Stock Repurchase
Contract dated April 10, 1998, we repurchased 2,280,000 shares of our stock from
him for $6,000 and Mr. German resigned his position as our Chief Executive
Officer. After the repurchase, Mr. German still held 270,000 shares and remained
on our board of directors until his removal in May 1998.
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<PAGE> 29
The dispute concerns whether Mr. German is still entitled to exercise
750,000 stock options that were available to him in the stock option agreement.
Paragraph 6 of the stock option agreement provides that Mr. German's options
shall terminate once he ceases his continuous status (as defined).
Mr. German filed suit seeking to recover the options, $6.5 million and
attorneys' fees. We answered and filed a counterclaim, alleging independent
claims against Mr. German for misappropriation of our assets, conversion, breach
of fiduciary duty and injury to our name and business reputation. We seek to
recover damages based on these claims as well as attorneys' fees. At this point
we are unable to conclude that an unfavorable result is either probable or
remote.
We are not a party to any other material legal proceedings.
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<PAGE> 30
MANAGEMENT
The following table sets forth certain information regarding our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen B. Brannon...................... 38 President, Chief Executive Officer and Director
</TABLE>
Stephen B. Brannon, one of our founders, has since June 1997 served as
our President and Chief Executive Officer. From August 1995 until December 1997,
he served as the President of 3rd Wave Technologies, Inc., a regional computer
distribution company. From May 1993 to August 1995, he was the Director of Sales
and Marketing for Krowten Distribution. From August 1991 to April 1993, he was
the Vice President Sales and Marketing for Computrak Distributors. From January
1985 to May 1991, he served as the Area Sales Manager for Americom Distributors.
From January 1984 to December 1984, he was the Systems Support Manager for
American Micro Distributors.
Other than Mr. Brannon, we have no other executive officers or
directors. Our directors serve one-year terms until elections are held at each
annual meeting of shareholders. Our board of directors elects executive officers
on an annual basis. Executive officers hold their offices until the next annual
meeting of shareholders or until their successors are duly elected and
qualified. There are no family relationships among any of our executive officers
or directors.
COMMITTEES OF THE BOARD OF DIRECTORS
There are currently no committees of our board of directors.
EXECUTIVE COMPENSATION
The following table provides all compensation awarded to, earned by or
paid for services rendered to us in all capacities during the fiscal year ended
December 31, 1998 by our Chief Executive Officer, Stephen B. Brannon. We did not
grant Mr. Brannon any options in 1998. For more information regarding options
owned by Mr. Brannon, see footnote number 1 in "Principal and Selling
Shareholders."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING ALL OTHER
- --------------------------- SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
-------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen B. Brannon ...................... $50,000 -- -- 2,303,080 --
President and Chief Executive Officer
</TABLE>
29
<PAGE> 31
EMPLOYMENT AGREEMENTS
Mr. Brannon does not have an employment agreement with us.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Our articles of incorporation provide that no director shall be
personally liable to us or any of our shareholders for any breach of the duties
as a director, except in cases of:
- appropriations of business opportunities in violation of such
director's duties;
- knowing or intentional misconduct or violation of law;
- liability for approving illegal or improper distributions
under the Georgia Code or our articles; and
- liability for any transaction in which a director receives an
improper personal benefit.
In addition, our articles provide that if the Georgia Business
Corporation Code is ever amended to allow for greater elimination of liability
of directors than presently permitted, the directors will be relieved from
liabilities to the fullest extent provided by the Georgia Code, as amended. No
further action by the board of directors or shareholders is required, unless the
Georgia Code provides otherwise.
We have entered into indemnification agreements with our sole director
and officer that provides him with similar rights to indemnification and
contribution.
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<PAGE> 32
PRINCIPAL AND SELLING SHAREHOLDERS
As of November 1, 1999, there were approximately 50 record holders of
our common stock. The following table sets forth information on the beneficial
ownership of our outstanding common stock as of the date of this prospectus by:
- each shareholder known by us to be the beneficial owner
of more than 5% of the outstanding shares of common stock;
- our sole director and executive officer; and
- our directors and executive officers as a group.
Except as indicated, each shareholder's address is in care of StupidPC
at 3010-E Business Park Drive, Norcross, Georgia 30071 The right to acquire
column in the table reflects all shares of common stock that each shareholder
has the right to acquire through the exercise of options or warrants within 60
days of the date of this prospectus. Under SEC rules, options or warrants in the
right to acquire column are deemed to be outstanding and to be beneficially
owned by the shareholder holding the options or warrants when computing the
percentage ownership of that shareholder, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other shareholder.
Except for a shareholder who has options disclosed in the Right to Acquire
column, calculated based on 6,975,011 shares of common stock outstanding and
assumes that all debentures will be converted at a conversion price of $1.07,
which would have been the conversion price on December 20, 1999.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME OF BENEFICIAL OWNER SHARES OWNED RIGHT TO ACQUIRE BENEFICIALLY OWNED
- --------------------------- ------------ ---------------- ---------------------------
<S> <C> <C> <C>
Stephen B. Brannon.......................... 3,280,524 2,303,080(1) 60.2%
Donald H. Sigler(2)......................... 848,521 -- 12.2
Gary L. German(3)........................... 268,017 190,880(4) 6.4
Amro International, S.A.(5)................. 610,747 -- 8.8
All directors and executive officers
as a group (1 person)....................... 3,280,524 2,303,080 60.2%
</TABLE>
- ---------------------------
(1) Includes (1) options to purchase 1,802,757 shares of common stock from
StupidPC that are currently exercisable at $0.20 per share, (2) options to
purchase 340,073 shares of common stock from a current shareholder for a
one-year period ending on December 14, 1999 at $1.50 per share and (3)
options to purchase 160,250 shares of common stock from another shareholder
for a one-year period ending on December 14, 1999 at a price ranging from
$1.50 to $2.25 per share.
(2) Mr. Sigler's address is 3243 Dunlap Drive, Gainesville, Georgia 30506.
(3) Mr. German's address is 1215 Hopewell Crest, Alpharetta, Georgia 30022.
(4) Represents options that are currently exercisable at $0.20 per share.
(5) The address of the principal business office of the selling securityholder
is c/o Ultra Finanz AG, Grossmensterplatz 6, Zurich CH-8022, Switzerland.
The natural persons with the voting and dispositive power over these shares
are H.U. Bachofen and Michael Klee. Represents shares into which the
debentures may be converted, based upon a conversion price of $1.07 per
share. Also includes warrants to purchase 60,000 shares that are exercisable
at an exercise price of $5.50 per share.
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<PAGE> 33
The following table sets forth
- the names of the selling securityholders,
- the number of shares of common stock beneficially owned by each
selling securityholder as of the date of this prospectus,
- the number of shares that each may offer, and
- the number of shares of common stock beneficially owned by each
selling securityholder upon completion of the offering, assuming
all of the shares offered are sold.
The number of shares sold by each selling securityholder may depend upon a
number of factors, including, among other things, the market price of the common
stock. None of the selling securityholders has, or within the past three years
has had, any position, office or other material relationship with us or any of
our predecessors or affiliates. Unless otherwise indicated, each person has sole
investment and voting power with respect to the shares indicated. For purposes
of computing the percentage of outstanding shares held by each selling
securityholder, any security which such person has the right to acquire within
60 days after such date is deemed to be outstanding for the purpose of computing
the percentage ownership for such person, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person.
Except as otherwise stated, calculated based upon 6,975,011 shares of common
stock outstanding, and assumes that all debentures will be converted at a
conversion price of $1.07, which would have been the conversion price on
December 20, 1999.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED OFFERED IN THE BENEFICIALLY OWNED
BEFORE OFFERING OFFERING AFTER CLOSING
------------------ -------------- ------------------
NAME OF SELLING
SECURITYHOLDER NUMBER PERCENT(2) NUMBER NUMBER PERCENT
- -------------- ------ ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
AMRO International, S.A. 610,747(1) 8.8% 610,747 0 --
Esquire Trade & Finance, Inc. 258,684(1) 3.7% 258,684 0 --
Austinvest Anstalt Balzers 258,684(1) 3.7% 258,684 0 --
Minerva Asset Management, Ltd. 51,728(1) * 51,728 0 --
Scott Financial, Ltd. 51,728(1) * 51,728 0 --
Vincent Sbarra 20,000(2) * 20,000 0 --
Andrew S. Reckles 40,000(2) * 40,000 0 --
Paul T. Mannion, Jr. 85,871(2) 1.2% 85,871 0 --
Max Kozlowsky 17,339 * 17,339 0 --
RBB Bank 35,000 * 35,000 0 --
Keith Fetter 17,500 * 17,500 0 --
</TABLE>
- ---------------------------
* Represents less than 1%
(1) Represents the shares into which the debentures may be converted, based upon
a conversion price of $1.07 per share. Also includes warrants that are
exercisable at an exercise price of $5.50 per share. The debentures are not
convertible for any number of shares of common stock in excess of that number
which would render a selling securityholder the beneficial owner of more than
9.9% of the then issued and outstanding shares of common stock.
(2) Represents shares that may be acquired upon the exercise of warrants at an
exercise price of $5.50 per share. Each selling securityholder is affiliated
with First Atlanta Securities, LLC, a registered broker-dealer, who assisted
with our sale of the debentures. Messrs. Reckles and Mannion are managing
partners of First Atlanta Securities and Mr. Sbarra is a vice president.
Mr. Mannion's shares include 45,871 shares currently owned by him.
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<PAGE> 34
We are registering the shares for resale by the selling securityholders
in accordance with registration rights granted to them. We will pay the fees and
expenses in connection with this offering, but the selling securityholders will
pay any underwriting discounts, selling commissions and similar expenses
relating to the sale of the shares, as well as the fees and expenses of their
counsel.
In addition, we have agreed to indemnify the selling securityholders,
underwriters who may be selected by the selling securityholders and certain
affiliated parties, against various liabilities, including liabilities under the
Securities Act, in connection with the offering. The selling securityholders may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against various liabilities,
including liabilities under the Securities Act. The selling securityholders have
agreed to indemnify us and our directors and officers, as well as any person
controlling the company, against various liabilities, including liabilities
under the Securities Act. We have been informed that in the opinion of the SEC
indemnification for various liabilities under the Securities Act is against
public policy and is unenforceable.
CERTAIN TRANSACTIONS
In November 1998, we completed a merger with and into World Net
Holdings, Inc. The merger was a reverse acquisition and is accounted for as a
recapitalization of StupidPC with StupidPC as the acquirer. In the merger, World
Net issued 4,000,000 common shares for all of the outstanding common shares of
StupidPC. In addition, the shareholders of StupidPC, Inc. were granted 2,000,000
options to purchase common stock of StupidPC at $0.20 per share. These options
vested immediately upon the merger and were granted to shareholders in
proportion to their original ownership in StupidPC. The options expire in
November 2003.
Bart Brannon, our sole officer and director and principal shareholder,
received 3,280,524 shares and 1,802,757 options from the merger. Other principal
shareholders who received shares were Donald H. Sigler, who received 848,521
shares, and Gary L. German, who received 268,017 shares. In December 1998,
World Net merged itself into its wholly-owned subsidiary, StupidPC, as part of
a one-for-one share exchange.
StupidPC was incorporated in May 1997 and commenced operations in
September 1997. The promoters of StupidPC were Bart Brannon and Gary L. German.
At the time of incorporation, Mr. German was our Chief Executive Officer and a
director and Mr. Brannon was our President, Secretary and a Director. Each of
these individuals received 2,550,000 shares of StupidPC common stock upon our
incorporation. Other than salary and benefits paid to these individuals and the
shares disclosed above, none of these individuals has received or will receive
anything else of value directly or indirectly from StupidPC. StupidPC has also
received a verbal representation from Mr. Sigler that neither he nor John
Giardina, the promoters of World Net, received anything of value directly or
indirectly from World Net other than salary and benefits.
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<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 95,000,000 shares of common
stock and 5,000,000 shares of preferred stock. As of the date of this
prospectus, 5,853,516 shares of common stock were outstanding, excluding 440,735
shares held in escrow pending the outcome of certain litigation, held of record
by approximately 50 shareholders, and no shares of preferred stock were
outstanding. See "Business - Legal Proceedings" and note G to the financial
statements.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record for matters on which they are entitled to vote. There are no
sinking fund provisions or any cumulative voting, preemptive, redemption or
conversion rights applicable to the common stock. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of holders of any shares of the Series A preferred stock
and of any other series of preferred stock that our board of directors may
designate from time to time in the future. Subject to the preference rights of
the holders of any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends and other distributions, if
any, as the board of directors may declare out of funds legally available for
that purpose. Subject to the rights of the holders of any outstanding shares of
preferred stock, on the liquidation, dissolution or winding up of StupidPC,
holders of common stock are entitled to share ratably in all assets of StupidPC
after the payment of its debts and other liabilities, subject to the rights of
holders of preferred stock. The outstanding shares of common stock are fully
paid and non-assessable.
PREFERRED STOCK
Our board of directors has the authority under our articles of
incorporation, without the approval of or any action by the shareholders, to
issue up to 5,000,000 shares of preferred stock in such series and with such
preferences, powers, limitations and relative rights as the board of directors
may determine from time to time. The terms of the voting, conversion, dividend,
liquidation, preemptive and redemption rights and preferences, and other
qualifications, powers and privileges conferred upon the holders of any
preferred stock, may be more favorable than those granted to holders of common
stock. The designation of any preferred stock with greater rights, privileges
and preferences than those applicable to the common stock may adversely affect
the voting power, market price and other rights and privileges of the common
stock, and may hinder or delay the removal of directors, attempted tender
offers, proxy contests or takeovers, or other attempts to change control of
StupidPC, some or all of which the holders of common stock may desire.
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<PAGE> 36
8% CONVERTIBLE DEBENTURES
In July 1999 we sold $1.2 million of our 8% convertible debentures to
five of the selling securityholders. These debentures carry an interest rate of
8% per year and are due on June 30, 2001. Interest is payable at our option in
cash or in shares of our common stock.
At any time, the selling securityholders may convert the debentures
into shares of our common stock. The conversion price is equal to the lesser of
80% of the market price of our common stock on the conversion date or $6.25. The
market price is determined by taking the average of the three lowest closing bid
prices of our common stock during the 10 trading day period ending on the day
prior to the date of determination. In the event that the conversion price is
less than $2.00 per share, we have the option to give the holder wishing to
convert either cash, shares or a combination of the two. We are subject to
certain cash penalties in the event that we delay the issuance of a stock
certificate beyond four days of the date of notice of the conversion. In
addition, if we refuse or reject a notice of conversion or we are prevented from
honoring a conversion notice under certain circumstances by a court, we are
required to redeem the debentures for 130% of the outstanding principal amount,
including all accrued and unpaid interest.
The debentures provide for a conversion price that equals the lesser of
$6.25 or 80% of the market price, which is determined by taking the average of
the three lowest closing bid prices of our common stock during the 10 trading
day period ending of the day prior to the day of determination. On December 20,
1999, the conversion price would have been $1.07 per share. On December 20,
1999, the last closing sale price of our common stock was $1.88 per share. The
table below sets forth the number of shares and the percentages of our common
stock that the holders of the debentures would own if they elect to convert the
entire $1.2 million of debentures. The table assumes a conversion price of $1.07
per share and then prices of $0.80, $0.54 and $0.27, which prices represent a
25%, 50% and 75% decline, respectively, in the conversion price from the current
conversion price of $1.07. The percentages are based on 5,853,516 shares of our
common stock outstanding on the date of this prospectus.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
PERCENTAGE DECLINE IN ASSUMED CONVERSION PRICE SHARES OF COMMON STOCK OUTSTANDING COMMON STOCK
CONVERSION PRICE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- $1.07 1,121,495 16.1%
- -------------------------------------------------------------------------------------------------------------
25% $0.80 1,500,000 20.3%
- -------------------------------------------------------------------------------------------------------------
50% $0.54 2,222,222 27.5%
- -------------------------------------------------------------------------------------------------------------
75% $0.27 4,444,444 43.1%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
As part of the sale of the debentures, certain of the selling
securityholders received warrants to purchase up 220,000 shares of our common
stock. The exercise price of these warrants is $5.50 per share. The warrants are
immediately exercisable and expire on July 30, 2002.
CERTAIN PROVISIONS OF OUR BYLAWS AND GEORGIA LAW
Number, Term and Removal of Directors. Our bylaws provide that the
number of directors is set by resolution of the board of directors in accordance
with our bylaws. Currently, we have one director. Upon a vacancy created in the
board of directors, a successor or new director may be appointed by the
affirmative vote of a majority of the directors then in office.
Special Shareholder Meetings. Our bylaws provide that special meetings
of shareholders or a class or series of shareholders may be called at any time
by the board of directors, the chairman of the board or our chief executive
officer, and that such meetings shall be called upon the written request of the
holders of shares representing at least 25% of the votes entitled to be cast on
each issue presented at such meeting.
Georgia Anti-Takeover Statutes. Some provisions of the Georgia Business
Corporation Code may be considered to have anti-takeover effects and may hinder,
delay, deter or prevent a tender offer, proxy contest or other attempted
takeover that a shareholder may deem to be in his best interest. Those
provisions might allow the board of directors to defend against an attempted
transaction that might otherwise result in payment of a premium over the market
price for shares the shareholder holds.
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<PAGE> 37
REGISTRATION RIGHTS
After an initial public offering of our stock, one holder of options to
purchase 50,000 shares of common stock and common stock is entitled to certain
piggyback rights concerning the registration of their shares under the
Securities Act.
In this instance, we must notify this holder of our intent to register
common stock under the Securities Act and allow him an opportunity to include
his shares of common stock in our registration. These registration rights are
subject to certain limitations and restrictions, including the right of the
underwriters to limit the number of shares offered in a registration if an
underwriter determines that the number of shares requested to be registered
cannot be underwritten. We are generally required to bear all of the expenses of
all registrations under these agreements, except underwriting discounts and
commissions. We are also obligated to indemnify the holder whose shares are
included in any of our registrations against certain losses and liabilities,
including liabilities under the Securities Act and state securities laws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Holladay Stock
Transfer, Inc., Phoenix, Arizona.
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<PAGE> 38
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market could
adversely affect the market price of the common stock and adversely affect our
ability to raise capital at times and on terms favorable to us. Of the 6,975,011
shares outstanding as of the date of this prospectus, including shares to be
issued on the conversion of the debentures assuming a conversion price of $1.07
per share, and exercise of the warrants granted with such debentures, but
excluding 440,735 shares held in escrow pending the outcome of certain
litigation, the shares of common stock offered by this prospectus and an
additional 513,098 shares of common stock will be freely tradeable without
restriction in the public market unless such shares are held by "affiliates."
See "Business - Legal Proceeding" and note G to the financial statements. An
affiliate of an issuer is a person that, directly or indirectly through one or
more intermediaries, controls, or is controlled by or is under common control
with, such issuer.
The remaining shares of common stock to be outstanding after the
offering are "restricted securities" under the Securities Act of 1933 and may be
sold in the public market upon the expiration of certain holding periods under
Rule 144, subject to the volume, manner of sale and other limitations. In
general, under Rule 144 as currently in effect, a person who has beneficially
owned shares for at least one year, including an affiliate, as that term is
defined in the Securities Act, is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
- one percent of the then outstanding shares of our common
stock (approximately 58,535 shares immediately following the
offering), or
- (if our common stock trades on the Nasdaq Stock Market or
other stock exchange) the average weekly trading volume
during the four calendar weeks preceding filing of notice of
such sale.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. A shareholder who is deemed not to have been an
affiliate of ours at any time during the 90 days preceding a sale, and who has
beneficially owned restricted shares for at least two years, would be entitled
to sell shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions or public information requirements.
We cannot estimate the number of shares that will be sold under Rule
144, since this will depend on the market price of our common stock, the
personal circumstances of the sellers and other factors. A limited public market
for our common stock exists, but we cannot assure you that a significant public
market for the common stock will develop or be sustained. Any future sale of
substantial amounts of the common stock in the open market may adversely affect
the market price of the common stock.
Any employee or consultant of StupidPC who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and which permits affiliates
to sell their Rule 701 shares without having to comply with the Rule 144
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<PAGE> 39
holding period restrictions. In either case, sales may be made under Rule 701
beginning 90 days after the date of this prospectus.
In addition, some shareholders have registration rights with respect to
their shares of common stock and common stock equivalents. See "Description of
Capital Stock -- Registration Rights" and "Risk Factors -- We may have
substantial sales of our common stock after the offering."
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<PAGE> 40
PLAN OF DISTRIBUTION
The selling securityholders (or, subject to applicable law,
their pledgees, donees, distributees, transferees or other successors in
interest) may sell shares from time to time in public transactions, on or off
the Nasdaq over-the-counter bulletin board, or private transactions, at
prevailing market prices or at privately negotiated prices, including but not
limited to the following types of transactions:
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this
prospectus; and
- face-to-face transactions between sellers and purchasers
without a broker-dealer.
In effecting sales, brokers or dealers engaged by the selling
securityholders may arrange for other brokers or dealers to participate in the
resales. The selling securityholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling securityholders also may enter
into option or other transactions with broker-dealers which require the delivery
to the broker-dealer of the shares, which the broker-dealer may resell pursuant
to this prospectus. The selling securityholders also may pledge the shares to a
broker or dealer and upon a default, the broker or dealer may effect sales of
the pledged shares pursuant to this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling securityholders in amounts to
be negotiated in connection with the sale. The selling securityholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether underwriters who may be selected by the
selling securityholders, or any other broker-dealer, are acting as principal or
agent for the selling securityholders, the compensation to be received by
underwriters who may be selected by the selling securityholders, or any
broker-dealer, acting as principal or agent for the selling securityholders and
the compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
prospectus. Any dealer or broker participating in any distribution of the shares
may be required to deliver a copy of this prospectus, including a prospectus
supplement, if any, to any person who purchases any of the shares from or
through such dealer or broker.
39
<PAGE> 41
We have advised the selling securityholders that during such time as
they may be engaged in a distribution of the shares they are required to comply
with Regulation M promulgated under the Securities Exchange Act of 1934. With
certain exceptions, Regulation M precludes any selling securityholder, any
affiliated purchasers and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the common stock.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for StupidPC by Red Hot Law Group of Ashley LLC, Atlanta, Georgia.
EXPERTS
The financial statements included in this prospectus, to the extent and
for the periods indicated in their reports, have been audited by Grant Thornton
LLP, independent public accountants, as indicated in their reports with respect
to the financial statements. These financial statements and the information
derived from the report referenced in them are included in this prospectus in
reliance upon the authority of Grant Thornton LLP as an expert in giving these
kinds of reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits thereto. Statements contained in this
prospectus about any contract or other document referred to are not necessarily
complete, and in each instance where a copy of such contract or other document
has been filed as an exhibit to the registration statement, reference is made to
the copy so filed, each such statement being qualified in all respects by such
reference. A copy of the registration statement and the exhibits thereto may be
inspected without charge at the Public Reference Room of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; and copies of
all or any part of the registration statement may be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, upon payment of the fees prescribed by the SEC. The SEC also
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements, and registration statements and other information
electronically filed with the SEC.
40
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
BALANCE SHEET F-3
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF SHAREHOLDERS' DEFICIT F-6
STATEMENTS OF CASH FLOWS F-7
NOTES TO FINANCIAL STATEMENTS F-9
</TABLE>
F-1
<PAGE> 43
Report of Independent Certified Public Accountants
Board of Directors
StupidPC, Inc.
We have audited the balance sheet of StupidPC, Inc. as of December 31,
1998, and the related statements of operations, shareholders' equity, and cash
flows for the year ended December 31, 1998 and the seventeen weeks (from
commencement of operations) ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of StupidPC, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year ended December 31, 1998 and the seventeen weeks ended December 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has experienced net losses of $436,387 and
$172,259 for the year ended December 31, 1998 and the seventeen weeks ended
December 31, 1997, respectively. Additionally, the Company's current liabilities
exceeded its current assets by $516,691 and the Company had a shareholders'
deficit of $473,146 at December 31, 1998. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note C. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Grant Thornton LLP
Atlanta, Georgia
February 19, 1999 (except for Note K,
as to which the date is July 31, 1999)
F-2
<PAGE> 44
StupidPC, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 September 30,
1998 1999
----------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 72,540 $ 338,220
Trade accounts receivable, less allowance of $5,115 122,616 192,993
Inventories 213,247 277,071
Prepaid expenses and other current assets 840 1,240
--------- ----------
Total current assets 409,243 809,524
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 32,878 59,219
Vehicles 43,002 43,002
--------- ----------
75,880 102,221
Less accumulated depreciation (8,835) (21,222)
--------- ----------
Net property and equipment 67,045 80,999
OTHER ASSETS
Deferred financing costs -- 496,064
Deposits 2,985 3,285
--------- ----------
$ 479,273 $1,389,872
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 45
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
----------- ---------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term debt $ 6,715 $ 7,675
Notes payable -- 100,873
Trade accounts payable 723,551 329,720
Accrued expenses 195,668 196,280
--------- ---------
Total current liabilities 925,934 634,548
COMMITMENTS AND CONTINGENCIES (Note G) -- --
CONVERTIBLE DEBENTURES (Note K) -- 904,439
LONG-TERM DEBT, net of current maturities 26,485 20,741
SHAREHOLDERS' DEFICIT
Capital stock (Note J) 135,500 1,431,859
Accumulated deficit (608,646) (1,601,715)
--------- ---------
Total shareholders' deficit (473,146) (169,856)
--------- ---------
$ 479,273 $1,389,872
========= =========
</TABLE>
F-4
<PAGE> 46
StupidPC, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 30,
December 31, December 31, -------------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenue
Product sales $ 4,034,002 $ 1,441,401 $2,727,455 $ 2,870,987
----------- ----------- ----------- -----------
Costs and expenses
Cost of product sales 3,623,688 1,359,858 2,253,134 2,570,613
Selling, general and
administrative 841,169 253,939 1,093,828 613,536
----------- ----------- ----------- -----------
4,464,857 1,613,797 3,346,962 3,184,149
----------- ----------- ----------- -----------
Loss from Operations (430,855) (172,396) (619,507) (313,165)
Other income (expense)
Interest and financing costs (6,293) -- (375,394) (232)
Other 761 137 1,832 --
----------- ----------- ----------- -----------
Net loss before
income taxes (436,387) (172,259) (993,069) (313,397)
Income tax expense (benefit) -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (436,387) $ (172,259) $ (993,069) $ (313,397)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.12) $ (0.05) $ (0.16) $ (0.09)
=========== =========== =========== ===========
Diluted $ (0.12) $ (0.05) $ (0.16) $ (0.09)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 47
StupidPC, Inc.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the year ended December 31, 1998 and the
seventeen weeks ended December 31, 1997
<TABLE>
<CAPTION>
Number of Capital Accumulated
shares stock deficit Total
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, September 1, 1997
(commencement of operations) 3,358,000 $ 500 $ -- $ 500
Net loss for the year -- -- (172,259) (172,259)
--------- ---------- ----------- ----------
Balance, December 31, 1997 3,358,000 500 (172,259) (171,759)
Merger with World Net Holdings, Inc. 642,000 -- -- --
Conversion of World Net
Holdings, Inc. stock on a
1 for 1 basis 1,989,250 -- -- --
Issuance of common shares for
private placement 75,000 135,000 -- 135,000
Net loss for the year -- -- (436,387) (436,387)
--------- ---------- ----------- ----------
Balance, December 31, 1998 6,064,250 $ 135,500 $ (608,646) $ (473,146)
Unaudited
- ---------
Net loss for the nine months
ended September 30, 1999 -- -- (993,069) (993,069)
Issuance of common shares for
private placement 90,000 170,000 -- 170,000
Issuance of stock to employees 36,000 87,840 -- 87,840
Beneficial conversion feature of
convertible debentures -- 300,000 -- 300,000
Warrants issued to debenture
holders and broker -- 734,519 -- 734,519
Exercise of stock options 20,000 4,000 -- 4,000
--------- ---------- ----------- ----------
Balance, September 30, 1999 (unaudited) 6,210,250 $1,431,859 $(1,601,715) $ (169,856)
========= ========== =========== ==========
</TABLE>
F-6
<PAGE> 48
StupidPC, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 30,
December 31, December 31, -----------------------------
1998 1997 1999 1998
------------ ------------ --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(436,387) $(172,259) $ (993,069) $(313,397)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 7,213 4,782 387,781 8,825
Provision for doubtful accounts
receivable 5,115 -- -- --
Loss on trade-in of property
and equipment 2,251 -- -- --
Common stock issued to employees -- -- 87,840 --
Change in assets and liabilities:
Accounts receivable 10,631 (138,362) (70,377) (20,728)
Inventories (124,031) (89,216) (63,824) (100,956)
Prepaid expenses and other
current assets (840) -- (400) (7,280)
Other assets (550) (2,435) (300) (550)
Trade accounts payable 216,661 506,890 (393,831) 212,251
Accrued expenses 168,012 27,656 611 110,637
--------- --------- ----------- ----------
Net cash (used in) provided by
operating activities (151,925) 137,056 (1,045,569) 61,328
--------- --------- ----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (56,262) (25,029) (26,341) (24,282)
--------- --------- ----------- ----------
Net cash used in investing
activities (56,262) (25,029) (26,341) (24,282)
--------- --------- ----------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 33,200 14,000 -- --
Repayment of long-term debt (14,000) -- (4,783) (1,542)
Proceeds from notes payable -- -- 100,873 --
Proceeds from issuance of common
stock 135,000 500 170,000 --
Proceeds from exercise of options -- -- 4,000 --
Proceeds from convertible debentures -- -- 1,200,000 --
Financing costs -- -- (132,500) --
--------- --------- ----------- ---------
Net cash provided by financing
activities 154,200 14,500 1,337,590 (1,542)
--------- --------- ----------- ---------
</TABLE>
F-7
<PAGE> 49
StupidPC, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 30,
December 31, December 31, ----------------------------
1998 1997 1999 1998
------------ ------------ -------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Net increase (decrease) in cash and
short-term investments (53,987) 126,527 265,680 (87,152)
Cash and short-term investments
at beginning of year 126,527 -- 72,540 126,527
--------- -------- -------- ---------
Cash and short-term investments
at end of year $ 72,540 $126,527 $338,220 $ 39,375
========= ======== ======== =========
Supplementary Cash Flow Disclosures
Interest paid $ 1,044 $ -- $ 898 $ 483
Income taxes paid $ 840 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 50
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
StupidPC, Inc. was incorporated in Georgia in May, 1997 and commenced
operations on September 1, 1997. Effective December 14, 1998, StupidPC,
Inc. ("Company") completed a merger with and into World Net Holdings,
Inc. The merger is in effect a reverse acquisition and is accounted for
as a recapitalization of StupidPC, Inc. with StupidPC, Inc. as the
acquirer (see Note D). Effective December 14, 1998, the name of World
Net Holdings, Inc. was changed to StupidPC, Inc. with the Certificate
of Incorporation being duly amended to reflect the change of name.
StupidPC, Inc. assembles personal computer systems for consumers and
small office users in the Atlanta, Georgia market. The Company also
operates computer retail stores predominantly in the Atlanta, Georgia
market.
The interim financial statements as of September 30, 1999 and for the
nine months ended September 30, 1999 and 1998, included in the
financial statements, have been prepared by the Company without audit.
These statements reflect all adjustments which are, in the opinion of
management, necessary to present fairly the financial position, results
of operations and cash flows for the interim periods presented. All
such adjustments are of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted for these interim periods. The Company
believes that the interim financial statements and disclosures are
adequate to make the information not misleading.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles ("GAAP"), management is required to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Revenue Recognition
Revenue from product sales of computer systems and related hardware is
recognized upon shipment.
3. Cash and Short-Term Investments
For purposes of reporting cash flows, cash and short-term investments
include cash on hand, cash in banks and short-term investments with
original maturities of less than 90 days. The Company had cash in an
escrow account of $6,275 held by a third party at December 31, 1998.
The escrow account is used to pay professional fees incurred in
conjunction with the private placement offering.
F-9
<PAGE> 51
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the average cost method. Inventories consist primarily
of spare parts and computer components.
5. Property, Equipment, and Depreciation
Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives on a
straight-line basis. Depreciation expense related to property and
equipment charged to operations was $7,213 and $4,782 for 1998 and
1997, respectively. Estimated services lives are as follows:
<TABLE>
<S> <C>
Office furniture and equipment 5 years
Vehicles 5 years
</TABLE>
6. Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates applied to taxable
income. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is provided for deferred tax
assets when it is more likely than not that the asset will not be
realized (Note E).
7. Advertising
The Company expenses the cost of advertising as incurred. Advertising
expense was approximately $124,000 and $97,000 for the year ended
December 31, 1998 and the seventeen weeks ended December 31, 1997,
respectively.
F-10
<PAGE> 52
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. Loss Per Share
Basic net loss per common share is based upon the weighted average
number of common shares outstanding during the period. Diluted net loss
per common share is based upon the weighted average number of common
shares outstanding plus dilutive potential common shares, including
options and warrants outstanding during the period.
Although the agreement called for 4,000,000 shares to be issued at the
time of the reverse acquisition, the transfer agent is holding 451,458
of these shares in escrow pending the outcome of certain litigation
(see Note G). For purposes of loss per share calculations, these shares
are considered as issued on the effective date of the reverse
acquisition.
9. Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents
and long-term debt. The carrying value of cash and cash equivalents
approximates fair value due to the relatively short period to maturity
of the instruments. The carrying amount of the Company's long-term debt
approximates fair value based on borrowing rates currently available to
the Company for borrowings with comparable terms and conditions.
NOTE C - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has sustained a net loss of $436,387 and $172,259 for the year ended
December 31, 1998 and the seventeen weeks ended December 31, 1997,
respectively. In addition, at December 31, 1998, the Company's current
liabilities exceeded its current assets by $516,691 and the Company has
used, rather than provided, cash in its operations for the year ended
December 31, 1998.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements on a continuing
basis, to maintain present financing, and to succeed in its future
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
F-11
<PAGE> 53
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE C - REALIZATION OF ASSETS - Continued
In response to the matters described in the preceding paragraphs,
management is pursuing additional equity financing. Management believes
that this additional financing will allow the Company to rigorously
pursue its expansion efforts in the upcoming year and that this
expansion will strengthen the Company's cash flow position to provide
the Company with the ability to continue in existence. On July 31,
1999, the Company received $1,067,500 in proceeds from the issuance of
convertible debentures (see Note K).
NOTE D - MERGER
Effective December 14, 1998, World Net Holdings, Inc. (a shell
company), acquired all of the outstanding common stock of StupidPC,
Inc. For accounting purposes, the acquisition has been treated as a
recapitalization of StupidPC with StupidPC as the acquiror (reverse
acquisition). The historical financial statements prior to December
14, 1998 are those of StupidPC. The merger was effected by World Net
Holdings, Inc. issuing 4,000,000 common shares for all of the
outstanding common shares of StupidPC, Inc. In addition, the
shareholders of StupidPC, Inc. were granted 2,000,000 options to
purchase common stock of the Company at $0.20 per share. These options
vested immediately upon the merger and were granted to shareholders in
proportion to their original ownership in StupidPC, Inc. The options
expire in November 2003. At the date of the merger, StupidPC, Inc. had
3,358,000 common shares issued and outstanding. StupidPC, Inc. and
World Net Holdings, Inc. executed the merger transaction as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue code of 1986, as amended. StupidPC, Inc. and World Net
Holdings, Inc. did not recognize any gain or loss as a result of the
merger. Effective December 14, 1998, the name of World Net Holdings,
Inc. was changed to StupidPC, Inc. with the Certificate of
Incorporation being duly amended to reflect the change of name. Also,
for consulting services regarding the merger, the Company issued fifty
thousand warrants to purchase the Company's common stock at $3.00 per
share. These warrants expire in May 2009.
F-12
<PAGE> 54
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE E - INCOME TAXES
The Company's temporary differences result in a net deferred income tax asset
which is reduced to zero by a related valuation allowance at December 31,
1998 summarized as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 223,324
Allowance for doubtful accounts 1,969
----------
Gross deferred tax asset 225,293
Deferred tax asset valuation allowance (225,293)
----------
Net deferred tax asset $ -
==========
</TABLE>
At December 31, 1998 the Company had operating loss carryforwards for income
tax purposes of approximately $580,000 available to reduce future taxable
income which expires as follows:
<TABLE>
<CAPTION>
Year Net Operating Loss
---- ------------------
<S> <C>
2012 $ 172,000
2013 408,000
</TABLE>
NOTE F - LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Note Payable with a bank, payable in monthly
installments of $385 with the final payment
due January 1, 2003. Interest is paid
monthly at an interest rate of 8.25%. The
note is collateralized by a vehicle. $ 15,600 $ 13,481
Note Payable with a bank, payable in monthly
installments of $433 with the final payment
due January 1, 2003. Interest is paid monthly
at an interest rate of 8.25%. The note is
collateralized by a vehicle. 17,600 14,935
----------- -----------
33,200 28,416
Less current portion 6,715 7,675
----------- -----------
$ 26,485 $ 20,741
=========== ===========
</TABLE>
F-13
<PAGE> 55
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE F - LONG-TERM DEBT - Continued
Future maturities of long-term debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1999 $ 6,715
2000 7,927
2001 8,606
2002 9,344
2003 608
-------
$33,200
=======
</TABLE>
Notes Payable - Unaudited
Subsequent to year end, the Company received loans totaling $100,873
at an interest rate of 10%. Principal and accrued interest on these
loans is due on June 21, 2000.
NOTE G - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases space and office equipment under noncancelable
leases which expire at various dates through December 2001. Approximate
minimum lease payments under the leases are as follows: 1999, $37,000;
2000, $4,000; 2001, $3,000.
Rent expense was approximately $30,000 and $7,000 for the years ended
December 31, 1998 and the seventeen weeks ended December 31, 1997,
respectively.
Litigation
The Company is involved in a lawsuit where the plaintiff is alleging
ownership of certain shares of StupidPC, Inc. prior to the merger. The
Company's transfer agent is holding these shares in escrow pending the
outcome of the lawsuit. Based on the outcome of this lawsuit, all of
these shares will be issued, either to the plaintiff in the lawsuit or
to the original shareholders of StupidPC, Inc. in proportion to their
ownership prior to the merger.
The Company has also received a claim by a former director to alleged
entitlement to the exercise of 750,000 options on common stock at a
nominal exercise price. Management of the Company believes it has an
adequate defense to this claim, but if it is resolved unfavorably to
the Company, it could result in the exercise of these options and the
issuance of these shares of common stock.
The Company is also involved in various claims and legal actions. In
the opinion of management, the ultimate disposition of these matters
will not have a material adverse effect on the Company's financial
position or results of operations.
F-14
<PAGE> 56
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE H - PRIVATE PLACEMENT OFFERINGS
During 1998, the Company entered into an agreement to sell up to
200,000 common shares at $1.80 per share in a private placement
offering. At December 31, 1998, 75,000 shares have been sold and the
Company has received $135,000 in proceeds. Subsequent to year end an
additional 50,000 of common shares were sold at $1.80 resulting in net
proceeds of $90,000. Also subsequent to year end, an additional 40,000
common shares were sold at $2.00 resulting in additional proceeds of
$80,000.
NOTE I - NET LOSS PER SHARE
Loss per common share was computed as follows:
<TABLE>
<CAPTION>
Seventeen Nine months
Year ended weeks ended ended September 30,
December 31, December 31, -------------------------------
1998 1997 1999 1998
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
Numerator for basic and diluted
loss per share - net loss $ (436,387) $ (172,259) $ (993,069) $ (313,397)
========== ========== ========== ==========
Denominator for basic loss per
share - weighted average shares 3,756,273 3,358,000 6,144,726 3,358,000
Effect of dilutive stock options
and warrants -- -- -- --
---------- ---------- ---------- ----------
Denominator for diluted loss per
share - adjusted weighted
average shares 3,756,273 3,358,000 6,144,726 3,358,000
========== ========== ========== ==========
Basic loss per share $ (0.12) $ (0.05) $ (0.16) $ (0.09)
========== ========== ========== ==========
Diluted loss per share $ (0.12) $ (0.05) $ (0.16) $ (0.09)
========== ========== ========== ==========
</TABLE>
F-15
<PAGE> 57
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE J - CAPITAL STOCK
At December 31, 1998 and June 30, 1999, the Company has the following
classes of capital stock:
Common stock - authorized 30,000,000 shares of no par value with
6,064,250 and 6,190,250 shares issued and outstanding on December
31, 1998 and June 30, 1999, respectively.
Class B common stock - authorized 10,000,000 shares of no par value
with no shares issued and outstanding.
Class C common stock - authorized 20,000,000 shares of no par value
with no shares issued and outstanding.
Preferred stock - authorized 20,100,000 shares of no par value with
no shares issued and outstanding.
Unaudited - Subsequent to year end, the Company issued 36,000 common
shares to certain key employees. Compensation expense in the amount of
$87,840 was recorded for the nine months ended September 30, 1999
related to this issuance. Also, shareholders exercised options to
purchase 20,000 shares at $0.20 per share resulting in $4,000 of
proceeds to the Company.
NOTE K - SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
On July 31, 1999, the Company issued $1,200,000 of 8% Convertible
Debentures due June 30, 2001 (the "Debentures"), the proceeds of which
are being utilized for working capital purposes. Proceeds were
$1,200,000, less debt issuance costs of $132,500. In addition, the
company issued 120,000 common stock purchase warrants to the holders of
the Debentures and 100,000 purchase warrants to a broker of the
debenture transaction. The warrants, which expire on July 30, 2002,
entitle the holder to purchase one common share of the common stock of
the company at the price of $5.50. The Debentures are convertible into
shares of common stock of the Company at the lesser of (i) $6.25 per
share or (ii) 80% of the market price of the common stock at the
conversion date.
In connection with the issuance of the convertible debentures, $300,000
of the debt issuance proceeds was allocated to capital stock to
recognize the beneficial conversion feature of the debentures. This
debt discount was recorded as financing costs on July 31, 1999 based on
the convertible debentures being immediately convertible at the option
of the holder.
In connection with the issuance of 120,000 stock purchase warrants to
debenture holders, the Company valued the warrants in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, and allocated
$323,710 of the proceeds to Capital Stock in accordance with APB 14,
Accounting for Convertible Debt issued with Stock Purchase Warrants.
This warrant value will be amortized to interest expense over the
stated term of the debt which is 23 months. The 100,000 warrants issued
to a broker of the debenture transaction were valued at $410,809 using
the Black Sholes option pricing model. This value was recorded as
deferred financing costs.
The related deferred financing costs is included as "Other Assets" in
the Company's balance sheet and will be amortized over the stated term
of the debt, which is 23 months.
CAPITAL STRUCTURE (UNAUDITED)
In September 1999, the Company's shareholders approved amendments to
the Articles of Incorporation modifying the Company's capital structure
increasing the number of authorized common stock to 95,000,000 and
decreasing the authorized number of preferred stock to 5,000,000. In
addition, the amendments eliminated the Class B and Class C common
stock.
F-16
<PAGE> 58
STUPIDPC, INC.
1,535,710 Shares
Common Stock
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. Shares of common stock may only be sold in
jurisdictions where offers and sales are permitted.
<PAGE> 59
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Georgia Business Corporation Code permits a corporation to
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of duty of care or other duty
as a director, provided that a corporation cannot eliminate or limit the
liability of a director for:
- an appropriation, in violation of his duties, of any business
opportunity of the corporation;
- acts or omissions which involve intentional misconduct or a
knowing violation of law;
- unlawful corporate distributions; or
- any transaction from which the director received an improper
personal benefit.
This provision relates only to breaches of duty by directors in their
capacity as directors, and not in any other corporate capacity, such as
officers. It limits liability only for breaches of fiduciary duties under the
Georgia Code, and not for violation of other laws, such as the federal
securities laws. Our articles of incorporation exonerate our directors from
monetary liability to the extent described above.
In addition to the rights provided by law, our bylaws provide broad
indemnification rights to our directors and the officers, employees and agents
as the directors may select, with respect to various civil and criminal
liabilities and losses that may be incurred by the director, officer, agent or
employee in any pending or threatened litigation or other proceedings. This
indemnification does not apply in the same situations described above with
respect to the exculpation from liability of our directors. We are also
obligated to reimburse such directors and other parties for expenses, including
legal fees, court costs and expert witness fees, incurred by those persons in
defending against any of these liabilities and losses, as long as the person in
good faith believes that he or she acted in accordance with the applicable
standard of conduct with respect to the underlying accusations giving rise to
such liabilities or losses and agrees to repay to us any advances made under the
bylaws. Any amendment or other modification to the bylaws which limits or
otherwise adversely affects the rights to indemnification currently provided in
the bylaws shall apply only to proceedings based upon actions and events
occurring after such amendment and delivery of notice of it to the indemnified
parties.
We believe that the above protections are necessary to attract and
retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to these provisions, or otherwise, the SEC has advised us that in its opinion
such indemnification provisions described is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or
II-1
<PAGE> 60
paid by our director, officer or controlling person 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, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
our indemnification is against public policy as expressed in the Securities
Act, and we will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering described in the registration statement. All amounts are estimates
except the SEC registration fee, the NASD fees and the Nasdaq listing fees:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee ............ $ 2,076.03
Printing and engraving expenses.. 2,000.00
Legal fees and expenses ......... 75,000.00
Accounting fees and expenses .... 25,000.00
Transfer agent fees ............. 2,500.00
Miscellaneous expenses .......... 1,000.00
--------------
Total ..................... $ 107,576.03
==============
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
From November 1997 to February 1998, StupidPC sold 9,000 shares of
common stock at $2.50 per share to four investors for a total amount of $22,500.
We sold these shares in reliance on Regulation D, Rule 504 of the Securities
Act.
In October 1998, World Net sold 75,000 shares of common stock at $1.80
per share for a total of $135,000. World Net Holdings sold these shares in
reliance on Regulation D, Rule 504 of the Securities Act.
In November 1998, shareholders of StupidPC were issued 3,559,265
shares of common stock as part of the share exchange with World Net Holdings.
The remaining 440,735 shares were held in escrow pending certain litigation. We
issued these securities in reliance on Section 4(2) of the Securities Act to
persons who were either accredited investors or sophisticated purchasers. These
persons were given the opportunity to speak with our executive officers and ask
questions about our business and plans. No placement agent was engaged and no
commissions were paid. No general solicitation or advertising was utilized for
this offering.
In January and February 1999, StupidPC sold 90,000 shares of common
stock for aggregate consideration of $170,000 to 10 investors. We sold these
shares in reliance on Regulation D, Rule 504 of the Securities Act. A Form D
covering this transaction was filed in December 1999.
In March 1999, StupidPC granted 36,000 shares of common stock to eight
employees. We issued these shares in reliance on Section 4(2) of the Securities
Act to investors who were either accredited investors or sophisticated
purchasers. These persons were given the opportunity to speak with our executive
officers and ask questions about our business and plans. No placement agent was
engaged and no commissions were paid. No general solicitation or advertising was
utilized for this offering.
In July 1999, the StupidPC issued $1,200,000 of 8% convertible
debentures due June 30, 2001. In addition, Stupid PC issued an aggregate of
220,000 common stock purchase warrants to the holders of the debentures and to a
broker of the debenture transaction. We issued these securities solely to
accredited investors in reliance on Regulation D, Rule 506 of the Securities
Act. A Form D covering this transaction was filed in September 1999. These
persons were given the opportunity to speak with our executive officers and ask
questions about our business and plans. No general solicitation or advertising
was utilized for this offering.
II-2
<PAGE> 61
only and not with a view to or for the sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates issued
in such transactions. All recipients of these securities had adequate access,
through their relationships with us, to information about us.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1* Amended Agreement and Plan of Share Exchange, dated November
12, 1998, by and between StupidPC, Inc., World Net Holdings,
Inc., Bart Brannon, Donald H. Sigler, Herb Harris, River
Rapids, Ltd.
and PC-U, Inc.
3.1* Revised and Restated Articles of Incorporation of StupidPC, Inc.
3.2* Revised and Restated Bylaws of StupidPC, Inc.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and the Bylaws defining the rights of the
holders of common stock of StupidPC, Inc.
4.2* Specimen common stock certificate.
5.1 Opinion of Red Hot Law Group of Ashley LLC.
10.1* Convertible Debenture and Warrants Purchase Agreement dated
as of July 15, 1998
10.2* StupidPC, Inc. Stock Purchase Warrant, dated May 14, 1999,
issued to Gerald Sullivan for 50,000 shares of common stock.
10.3* Stock Repurchase Contract, dated April 10, 1998, by and
between StupidPC, Inc. and Gary L. German.
10.4* Stock Option Agreement, dated July 25, 1997, issued to Gary
L. German for 750,000 shares of common stock.
10.5* Business Lease, dated September 23, 1999, by and between
D & B No. 3, LLP and StupidPC, Inc.
10.6* Commercial Lease, dated December 28, 1998, between Deborah L.
Deavers and StupidPC, Inc.
10.7* Maintenance Service Agreement, dated April 9, 1999, by and between
Integrated Automation International and StupidPC, Inc.
23.1 Consent of Red Hot Law Group of Ashley LLC (included as part of Exhibit 5.1)
23.2 Consent of Grant Thornton LLP.
24.1* Power of Attorney (included on signature pages hereto).
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- -----------------
* Previously filed.
** Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 406 under the Securities Act.
In accordance with Rule 406, these confidential portions have been
omitted from this exhibit and filed separately with the SEC.
+ The Company agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the SEC upon request, as provided in Item
601(b)(2) of Regulation S-K.
(b) Financial Statement Schedules
II-3
<PAGE> 62
Report of Independent Certified Public Accountants on Schedule
Valuation and Qualifying Accounts Schedule
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
StupidPC pursuant to the foregoing provisions, or otherwise, StupidPC 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 StupidPC of expenses incurred or
paid by a director, officer or controlling person of the registrant 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, StupidPC 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.
StupidPC hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) Reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registrant 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) 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.
(2) For determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time to be the initial bona fide offering
thereof.
(3) Remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the
termination of the offering.
II-4
<PAGE> 63
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Atlanta,
State of Georgia, on this 28th day of December, 1999.
STUPIDPC, INC.
By: /s/ Stephen B. Brannon
-----------------------------
Stephen B. Brannon
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities listed and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Stephen B. Brannon President, Chief Executive Officer and December 28, 1999
- -------------------------------------------- and Director
Stephen B. Brannon (Principal Executive Officer
and Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE> 64
Report of Independent Certified Public Accountants on Schedule
Board of Directors
StupidPC, Inc.
In connection with our audit of the financial statements of StupidPC, Inc.
referred to in our report dated February 19, 1999 (except for Note K, as to
which the date is July 31, 1999), which is included in the annual report to
security holders and incorporated by reference in Part II of this form, we
have also audited Schedule II for the year ended December 31, 1998 and the
seventeen weeks (from commencement of operations) ended December 31, 1997. In
our opinion, the schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
Atlanta, Georgia
February 19, 1999
<PAGE> 65
StupidPC, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended December 31, 1998 and the
Seventeen weeks ended December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------- ------------ ------------ ----------- -----------
Balance at Balance at
beginning of Deductions - end of
Description period Additions describe (a) period
- --------------------------------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful
accounts receivable $ - $ 5,115 $ - $ 5,115
Deferred tax asset allowance $ 66,320 $ 158,973 $ - $ 225,293
Seventeen weeks ended December 31, 1997
Allowance for doubtful
accounts receivable $ - $ - $ - $ -
Deferred tax asset allowance $ - $ 66,320 $ - $ 66,320
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[RED HOT LAW GROUP (SM) OF ASHLEY LLC LETTERHEAD]
December 27, 1999
Stupid PC, Inc.
3010-E Business Park Drive
Norcross, Georgia 30071
Ladies and Gentlemen:
We have acted as counsel to Stupid PC, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, covering the
offering of up to 1,535,710 shares (the "Shares') of the Company's common stock,
no par value per share by the selling securityholders named in the Registration
Statement, including (i) up to 1,200,000 shares that they may acquire upon
conversion of the Company's 8% convertible debentures, (ii) up to 220,000 shares
that they may acquire upon exercise of warrants to purchase shares of common
stock and (iii) 115,710 shares that are currently issued and outstanding. In
connection therewith, we have examined such corporate records, certificates of
public officials and other documents and records as we have considered necessary
or proper for the purpose of this opinion.
Based on the foregoing, and having regard to legal considerations
which we deem relevant, we are of the opinion that the Shares, when issued and
delivered as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Red Hot Law Group of Ashley LLC
Red Hot Law Group of Ashley LLC
<TABLE>
<S> <C> <C> <C> <C>
The Biltmore * 817 West Peachtree Street, Suite 400 * Atlanta, Georgia 30308-1138 * Tel: 404.575.1901 * www.redhotlaw.com
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 19, 1999 (except for Note K, as to
which the date is July 31, 1999), accompanying the financial statements and
schedules of StupidPC, Inc. contained in the Form SB-2, Registration Statement
under the Securities Act of 1933 and in the Prospectus which forms a part of
that Registration Statement. We consent to the use of the aforementioned reports
in the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
/s/ Grant Thornton LLP
Atlanta, Georgia
December 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SEVENTEEN WEEKS ENDED DECEMBER 31, 1997, THE YEAR ENDED
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1998
<PERIOD-START> SEP-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 SEP-30-1999
<EXCHANGE-RATE> 1 1 1
<CASH> 126,527 72,540 338,220
<SECURITIES> 0 0 0
<RECEIVABLES> 138,362 127,731 198,108
<ALLOWANCES> (0) (5,115) (5,115)
<INVENTORY> 89,216 213,247 277,071
<CURRENT-ASSETS> 354,105 409,243 809,524
<PP&E> 25,028 75,880 102,221
<DEPRECIATION> (4,782) (8,835) (21,222)
<TOTAL-ASSETS> 376,786 479,273 1,389,872
<CURRENT-LIABILITIES> 548,545 925,934 634,548
<BONDS> 0 26,485 925,180
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> (171,759) (473,146) (169,856)
<TOTAL-LIABILITY-AND-EQUITY> 376,786 479,273 1,389,872
<SALES> 0 0 0
<TOTAL-REVENUES> 1,441,401 4,034,002 2,727,455
<CGS> 0 0 0
<TOTAL-COSTS> 1,359,858 3,623,688 2,253,134
<OTHER-EXPENSES> 254,076 841,930 (1,093,828)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (0) (6,293) (375,394)
<INCOME-PRETAX> (172,259) (436,387) (993,069)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (172,259) (436,387) (993,069)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (172,259) (436,387) (993,069)
<EPS-BASIC> (0.05) (0.12) (0.16)
<EPS-DILUTED> (0.05) (0.12) (0.16)
</TABLE>
