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U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 000-28721
StupidPC, Inc.
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(Exact name of registrant as specified in its charter)
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Georgia 58-2321232
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(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
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6690 Jones Mill Court, Suite A
Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 448-4150
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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N/A N/A
Securities registered under Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days. YES [ X ] NO
[ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year ended December
31, 1999 were $3,562,167.
On March 31, 2000, the aggregate market value of the voting stock of
StupidPC, Inc. ("StupidPC") (consisting of common stock, no par value) held by
non-affiliates of the Registrant (approximately 1,296,103 shares) was
approximately $2,021,920 based on the average bid and asked price for such
common stock ($1.56) on said date as reported by the OTC Bulletin Board.
As of March 31, 2000, there were 7,466,070 outstanding shares of
StupidPC common stock.
Documents incorporated by reference: None
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INDEX
TABLE OF CONTENTS
PART I
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Item 1 Description of Business...............................................................................1
Item 2 Description of Property...............................................................................5
Item 3 Legal Proceedings.....................................................................................6
Item 4 Submission of Matters to a Vote of Security Holders...................................................6
PART II
Item 5 Market for Common Equity and Related Stockholder Matters..............................................7
Item 6 Management's Discussion and Analysis or Plan of Operation.............................................9
Item 7 Financial Statements.................................................................................12
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................12
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16 (a) of the Exchange Act...................................................................12
Item 10 Executive Compensation...............................................................................13
Item 11 Security Ownership of Certain Beneficial Owners and Management.......................................13
Item 12 Certain Relationships and Related Transactions.......................................................14
Item 13 Exhibits and Reports on Form 8-K.....................................................................15
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StupidPC, Inc. cautions readers that certain important factors may
affect the Company's actual results and could cause such results to differ
materially from any forward-looking statements that may be deemed to have been
made in this Form 10-KSB or that are otherwise made by or on behalf of the
Company. For this purpose, any statement contained in the Form 10-KSB that is
not a statement of historical fact may be deemed to be a forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue" or the negative variations thereof or comparable terminology are
intended to identify forward-looking statements. Factors that may affect the
Company's results include, but are not limited to, the Company's history of
losses, its need for additional financing and its competitive marketing
environment. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. In this Annual Report on Form 10-KSB, the terms "StupidPC,"
the "Company" and "we" refer to StupidPC, Inc.
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
SUMMARY
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 and a sales office in Charlotte, North Carolina.
In addition, we recently began offering consumers an e-commerce Internet-based
method for ordering and paying for our products and services through our website
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 disabled 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
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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.
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.
If consumers do not continue to adopt the Internet as a means of purchasing
StupidPC's products, it will cause our growth to slow, which will harm our
operating results.
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, sales through our website would be
negatively affected and 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
the sale of our products through our website 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 website to
changing or emerging technologies, which could seriously harm our future results
of operations and financial condition.
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 and the demand for our current products, 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 website. 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
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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 plan to increase our
traditional retail distribution outlets in Atlanta and other southeastern U.S.
cities. We recently opened an office in Charlotte, North Carolina which has the
capability of operating as a retail store. 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 website 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 website and make the user interface more intuitive,
efficient and cost-effective.
We have no current plans to pursue any acquisitions.
PRODUCTS AND SERVICES
We custom build each computer system as it is ordered by our customers.
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 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 Internet access
through Cable & Wireless, a leading global telecommunications company. This
program permits us to resell Internet access as a stand alone product or as part
of the package in purchasing one of our systems. We believe that offering
Internet access is an extension of our core mission of targeting first time
users by providing them one place to purchase their computer and Internet
access. We intend to offer unlimited Internet access through this program for
$17.95 per month. Our agreement with Cable & Wireless terminates in December
2001.
We currently assemble the computer systems at our facility in Norcross,
Georgia and, as sales volume increases, expect that some assembly will occur at
independently owned companies capable of accommodating 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. Our facility
currently has a capacity to produce approximately 2,000 computers each month.
Our customers are primarily individuals, although a small portion of
our sales are to small businesses. 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.
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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 any research and development of 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 our 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 from a variety of sources
within approximately two weeks advance of their intended use. To date, we have
not experienced any difficulty in receiving the needed items on a timely bases.
We believe that we are not dependent on any single source, as alternative
sources are available.
We acquire technology components through purchase or license. We may be
unable to use the technology or components effectively if they become outdated
or because they do not perform as well as we had anticipated. 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 customers. Any of these problems could seriously harm our business.
A significant portion of our total assets consists of computer
components we purchase from third-party vendors. As a result of the purchases,
we assume the risk of inventory damage, theft and obsolescence.
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 website, customers and potential customers
can (1) access a wide range of information about our products and services (2)
configure and purchase systems online, and (3) 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.
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We offer a one-year parts and labor warranty and telephone support
during regular business hours for the life of the StupidPC system from our
offices in Norcross and Marietta.
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 influence 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 market and attempt to integrate electronic commerce and other
services, resulting in greater competition for us. Increased competition may
result in price reductions, lower gross margins and loss of market share. This
could seriously harm our business, financial condition and results of
operations.
INTELLECTUAL PROPERTY RIGHTS
We seek to protect our 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.
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.
EMPLOYEES
As of March 31, 2000, we employed 17 persons full-time and five
part-time delivery drivers. Our full-time employees consist 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.
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 by increasing our costs of operations and by preventing us from
effectively managing and expanding our business. 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.
ITEM 2 DESCRIPTION OF PROPERTY
We currently occupy, under a lease which expires on October 31, 2002,
approximately 12,000 square feet of space in a building located in Norcross,
Georgia; 3,000 square feet of which serve as our corporate headquarters,
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and 9,000 square feet of which are used for manufacturing computers, with a
current capacity for up to 2,000 computers per month. This lease provides for an
annual rent of $57,000 in Year 1, $58,704 in Year 2, and $60,468 in Year 3.
We also lease an aggregate of 1,000 square feet in Marietta, Georgia
for our second Atlanta area retail location. This is a free-standing retail
location with heavy automobile traffic and dense retail activities in the
immediate area. The lease for this space, which ends on December 31, 2000,
provides for an annual rent of approximately $12,000.
On December 1, 1999, we leased approximately 2,875 square feet of
office space in Charlotte, North Carolina to serve as a sales office. The
products which are sold from the Charlotte sales office, will be assembled in
the Norcross facility and shipped to the Charlotte office for delivery to the
customer. The Charlotte office contains retail capability to handle walk-in
customers. The lease for this space, which ends in December 2004, provides for
annual rent of approximately $25,000.
We believe that our facilities are adequate for our needs in the
foreseeable future. However, all of our product inventory is stored at our
facility in Norcross and, although we have taken precautions, if all or a
substantial portion of this inventory is damaged from fire, flood, tornado or
other similar catastrophic event, we could experience significant delays in
filling purchase orders and, consequently, realize substantial harm to our
reputation, as well as to our business, financial condition and results of
operation.
ITEM 3 LEGAL PROCEEDINGS
Gary German v. StupidPC, Inc., Superior Court of Gwinnett County Civil
Action File No. 99-A-5697-4 was filed on July 11, 1999. 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 from 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. StupidPC has moved for summary judgement and is awaiting the Court's
ruling.
The dispute relates to whether Mr. German is still entitled to exercise
750,000 stock options that were available to him in the stock option agreement.
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.
While we may, from time to time, be involved in litigation relating to
claims arising out of our operations in the normal course of business, we are
not currently a party to any other material legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
No matters were submitted to a vote by shareholders during the fourth
quarter of the fiscal year ended December 31, 1999.
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PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed for quotation on the OTC 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) through December 31, 1999:
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COMMON STOCK
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HIGH LOW
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1999
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Fourth Quarter................................ 3.88 1.25
Third Quarter................................. 7.56 2.06
Second Quarter................................ 9.75 1.95
First Quarter................................. $4.13 $2.00
1998
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Fourth Quarter (from December 14, 1998)....... $4.63 $3.75
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The last reported sale price of our common stock as of March 31, 2000
was $1.56 per share. The quotations 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 may not reflect prices in
actual transactions. As of the date of this prospectus, there were approximately
50 record owners of our common stock.
While our common stock is listed for quotation on the OTC Bulletin
Board, any trades that take place are sporadic. Because of this potential lack
of liquidity 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.
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.
RECENT SALES OF SECURITIES; USE OF PROCEEDS OF REGISTERED SECURITIES
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.
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Stephen B. 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 commercial operations began
in September 1997. The promoters of StupidPC were Stephen B. 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.
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, StupidPC issued $1,200,000 of 8% convertible debentures
due June 30, 2001. 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. Because of a contractual
obligation, we have only registered 1.2 million shares to be issued in the event
of a conversion of the debentures, which assumes a conversion price of $1.00 per
share. 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. On
October 20, 1999, $50,000 of the debentures were converted into 26,042 shares of
common stock.
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 February 8,
2000, the conversion price
8
<PAGE> 11
would have been $0.72 per share. On February 8, 2000, the last closing sale
price of our common stock was $1.50 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 $0.72 per share and then
prices of $0.54, $0.36 and $0.18, which prices represent a 25%, 50% and 75%
decline, respectively, in the conversion price from the current conversion price
of $0.72. The percentages are based on 5,853,516 shares of our common stock
outstanding on the date of this prospectus.
<TABLE>
<CAPTION>
PERCENTAGE DECLINE IN ASSUMED SHARES OF PERCENTAGE OF OUTSTANDING
--------------------- ------- --------- -------------------------
CONVERSION PRICE CONVERSION PRICE COMMON STOCK COMMON STOCK
---------------- ---------------- ------------ ------------
<S> <C> <C> <C>
-- $0.72 1,666,666 22.2%
25% $0.54 2,222,222 27.5%
50% $0.36 3,333,333 36.3%
75% $0.18 6,666,666 53.2%
</TABLE>
As part of the sale of the debentures, certain of the selling
securityholders received warrants to purchase up to 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. In addition, we 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.
On February 14, 2000, the company completed an initial public offering
of 1,610,334 shares of stock which raised $600,000. The proceeds from this
offering have been directed towards funding the company's general operations and
working capital needs and, in addition, to paying extraordinary professional
expenses associated with the initial public offering.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The following discussion should be read in conjunction with the
financial statements and accompanying notes thereto of the Company continued
elsewhere in this Annual Report on Form 10-KSB.
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 website 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.
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;
9
<PAGE> 12
- 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 expect that our operating expenses will increase,
perhaps significantly, as we intend to 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.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues for the year ended December 31, 1999 were $3.6
million, a 10% decrease from revenues of $4.0 million for the year ended
December 31, 1998. Revenues decreased during this period as a result of a
decrease in the number of units sold. During fiscal 1999, we sold approximately
2,715 units compared with approximately 3,318 during fiscal 1998, an 18%
decrease. The average price for a unit for the same period increased from $1,215
in 1998 to $1,300 in 1999, a 7% increase. We attribute the increase in average
price per unit sold to consumers purchasing higher priced units. We believe that
the decrease in the number of units sold is a result of purchase deferrals due
to Year 2000 fears, increased competition in the lower end retail computer
market and offers of significant rebates by large retailers.
Cost of Product Sales. Cost of products were $3.0 million for fiscal
1999, a decrease of 20% from cost of product sales of approximately $3.6 million
for fiscal 1998. We were able to lower our product costs during fiscal 1999 as a
result of decreasing computer chip prices and other hardware costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.8 million for fiscal 1999, an increase of 114%
from selling, general and administrative costs of $841,169 for fiscal 1998.
These expenses increased primarily as a result of increased costs for additional
personnel, accounting and legal services, as well as an increase in advertising
expenditures.
Other Income (Expense). During fiscal year 1999, we incurred $521,516
of interest and financing costs, an increase of 8,187%. This increase is related
to the July 1999 issuance of our 8% convertible debentures.
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 ("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 fiscal years
ended 1999 or 1998, as we generated net losses.
Net Loss. For the reasons stated above, we incurred a net loss of $1.8
million, or $0.28 per share, for fiscal 1999 compared with a net loss of
$436,387, or $0.12 per share, for fiscal 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 $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
10
<PAGE> 13
year as compared to only 17 weeks of 1997. During 1998 we sold approximately
3,300 units at an average unit price of $1,036. During the 17 weeks of 1997 we
sold approximately 1,050 units at an average unit price of $1,365.
Cost of Product Sales. Cost of products were $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 $841,169 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
$436,387 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.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operations and from the sale of our securities. As of December 31, 1999, we had
an accumulated deficit of $2.4 million and cash and cash equivalents of
approximately $2,857.
Net cash used in our operating activities was $1.3 million and $151,925
for the fiscal year 1999 and 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, only
through the first three quarters of 2000. As a result, we will 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 such financing, if obtained, will be on
satisfactory terms. If sufficient financing is not available or is not available
on satisfactory terms, we may be forced to sell assets or seek to refinance our
outstanding obligations. We may also be unable to:
- purchase computer components and equipment;
- take advantage of future opportunities, such as opening a new
retail outlet; or
- respond to changing consumer needs and technological
innovations.
Any of these events could seriously harm our business, financial condition and
results of operations. For a description of our 8% debentures, see "Recent Sales
of Securities; Use of Proceeds of Registered Securities."
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:
11
<PAGE> 14
- 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,
including our agreement with Cable & Wireless; and
- the rate at which we invest in engineering and development and
intellectual property with respect to existing and future
technology.
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, 1999 included herein which makes reference to
the uncertainties regarding our ability to continue as a going concern.
YEAR 2000 IMPACT
The Year 2000 problem could affect computers, software and other
equipment that we use. Accordingly, we reviewed internal computer programs and
systems to determine if they would be Year 2000 compliant. As a result of our
planning and review efforts, we experienced no significant disruptions in our
critical systems or applications, and believe those systems successfully
responded to the Year 2000 date change. We are not aware of any material
problems resulting from Year 2000 issues, either with our internal systems or
the products and services of third parties. We will continue to monitor our
critical computer applications and those of our suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
ITEM 7 FINANCIAL STATEMENTS
The following financial statements and report of the Company's
independent auditors are attached at the end of this report.
- Report of Independent Public Accountants - Grant Thornton LLP;
- Balance sheets - December 31, 1999 and 1998;
- Statements of Operations for the years ended December 31, 1999
and December 31, 1998;
- Statements of Shareholder's Deficit for the years ended
December 31, 1999 and December 31, 1998;
- Statements of Cash flows for the years ended December 31, 1999
and December 31, 1998
- Notes to financial statements
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Our directors and executive officers are as follows:
<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.
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
12
<PAGE> 15
until their successors are duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
As of the date of filing this Form 10-KSB, the Company is not aware of
any delinquencies of any persons in respect to required filings under Section
16(a) of the Exchange Act.
ITEM 10 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 years ended
December 31, 1999, 1998 and 1997 by our President and Chief Executive Officer,
Stephen B. Brannon.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
------------
COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND PRINCIPAL ----------------------------- ------------
- ----------------- SECURITIES
POSITION FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
- -------- YEAR SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
------ ------- ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen B. Brannon ....... 1999 $60,000 -- -- -- --
President and Chief 1998 50,000 -- -- -- --
Executive Officer 1997 35,000 -- -- -- --
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
None
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
None
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
None
COMPENSATION OF DIRECTORS
The Company does not pay any fee, compensation, or other renumeration
to its directors.
EMPLOYMENT AGREEMENTS
Mr. Brannon does not have an employment agreement with the Company.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 2000, 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 March 31, 2000 by:
13
<PAGE> 16
- 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 6690
Jones Mill Court, Suite A, Norcross, Georgia 30092. "Beneficial Ownership"
includes shares for which an individual directly or indirectly has or shares
voting or investment power or both and includes options and warrants that are
exercisable within sixty days of March 31, 2000. Under SEC rules, options or
warrants 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 person or group, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other shareholder. The
information below is calculated based on 7,466,070 shares of common stock
outstanding and assumes that all debentures will be converted at a conversion
price of $0.77, which would have been the conversion price on March 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
--------- ----------
NAME OF BENEFICIAL OWNER SHARES OWNED BENEFICIALLY OWNED
- ------------------------ ------------ ------------------
<S> <C> <C>
Stephen B. Brannon...................... 5,423,354(l) 58.1%
Gary L. German(2)....................... 458,897(3) 6.4%
AMRO International, S.A.(4)............. 839,221 11.2%
All directors and executive officers 5,423,354 58.1%
as a group (1 person)...................
</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 and (2)
options to purchase 340,073 shares of common stock from a current
shareholder for a one-year period ending on December 14, 2000 at $1.50
per share.
(2) Mr. German's address is 1215 Hopewell Crest, Alpharetta, Georgia 30022.
(3) Includes options to purchase 190,880 shares of common stock that are
currently exercisable at $0.20 per share.
(4) 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 $0.77 per share. Also includes warrants to
purchase 60,000 shares that are exercisable at an exercise price of
$5.50 per share.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED 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.
Stephen B. 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 commercial operations began
in September 1997. The promoters of StupidPC were Stephen B. Brannon and Gary L.
German. At the time of incorporation, Mr. German was our
14
<PAGE> 17
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 or indirectly from World Net other than salary and benefits.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed with or incorporated by reference into
this report.
<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.
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.
10.8* Virtual Internet Service Provider (ISP) Full Suite Solution
Agreement, dated as of November 12, 1999, by and between Cable &
Wireless USA, Inc. and StupidPC, Inc.
10.9* Office Warehouse Lease Agreement, dated as of December, 1999, by
and between AP Southeast Portfolio Partners, L.P. and StupidPC,
Inc.
23.1 Consent of Grant Thornton LLP.
24.1 Power of Attorney (included on signature page hereto).
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- -------------------------
* Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 333-87353) and incorporated by reference herein.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the fourth quarter
of the fiscal year ended December 31, 1999.
None.
15
<PAGE> 18
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
STUPIDPC, INC.
Years Ended December 31, 1999 and 1998
<PAGE> 19
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
BALANCE SHEETS F-4
LIABILITIES AND SHAREHOLDERS' DEFICIT F-5
STATEMENTS OF OPERATIONS F-6
STATEMENTS OF SHAREHOLDERS' DEFICIT F-7
STATEMENTS OF CASH FLOWS F-8
NOTES TO FINANCIAL STATEMENTS F-10
</TABLE>
F-2
<PAGE> 20
Report of Independent Certified Public Accountants
Board of Directors
StupidPC, Inc.
We have audited the balance sheets of StupidPC, Inc. as of December 31,
1999 and 1998, and the related statements of operations, shareholders' equity,
and cash flows for the years ended December 31, 1999 and 1998. 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, 1999 and 1998, and the results of its operations and its cash flows
for the years ended December 31, 1999 and 1998, 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 $1,752,655 and
$436,387 for the years ended December 31, 1999 and 1998, respectively.
Additionally, the Company's current liabilities exceeded its current assets by
$404,103 and $516,691 and the Company had a shareholders' deficit of $794,642
and $473,146 at December 31, 1999 and 1998, respectively. 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.
Grant Thornton LLP
Atlanta, Georgia
February 18, 2000
F-3
<PAGE> 21
StupidPC, Inc.
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 2,857 $ 72,540
Trade accounts receivable, less allowance of $14,035 112,993 122,616
and $5,115 for 1999 and 1998, respectively
Inventories 148,055 213,247
Prepaid expenses and other current assets 19,376 840
--------- ---------
Total current assets 283,281 409,243
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 74,623 32,878
Vehicles 55,482 43,002
--------- ---------
130,105 75,880
Less accumulated depreciation (37,626) (8,835)
--------- ---------
Net property and equipment 92,479 67,045
OTHER ASSETS
Deferred financing cost, net of accumulated amortization
of $118,113 for 1999 425,196 --
Deposits 7,075 2,985
--------- ---------
Total other assets 432,271 2,985
--------- ---------
$ 808,031 $ 479,273
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 22
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term debt $ 7,927 $ 6,715
Notes payable 100,873 --
Trade accounts payable 387,965 723,551
Accrued expenses 190,619 195,668
----------- ---------
Total current liabilities 687,384 925,934
LONG-TERM DEBT, net of current maturities 18,626 26,485
CONVERTIBLE DEBENTURES 896,663 --
COMMITMENTS AND CONTINGENCIES (Note G) -- --
SHAREHOLDERS' DEFICIT
Capital stock (Note I) 1,566,659 135,500
Accumulated deficit (2,361,301) (608,646)
----------- ---------
Total shareholders' deficit (794,642) (473,146)
----------- ---------
$ 808,031 $ 479,273
=========== =========
</TABLE>
F-5
<PAGE> 23
StupidPC, Inc.
STATEMENTS OF OPERATIONS
For the years ended December 31,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenue
Product sales $ 3,562,167 $ 4,034,002
----------- -----------
Costs and expenses
Cost of product sales 3,021,422 3,623,688
Selling, general and
administrative 1,778,080 841,169
----------- -----------
4,799,502 4,464,857
----------- -----------
Loss from Operations (1,237,335) (430,855)
Other income (expense)
Interest income 6,196 761
Interest and financing costs (521,516) (6,293)
----------- -----------
Net loss before
income taxes (1,752,655) (436,387)
Income tax expense (benefit) -- --
----------- -----------
Net loss $(1,752,655) $ (436,387)
=========== ===========
Net loss per common share(Note J)
Basic $ (0.28) $ (0.12)
=========== ===========
Diluted $ (0.28) $ (0.12)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 24
StupidPC, Inc.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Number of Capital Accumulated
shares stock deficit Total
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
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)
Issuance of common shares for private placement 90,000 170,000 -- 170,000
Issuance of common stock to employees 36,000 87,840 -- 87,840
Issuance of common stock for legal settlement 20,000 88,800 -- 88,800
Beneficial conversion feature of convertible debentures -- 300,000 -- 300,000
Warrants issued to debenture holders and broker -- 734,519 -- 734,519
Conversion of convertible debentures 26,042 50,000 -- 50,000
Net loss for the year -- -- (1,752,655) (1,752,655)
--------- ---------- ----------- -----------
Balance, December 31, 1999 6,236,292 $1,566,659 $(2,361,301) $ (794,642)
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 25
StupidPC, Inc.
STATEMENTS OF CASH FLOWS
For the years ended December 31,
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,752,655) $(436,387)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 217,277 7,213
Provision for doubtful accounts
receivable 8,920 5,115
Loss on trade-in of property
and equipment -- 2,251
Beneficial conversion feature of convertible debentures 300,000 --
Issuance of common stock to employees 87,840 --
Issuance of common stock for legal settlement 88,800 --
Change in assets and liabilities:
Accounts receivable 703 10,631
Inventories 65,192 (124,031)
Prepaid expenses and other
current assets (18,536) (840)
Other assets (4,090) (550)
Trade accounts payable (335,586) 216,661
Accrued expenses (5,049) 168,012
----------- ---------
Net cash used in operating activities (1,347,184) (151,925)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (54,225) (56,262)
----------- ---------
Net cash used in investing activities (54,225) (56,262)
----------- ---------
Cash flows from financing activities:
Proceeds from long-term debt -- 33,200
Repayment of long-term debt (6,647) (14,000)
Proceeds from notes payable 100,873 --
Proceeds from convertible debentures, net of financing costs 1,067,500 --
Proceeds from issuance of common
stock 170,000 135,000
----------- ---------
Net cash provided by financing activities 1,331,726 154,200
----------- ---------
</TABLE>
F-8
<PAGE> 26
StupidPC, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
For the years ended December 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net decrease in cash and short-term investments (69,683) (53,987)
Cash and short-term investments at beginning of year 72,540 126,527
--------- ---------
Cash and short-term investments at end of year $ 2,857 $ 72,540
========= =========
Supplementary Cash Flow Disclosures
Interest paid $ 27,260 $ 1,044
Income taxes paid $ -- $ 840
Supplemental Schedule of Noncash Investments
and Financing Activities:
Warrants issued to broker $ 410,809 $ --
Warrants issued to debenture holders $ 323,710 $ --
Beneficial conversion feature of debentures $ 300,000 $ --
Issuance of common stock to employees $ 87,840 $ --
Issuance of common stock for legal settlement $ 88,800 $ --
Bartering transactions (Note B-10) $ 79,000 $ --
Conversion of convertible debentures $ 50,000 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 27
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
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.
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.
F-10
<PAGE> 28
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
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 $28,791 and $7,213 for 1999 and
1998, 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 K).
7. Advertising
The Company expenses the cost of advertising as incurred. Advertising
expense was approximately $385,000 and $124,000 for the years ended
December 31, 1999 and 1998, respectively.
F-11
<PAGE> 29
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
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.
10. Barter Transactions
During 1999, the Company exchanged inventory with a cost of
approximately $79,000 for certain advertising and internet consulting
services. These non-monetary transactions have been accounted for in
accordance with Accounting Principle Board Opinion Number 29,
Accounting for Nonmonetary Transactions with the Services Received
valued at the fair value of the assets exchanged. As a result, no gain
or loss on the barter transactions were recorded by the Company.
11. Financing Fees
Financing fees are stated at cost less accumulated amortization and are
amortized over the loan terms using the straight-line method.
F-12
<PAGE> 30
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
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 $1,752,655 and $436,387 for the years ended
December 31, 1999 and 1998, respectively. In addition, at December 31,
1999 and 1998, the Company's current liabilities exceeded its current
assets by $404,103 and $516,691, respectively, and the Company has
used, rather than provided, cash in its operations for each of the
years ended December 31, 1999 and 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.
In response to the matters described in the preceding paragraphs,
management is pursuing additional equity financing and certain
strategic alliances and acquisitions. Management believes that this
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.
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 to 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. Stupid PC, Inc. and World Net
Holdings, Inc. did not recognize any gain or loss as the 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 for purchase of the Company's common stock at $3.00
per share. These warrants expire in May 2009.
F-13
<PAGE> 31
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE E - LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
----------------- ------------
<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. $ 12,481 $ 15,600
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. 14,072 17,600
------------ ------------
26,553 33,200
Less current portion 7,927 6,715
------------ ------------
$ 18,626 $ 26,485
============ ============
</TABLE>
Future maturities of long-term debt as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
2000 $ 7,927
2001 8,606
2002 9,344
2003 676
------------
$ 26,553
============
</TABLE>
Short-term notes payable
The Company received loans totaling $100,873 from three private individuals at
an interest rate of 10%, uncollaterized. Principal and accrued interest on these
loans are due on June 21, 2000.
F-14
<PAGE> 32
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - 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. The convertible debenture holder converted $50,000 of
debentures into 26,042 shares of the Company's common stock at a
conversion price of $1.92 on October 20, 1999.
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 utilizing the
following assumptions: expected volatility of 86%, risk free interest
rate of 5.5%, and an expected term of three years, 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 Scholes option pricing model utilizing the same assumptions
as described above. This value was recorded as deferred financing
costs.
The related deferred financing costs is included as "Other Assets" in
the Company's balance sheet to be amortized over the stated term of the
debt, which is 23 months. Amortization expense in the amount of
approximately $160,000 related to the issuance of warrants was recorded
for the year ended December 31, 1999.
F-15
<PAGE> 33
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
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: 2000, $97,000;
2001, $85,000; 2002, $76,000; 2003, $27,000; and 2004, $25,000.
Rent expense was approximately $63,000 and $30,000 for the years ended
December 31, 1999 and 1998, 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.
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 had been sold and the
Company received $135,000 in proceeds. During 1999, an additional
50,000 of common shares were sold at $1.80 resulting in net proceeds of
$90,000 and 40,000 common shares were sold at $2.00 resulting in
proceeds of $80,000.
F-16
<PAGE> 34
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - CAPITAL STOCK
At December 31, 1999 and 1998, the Company had the following classes of
capital stock:
Common Stock - authorized 30,000,000 shares of no par value with
6,236,292 and 6,064,250 shares issued and outstanding on December 31,
1999 and 1998, 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 at 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.
During 1999, the Company issued 36,000 common shares to certain key
employees. Compensation expense in the amount of $87,840 was recorded for the
year ended December 31, 1999 related to this issuance. Also the Company
issued 20,000 shares of common stock relating to the settlement of certain
litigation. The Company recorded $88,800 of expense for the year ended
December 31, 1999 related to this settlement. Also, a convertible debenture
holder converted $50,000 of debentures into 26,042 shares of the Company's
common stock on October 20, 1999 (see Note F).
NOTE J - NET LOSS PER SHARE
Loss per common share was computed as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Numerator for basic and diluted
loss per share - net loss $(1,752,655) $ (436,387)
=========== ===========
Denominator for basic loss per
share - weighted average shares 6,187,935 3,756,273
Effect of dilutive stock options and warrants -- --
----------- -----------
Denominator for diluted loss per share -
adjusted weighted average shares 6,187,935 3,756,273
=========== ===========
</TABLE>
F-17
<PAGE> 35
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - NET LOSS PER SHARE - Continued
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Basic loss per share $ (.28) $ (0.12)
======== ========
Diluted loss per share $ (.28) $ (0.12)
======== ========
</TABLE>
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.
NOTE K - 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,
1999 summarized as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 675,907
-----------
Gross deferred tax asset 675,907
Deferred tax asset valuation allowance (675,907)
-----------
Net deferred tax asset $ --
===========
</TABLE>
At December 31, 1999 the Company had operating loss carryforwards for income
tax purposes of approximately $1,904,556 available to reduce future taxable
income which expires as follows:
<TABLE>
<CAPTION>
Year Net Operating Loss
---- ------------------
<S> <C>
2013 $ 172,000
2019 409,393
2020 1,323,163
</TABLE>
F-18
<PAGE> 36
Report of Independent Certified Public Accountants on Schedule II
Board of Directors
StupidPC, Inc.
In connection with our audit of the financial statements of StupidPC, Inc.
referred to in our report dated February 18, 2000, 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 years ended December 31,
1999 and 1998. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein as of and for the
years ended December 31, 1999 and 1998.
Grant Thornton LLP
Atlanta, Georgia
February 18, 2000
F-19
<PAGE> 37
StupidPC, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1999 and 1998
<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, 1999
Allowance for doubtful
accounts receivable $ 5,115 $ 8,920 $ - $ 14,035
Deferred tax asset allowance $ 225,293 $ 450,614 $ - $ 675,907
Year ended December 31, 1998
Allowance for doubtful
accounts receivable $ - $ 5,115 $ - $ 5,115
Deferred tax asset allowance $ 66,320 $ 158,973 $ - $ 225,293
</TABLE>
F-20
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STUPIDPC, INC.
By: /s/ Stephen B. Brannon
---------------------------------------
Stephen B. Brannon
President, Chief Executive Officer,
and Director
Dated: April 14, 2000
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Stephen B. Brannon Title
- ----------------------------------- -----
Stephen B. Brannon President, Chief Executive
April 14, 2000 Officer and Director (Principal
Executive Officer and Principal
Financial and Accounting Officer)
16
<PAGE> 39
EXHIBIT INDEX
<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.
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.
10.8* Virtual Internet Service Provider (ISP) Full Suite Solution
Agreement, dated as of November 12, 1999, by and between Cable
& Wireless USA, Inc. and StupidPC, Inc.
10.9* Office Warehouse Lease Agreement, dated as of December, 1999,
by and between AP Southeast Portfolio Partners, L.P. and
StupidPC, Inc.
23.1 Consent of Grant Thornton LLP.
24.1 Power of Attorney (included on signature page hereto).
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- -------------------------
* Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 333-87353) and incorporated by reference herein.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the fourth quarter
of the fiscal year ended December 31, 1999.
None.
17
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in this annual report on
Form 10-KSB for the year ended December 31, 1999, of our reports dated February
18, 2000 relating to the financial statements and schedule of StupidPC, Inc.
appearing in the Registration Statement No. 333-87353 on Form SB-2, as amended,
dated January 28, 2000 of StupidPC, Inc.
/s/ Grant Thornton LLP
Atlanta, Georgia
February 18, 2000
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STUPID P.C. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,857
<SECURITIES> 0
<RECEIVABLES> 118,108
<ALLOWANCES> (5,115)
<INVENTORY> 148,055
<CURRENT-ASSETS> 283,281
<PP&E> 130,105
<DEPRECIATION> (37,626)
<TOTAL-ASSETS> 808,031
<CURRENT-LIABILITIES> 687,384
<BONDS> 915,289
0
0
<COMMON> 1,566,659
<OTHER-SE> (2,361,301)
<TOTAL-LIABILITY-AND-EQUITY> 808,031
<SALES> 3,562,167
<TOTAL-REVENUES> 3,562,167
<CGS> 3,021,422
<TOTAL-COSTS> 3,021,422
<OTHER-EXPENSES> 1,778,080
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<INTEREST-EXPENSE> 521,516
<INCOME-PRETAX> (1,752,655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,752,655)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (1,752,655)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
