<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
--------------------------------------------------------------------------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-28721
STUPIDPC, INC.
(Exact name of registrant as specified in its charter)
Georgia 582321232
-------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
6690 Jones Mill Court, Suite A
Norcross, Georgia 77356
-------------------------------------- ---------------------
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number, including area code: (770) 448-4150
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 [ ]
As of June 30, 2000 the registrant had 6,733,415 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
StupidPC, Inc.
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ -- $ 2,857
Trade accounts receivable 69,971 112,993
Inventories 211,762 148,055
Prepaid expenses and other current assets 6,240 19,376
--------- ---------
Total current assets 287,973 283,281
PROPERTY AND EQUIPMENT - AT COST
Office furniture and equipment 87,056 74,623
Vehicles 55,482 55,482
--------- ---------
142,538 130,105
Less accumulated depreciation (53,626) (37,626)
--------- ---------
Net property and equipment 88,912 92,479
OTHER ASSETS
Deferred financing cost 220,183 425,196
Deposits 7,075 7,075
--------- ---------
Total other assets 227,258 432,271
--------- ---------
$ 604,143 $ 808,031
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
StupidPC, Inc.
BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long term debt $ 8,259 $ 7,927
Note payable to officer 35,000 --
Notes payable 125,873 100,873
Trade accounts payable 669,718 387,965
Accrued expenses 264,145 190,619
----------- -----------
Total current liabilities 1,102,995 687,384
LONG-TERM DEBT, net of current maturities 14,443 18,626
CONVERTIBLE DEBENTURES 656,663 896,663
SHAREHOLDERS' DEFICIT
Capital stock (Note E) 2,162,017 1,566,659
Accumulated deficit (3,331,975) (2,361,301)
----------- -----------
Total shareholders' deficit (1,169,958) (794,642)
----------- -----------
$ 604,143 $ 808,031
=========== ===========
</TABLE>
3
<PAGE> 4
StupidPC, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue
Product sales $ 640,019 $ 938,767
----------- -----------
Costs and expenses
Cost of product sales 499,495 782,814
Selling, general and
administrative 283,518 237,422
----------- -----------
783,013 1,020,236
----------- -----------
Loss from Operations (142,994) (81,469)
Other income (expense)
Interest income 86 --
Interest and financing costs (73,305) (667)
----------- -----------
Net loss before
income taxes (216,213) (82,136)
Income tax expense (benefit) -- --
----------- -----------
Net loss $ (216,213) $ (82,136)
=========== ===========
Net loss per common share
Basic $ (.03) $ (.01)
=========== ===========
Diluted $ (.03) $ (.01)
=========== ===========
Weighted average shares
Basic $ 6,710,558 $ 6,133,361
Diluted $ 6,710,558 $ 6,133,361
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
StupidPC, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue
Product sales $ 1,455,197 $ 1,843,654
----------- -----------
Costs and expenses
Cost of product sales 1,196,982 1,523,006
Selling, general and
administrative 981,747 578,087
----------- -----------
2,178,729 2,101,093
----------- -----------
Loss from Operations (723,532) (257,439)
Other income (expense)
Interest income 86 165
Interest and financing costs (247,228) (898)
----------- -----------
Net loss before
income taxes (970,674) (258,172)
Income tax expense (benefit) -- --
----------- -----------
Net loss $ (970,674) $ (258,172)
=========== ===========
Net loss per common share
Basic $ (0.15) $ (.04)
=========== ===========
Diluted $ (0.15) $ (.04)
=========== ===========
Weighted average shares
Basic $ 6,572,732 $ 6,190,250
Diluted $ 6,572,732 $ 6,190,250
</TABLE>
5
<PAGE> 6
StupidPC, Inc.
STATEMENT OF SHAREHOLDERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Number of Capital Accumulated
shares stock deficit Total
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 6,236,292 $1,566,659 $(2,361,301) $ (794,642)
Issuance of stock for services 187,663 310,602 -- 310,602
Conversion of convertible debentures 269,460 244,756 -- 244,756
Exercise of warrants 40,000 40,000 -- 40,000
Net loss for the period -- -- (970,674) (970,674)
--------- ---------- ----------- -----------
Balance, June 30, 2000 6,733,415 $2,162,017 $(3,331,975) $(1,169,958)
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
StupidPC, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(970,674) $(258,172)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 221,013 8,258
Issuance of stock to employees -- 87,840
Issuance of common stock for services 310,603 --
Change in assets and liabilities:
Accounts receivable 43,022 (44,472)
Inventories (63,707) (5,013)
Prepaid expenses and other current assets 13,136 --
Other assets -- (302)
Trade accounts payable 281,753 (140,401)
Accrued expenses 78,281 29,380
--------- ---------
Net cash used in operating activities (86,573) (322,882)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (12,433) (10,770)
--------- ---------
Net cash used in investing activities (12,433) (10,770)
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (3,851) (2,958)
Net Proceeds from notes payable 60,000 100,873
Proceeds from exercise of warrants 40,000 --
Proceeds from issuance of common stock -- 170,000
--------- ---------
Net cash provided by financing activities 96,149 267,915
--------- ---------
Net decrease in cash and short-term investments (2,857) (65,737)
Cash and short-term investments at beginning of year 2,857 72,540
--------- ---------
Cash and short-term investments at end of year $ -- $ 6,803
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 2000
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments which are, in
the opinion of management, necessary to present fairly the financial
position, results of operations, cash flows and changes in stockholders'
equity for the periods presented. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The Company
believes that the financial statements and disclosures are adequate to make
the information not misleading. It is suggested that these financial
statements and notes be read in conjunction with the audited financial
statements and notes for the year ended December 31, 1999, included in the
Form 10-K filed by the Company.
NOTE B - LOSS PER SHARE
Net loss per share was computed using the requirements of Statement of
Financial Accounting Standards No. 128, Earnings per share, and Staff
Accounting Bulletin No. 98. Net loss per share-basic was computed by dividing
net loss attributable to common stock by the weighted average number of
shares of common stock outstanding during the period. The denominator for net
loss per share-diluted also considers the dilutive effect of outstanding
stock options, warrants, and convertible debentures. Due to the Company's net
loss, the amounts reported for basic and diluted are the same for both
periods presented.
NOTE C - CONVERTIBLE DEBENTURES
On July 31, 1999, the Company issued $1,200,000 of 8% Convertible Debentures
due June 30, 2001 (the "Debentures"). 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
convertible debentures into 26,042 shares at a conversion price of $1.92 on
October 20, 1999. During the six months ended June 30, 2000, an additional
$244,756, including accrued interest, of convertible debentures were
converted into 269,460 shares of common stock.
8
<PAGE> 9
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
June 30, 2000
NOTE C - CONVERTIBLE DEBENTURE - Continued
In connection with the issuance of 120,000 stock purchase warrants to
debenture holders during 1999, 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
$200,000 and $55,000 was recorded for the six months and quarter ended June
30, 2000, respectively.
NOTE D - SHORT-TERM NOTES PAYABLE
During 1999, the Company received loans totaling $100,873 from three private
individuals at an interest rate of 10%. Principal and accrued interest on
these loans are due on June 21, 2001. During the quarter ended March 31,
2000, the Company received an additional loan from a private individual in
the amount of $65,000. Interest accrues on the loan at 10% with principal and
interest due August 30, 2000. All short-term notes are uncollateralized.
NOTE E - CAPITAL STOCK
At June 30, 2000 and December 31, 1999, the Company has the following
classes of capital stock:
Common Stock - authorized 30,000,000 shares of no par value with 6,733,415
and 6,236,292 shares issued and outstanding on June 30, 2000 and December
31, 1999, respectively.
Class B Common Stock - authorized 10,000,000 shares of no par value with
no shares issued and outstanding.
Class C Common Stock - authorized 20,000,000 shares 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.
9
<PAGE> 10
StupidPC, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
June 30, 2000
NOTE F - COMMITMENTS AND CONTINGENCIES
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.
10
<PAGE> 11
ITEM 2. 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 contained
elsewhere in this Quarterly Report on Form 10-QSB.
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-QSB or that are otherwise made by or on behalf of the
Company. For this purpose, any statement contained in the Form 10-QSB 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 Quarterly Report on Form 10-QSB, the terms
"StupidPC," the "Company" and "we" refer to StupidPC, Inc.
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
on our website at www.stupidpc.com.
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;
- 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.
11
<PAGE> 12
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues for the Quarter ended June 30, 2000 were $640,019, a
32% decrease from revenues of $938,767 for the Quarter ended June 30, 1999.
Revenues for the six months ended June 30, 2000 were $1,455,197, a 21% decrease
from revenues of $1,843,654 for the six months ended June 30, 1999. Revenues
decreased during this period as a result of a decrease in the number of units
sold. During the Second Quarter of 2000, we sold approximately 425 units
compared with 733 units during the Second Quarter of 1999, a 42% decrease. The
average price for a unit for the same periods was approximately equal. We
believe that the decrease in the number of units sold is a result of increased
competition in the lower end retail computer market and offers of significant
rebates by large retailers.
COST OF PRODUCT SALES. Cost of product sales was $499,495 for the
Second Quarter of 2000, a decrease of 36% from cost of product sales of $782,814
for the Second Quarter of 1999. Cost of product sales was $1,196,982 for the six
months ended June 30, 2000, a 21% decrease from cost of product sales of
1,523,006 for the six months ended June 30, 1999. This decrease is a function of
fewer units sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $283,518 for the Second Quarter of 2000, an
increase of 19% from selling, general and administrative costs of $237,422 for
the Second Quarter of 1999. Selling, general and administrative expenses were
$981,747 for the six months ended June 30, 2000, an increase of 70% from
$578,087 for the six months ended June 30, 1999. 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 the Second Quarter of 2000 and the six
months ended June 30, 2000, we incurred $73,305 and $247,228 of interest and
financing costs, respectively, a substantial increase over the 1999 same period
expenditures of $667 and $898. 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
$216,213, or $0.03 per share, for the Second Quarter of 2000 compared with a net
loss of $82,136 or $0.01 per share, for the Second Quarter of 1999, and a net
loss of $970,674, or $0.15 per share, for the six months ended June 30, 2000
compared with a net loss of $258,172, or $0.04 per share for the six months
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
operations and from the sale of our securities. As of June 30, 2000, we had an
accumulated deficit of $3,331,975.
Net cash used in our operating activities for the period was $86,573
and $322,882 for the six months ended June 30, 2000 and the six months ended
June 30, 1999, 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.
12
<PAGE> 13
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 remaining two 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:
- 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.
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.
13
<PAGE> 14
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1, 2, 3, 4 and
5 have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1(1) Articles of Incorporation of StupidPC, Inc.
Exhibit 3.2(1) Bylaws of StupidPC, Inc.
Exhibit 4.1(1) See Exhibits 3.1 and 3.2 for provisions in the
Articles of Incorporation and the Bylaws defining the
rights of the holders of common stock of StupidPC,
Inc.
Exhibit 4.2 (1) Specimen common stock certificate
Exhibit 27.1 Financial Data Schedule (for SEC use only)
(1) Filed previously on registration statement Form SB-2 SEC File No.
333-87353 and incorporated by reference herein.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the Securities Act, this report has been signed
below by the following persons on behalf of the undersigned, thereunto duly
authorized.
StupidPC, Inc.
Date: August 14, 2000 By: /s/ Stephen B. Brannon
-----------------------------------
Stephen B. Brannon
President, Chief Executive Officer,
Director (Principal Executive
Officer and Principal Financial and
Accounting Officer)
