FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number: (333-48312)
FREEWILLPC.COM, INC.
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(Exact name of registrant as specified in its charter)
Nevada 75-2877111
------------------------ ------------
(State of Incorporation) (Tax ID No.)
709-B West Rusk, Suite 500, Rockwall, Texas 75087
--------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: 972-772-5930
------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the past
12 months and (2) has been subject to such filing requirement for the past 90
days.
X YES NO
--------- ---------
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 2001:
$ -0-
Shares of common stock outstanding at December 31, 2001: 4,580,000
1
PART I.
ITEM 1 DESCRIPTION OF BUSINESS
-----------------------------------------
We were incorporated in Nevada on June 13, 2000. Our founder, David
McCune is our sole director, officer and employee and holds 4,000,000 shares of
common stock which we issued to him for $4,000, composed of $500 cash and $3,500
of his services.
As well as being a newly formed company, we:
o are controlled by one individual;
o rely on our sole officer and director to manage the business, this
offering and continuing operations to see us through to profitability;
o have limited operating history with little revenue from operations;
o operate in an industry with low barriers of entry which could add to
our competition, and one in which there are many competitors already,
many of which have much greater resources than we do; and
o received a report from our independent certified public accountant who
gave us a 'going concern' opinion which means that we do not have
sufficient capital or cash flow from operations to show that we can
continue as a viable business for the coming year without success from
our plan of operations.
We currently operate the website http//:www.freewillpc.com. We are a
web-based retailer of built-to-order personal computers and brand name related
peripherals, software, accessories and networking products. We also offer
computer consulting and design which will enable us to sell more built to order
systems. Our primary target customers are individual end users (IEU), home based
business (HBB) owners, and small business owners (SBO). Through an interactive
web site, customers have the ability to browse the products offered by Freewill
PC and order. We offer a broad selection of approximately 15,000 products
targeted for business/home use at competitive prices.
For custom built computers we depend upon one supplier who we can
purchase all the parts for on an as needed basis and therefore we have no
inventory for these items. We purchase them as we receive an order, build the
computer and then ship the computer. For these computers, we will book the sale
when it is shipped and the cost of sales for the amount we pay for the parts to
build the computer. For all the peripheral items, we have them drop shipped and
record only the profit as revenue for our financial reporting purposes.
Principal Products or Services and Their Markets.
------------------------------------------------
Freewill has two primary product delivery systems:
o For those customers desiring basic technological peripherals and
computer related items, they can choose from an on-line catalogue
(under development) which we will have drop shipped from a supplier,
receiving a "margin" or fee for originating the order.
o We will custom build a computer to the specifications of a customer.
The customer "points and clicks" the desired component and we contract
for the unit to be built at a negotiated wholesale price. We then
purchase the computer and re-sell it at our posted order price.
2
We believe the majority of IEU's and HBB's are technologically literate
and not only capable but also more disposed to ordering needful technological
products over the Internet. This allows the purchaser to transact orders on a
24-hour-a-day, seven-day-a-week basis. We do not incur the overhead expenses
generally associated with traditional storefront operations, thus allowing for
lower operating costs.
Customers enter FreewillPC.com through its home page
www.freewillpc.com, which contains a listing of product categories that allows
for easy exploration of current products and prices. We believe that price,
product selection and availability, and service and support are the most
important competitive factors in its industry.
Competitive Business Conditions.
-------------------------------
The direct marketing and sale of personal computers and related
products is highly competitive. FreewillPC.com competes with PC Connection, CDW
Computer Centers, Inc., Insight Enterprises, Inc. and Micro Warehouse, Inc. We
also compete with certain product manufacturers that sell directly to customers,
such as Dell Computer Corporation and Gateway 2000, Inc., and more recently
Compaq, IBM and Apple; distributors that sell directly to certain customers,
such as MicroAge, Inc. and Vanstar Corporation; various cost-plus aggregators,
franchisers, and national computer retailers, such as CompUSA, Inc. and Computer
City; and companies with an Internet Web site and commercial on-line networks.
Additional competition may arise if other new methods of distribution, such as
broadband electronic software distribution, emerge in the future.
We compete not only for customers, but will also in the future compete
for favorable product allocations and cooperative advertising support from
product manufacturers. Several of our competitors are larger and have
substantially greater financial resources than we.
Method of distribution of products and services.
-----------------------------------------------
E-business Strategy:
-------------------
Our marketing strategy is to promote the name FreewillPC and attract
buyers to the FreewillPC.com website. To attract users to our website, we have
relied on word of mouth and being one of many PC supply companies that come up
on search engines. Going forward, we are contemplating sponsorship relationships
with high traffic websites and agreements with search engines so that our site
will be near the top/front of searches for our products. Future proposed
marketing programs include the use of strategic purchases of online advertising
to place advertisements in areas in which we believe we can reach our target
audience
In addition to the foregoing, we anticipate sales and revenues can be
increased by:
o increase in the number and assortment of products carried;
o increase in outbound telemarketing and email marketing campaigns;
o increased buying prowess of computer users;
o increase in catalog (proposed and under development) circulation; and
o improvements in inbound telemarketing and email marketing service
productivity.
3
The key elements of our business strategy includes:
o premium customer service;
o strong brand name and web-based franchise value;
o extensive product selection at competitive prices; and
o enhanced vendor relationships.
Growth Strategy:
---------------
Our objective is to be a web-based provider of e-commerce PC related
products. Key elements of our growth strategy include:
o partner with industry leaders to quickly acquire customers;
o increase penetration of our existing customer base;
o broaden our product offerings to include higher margin products such as
network servers and communications equipment.
We plan to target a greater number of existing customers:
o with outbound telemarketing;
o more aggressively pursue first- to-market product offerings;
o provide specialized offerings to targeted segments of our customer
base; and
o increase investments in electronic commerce and Internet related
marketing opportunities.
We believe that the higher projected growth for the direct marketing
channel is primarily based on an increased user familiarity with PCs, coupled
with the emergence of industry standards and component commonality, and the
resultant increase in customer comfort with purchasing products without the need
to "touch and feel" them. In addition, broader product offerings, lower prices
and greater purchasing convenience that direct marketers generally provide over
traditional retail stores and local dealers.
Status of product or services based on public information requiring an
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investment or material assets of the issuer.
-------------------------------------------
As we are a new company, we do not have any information that has been
made public or that will require an investment or material asset of ours.
Sources and Availability of Raw Material.
----------------------------------------
We do not use raw material in the traditional definition of the word.
All products we sell are "finished" or "component" product.
Dependence on One or a Few Major Customers.
------------------------------------------
We are not dependent on any one or a few major customers. Our customers
are individuals ordering from our web site over the internet.
Need for Governmental Approval of Principal Products or Services.
----------------------------------------------------------------
We are not aware of any governmental approval requirements to transact
this type of business.
Effect of Existing or Probable Governmental Regulations on the Business.
-----------------------------------------------------------------------
We are not aware of any probable governmental regulations on our
business that would affect our operations.
4
Research and Development.
------------------------
We have no research and development. We only sell built-to-order
computers and computer peripheral equipment. We are not designing or selling
anything newly created products.
Costs and Effects of Compliance with Environmental Laws.
-------------------------------------------------------
We are not aware of nor do we anticipate any environmental laws with
which we will have to comply.
Number of Employees.
-------------------
We have one employee, the President.
Operations and Technology.
-------------------------
We have built a basic transaction processing system. Our system handles
all aspects of the sales process. The market in which we compete is
characterized by rapidly changing technology, evolving industry standards,
frequent new service and product announcements, introductions and enhancements
and changing customer demands. Accordingly, our future success will depend our
ability to adapt to rapidly changing technologies, to adapt our services to
evolving industry standards and to continually improve the performance, features
and reliability of our service in response to competitive service and product
offerings and evolving demands of the marketplace.
Additional information.
----------------------
We have made no public announcements to date and have no additional or
new products or services. In addition, we don't intend to spend funds in the
field of research and development; no money has been spent or is contemplated to
be spent on customer sponsored research activities relating to the development
of new products, services or techniques; and we don't anticipate spending funds
on improvement of existing products, services or techniques.
ITEM 2 DESCRIPTION OF PROPERTY
-----------------------------------------
Our corporate facilities are shared with our sole officer and director
which includes the use of telephones and equipment for $100.00 per month. This
arrangement started in July 2000 and will continue until such time as the
Company needs and can afford to lease its own office facilities.
We also lease space on an internet service provider's server based upon
the amount of memory we use.
ITEM 3 LEGAL PROCEEDINGS
-----------------------------------
The Company is not involved in any legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------------------------
The Company did not submit any matters for a vote to the security holders during
2001.
5
PART II.
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS
-------------------
a. Market Information.
There was no established public trading market for the Company's stock. The
Company has filed for trading with the National Association of Security Dealers
and started to trade in February 2002. The stock has traded in the $0.30 to
$0.40 range.
b. Holders.
There are approximately fifty shareholders.
c. Dividends
Registrant has not paid a dividend to the holders of its common stock
and does not anticipate paying dividends in the near future.
e. Warrants
Registrant has no warrants outstanding.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------------------------
SUMMARY OF 2001
Our accomplishments in 2001 are detailed in Section 1 above. In summary, they
are as follows:
In 2001, our company entered the market which is dominated by many large
companies. We believe there is a niche for small companies to combine computer
consulting and computer sales. To date, we have been trying to develop such a
niche, but price pressures from large distributors and retailers have made it a
hard process. Although we have developed such clients, the road to profitability
appears to be a long road.
The Company filed a registration statement under Form SB-1 of the Securities Act
of 1933, and the offering closed in December, 2001. Our plan is to use the
capital raised for targeted and strategic advertising in order to market our
products and services.
FreewillPC.com, Inc. will provide an annual report including audited statements
without charge on request made by any shareholder to the Secretary of the
Company, FreewillPC.com, Inc. 750 East Interstate 30, Suite 100, Texas 75087.
FreewillPC.com, Inc. files quarterly reports with the SEC starting with this
Form 10-K.
6
Public may read and copy any materials filed by FreewillPC.com, Inc. with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC- 0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at
www.sec.gov.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This discussion may contain certain "forward-looking" statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company and its subsidiaries that are based on the beliefs of
the Company's management as well as assumptions made by and information
currently available to the Company's management. When used in this release, the
words "anticipate," "believe," "estimate," "expect" and "intend" and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, changes or anticipated changes
in regulatory environments, competitive factors, general economic conditions,
customer relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonally, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in other press
releases to the public or filings made by the company with the Securities and
Exchange Commission, the ability to secure partnership or joint-venture
relationships with other entities, the ability to raise additional capital to
finance expansion, and the risks inherent in new product and service
introductions and the entry into new geographic markets. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Company does not intend to update these forward-
looking statements. For further information, which could cause actual results to
differ from the Company's expectations, as well as other factors, which could
affect the Company's financial statements, please refer to the Company's report
filed with the Securities and Exchange Commission.
FreewillPC.com, Inc.
(972) 772-5930
www.FreewillPC.com
------------------
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------------------------
Report of Independent Certified Public Accountant is attached hereto.
ITEM 8 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
--------------------------------------------------------
DISCLOSURES
-----------
J.S Psborn, P.C. is the auditor for the Company and there have been no
disagreements with our auditor on accounting or financial disclosure issues.
7
PART III.
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------------------------
The following persons serve as directors and officers of Registrant:
David McCune President, Secretary, Chief Financial Officer and Director
Served since January 2002 and expires at the next annual
meeting
DAVID MCCUNE. Mr. McCune graduated from Southwestern University, Waxahachie,
Texas in 1973. Mr. McCune was in the U.S. Air Force for four years 1967-1970 and
spent one year in Vietnam 1968-1969, and was a public speaker for 20 years and
has been in the computer business for 9 years. Mr. McCune was Vice President of
Sales of VAR Resources, Inc., a computer leasing company, from 1991 - 1993.
Since that time, Mr. McCune has been a manager of computer companies, working
for MC Cambridge, Inc. from 1994 - 1995 and for LCS, LLC from 1996 to present.
ITEM 10 EXECUTIVE COMPENSATION
----------------------------------------
The Company has not paid any compensation to its sole officer and director in
the calendar year 2001. The Company has no retirement or stock option or bonus
plan.
ITEM 11 SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERS
------------------------------------------------------------------------
Set forth below is the direct ownership of Registrant's common Stock by
management and any owner of 5% or more of Stock of Registrant.
Title of Name and address Amount of shares % of class
Securities of owner owned
--------------------------------------------------------------------------------
Common David McCune 4,000,000 95.23%
709-B West Rusk, Suite 500
Rockwall, Texas 75087
--------------------------------------------------------------------------------
Common All Officers, Directors & 4,000,000 95.23%
Beneficial Holders as a Group
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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The Company had no transactions with related persons in 2001.
PART IV.
ITEM 13 EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
8
Included in Part II, Item 8 of this report:
Report of Independent Public Accountant
Balance Sheet as of December 31, 2001 and 2000
Statement of Operations - Twelve Months Ended December 31, 2001 and
Period June 13, 2000 (date of inception) to December 31, 2000
Statement of Stockholders' Equity - Period from June 13, 2000 (date of
inception) to December 31, 2001
Statement of Cash Flows - Twelve Months Ended December 31, 2001 and
Period June 13, 2000 (date of inception) to December 31, 2000
Notes to the Financial Statements
(b) The Company filed no reports on Form 8-K in 2001.
(c) The Company is not filing any exhibits.
9
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned there unto duly authorized.
FreewillPC.com, Inc.
Registrant
By: /s/ David McCune
-----------------
David McCune
Its: President, Secretary, Chief Financial
Officer and Director
10
J. S. OSBORN, P.C.
CERTIFIED PUBLIC ACCOUNTANT
17430 CAMPBELL ROAD, SUITE 114
DALLAS, TEXAS 75252
972-735-0033 FAX 972-735-0035
JOSBORN@JSOCPA.COM
================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
---------------------------------------
To the Board of Directors and Stockholders
of FreewillPC.com, Inc.
Rockwall, Texas
I have audited the accompanying balance sheet of FreewillPC.com, Inc. (A Nevada
corporation) as of December 31, 2001 and the related statements of operations,
stockholders' equity and accumulated deficit, and cash flows for the year ended
December 31, 2001 and for the period June 13, 2000 (date of inception) to
December 31, 2000. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States. Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, based on my audit, the financial statements referred to above
present fairly, in all material respects, the financial position of
FreewillPC.com, Inc. as of December 31,2001, and the results of their operations
and their cash flows for the year ended December 31, 2001 and for the period
June 13, 2000 (date of inception) to December 31, 2000 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note-F to the
financial statements, the Company incurred a loss for the period, has not
generated significant revenues, and has no capital resources. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note-F. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ J.S. Osborn, P.C.
-----------------
J.S. Osborn, P.C.
Dallas, Texas
April 15, 2002
F-1
FREEWILLPC.COM, INC.
BALANCE SHEET
DECEMBER 31, 2001
ASSETS
------
CURRENT ASSETS:
Cash $ 4,957
Accounts receivable 13,093
Prepaid expense 43,700
--------
Total Current Assets 61,750
Property and equipment
Web site 10,000
Less accumulated amortization (5,278)
--------
4,722
--------
TOTAL ASSETS $ 66,472
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,825
Loan payable - related party 3,119
--------
Total Current Liabilities 14,944
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; 5,000,000 shares authorized;
4,580,000 shares issued and outstanding 4,580
Additional paid-in capital 96,056
Accumulated deficit (49,108)
--------
Total Stockholders' Equity 51,528
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 66,472
========
See accompanying notes to the financial statements.
F-2
FREEWILLPC.COM, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE PERIOD JUNE 13, 2000 (DATE OF INCEPTION) TO DECEMBER 31, 2001
06/13/00
Date of Inception
Year Ended to
12/31/01 12/31/00
----------- -----------
REVENUE:
Sales $ 23,552 $ 5,669
----------- -----------
OPERATING EXPENSE:
Cost of sales 19,875 5,008
Advertising 36,300 0
Amortization 3,333 1,945
Consulting - related party 0 3,500
Bank charges 145 50
Office expense 1,098 115
Organization costs 0 963
Professional fees 11 2,500
Licenses & fees 1,686 0
Rent - related party 1,200 600
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Total Operating Expense 63,648 14,681
----------- -----------
NET LOSS: ($ 40,096) ($ 9,012)
=========== ===========
Basic/diluted weighted average number of shares outstanding 4,580,000 4,199,005
=========== ===========
Basic/diluted net loss per share $ 0.00 $ 0.00
=========== ===========
See accountant's report and notes to the financial statements.
F-3
FREEWILLPC.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE PERIOD JUNE 13, 2000 (DATE OF INCEPTION) TO DECEMBER 31, 2000
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
-------------------------- -------------- -----------------
Balance,
June 13, 2000
(date of inception) -0- -0- -0- -0-
Shares issued on
June 13, 2000 for
Cash 500,000 $500
Services-related party 3,500,000 3,500
June 15, 2000 for
Website development 200,000 200 9,800
Contributed capital by shareholder 600
Net Loss
December 31, 2000 (9,012)
Sale of Stock 380,000 380 94,620
Offering costs (10,164)
Contributed capital by shareholder 1,200
Net Loss (40,096)
-------------------------- -------------- -----------------
Balance
December 31, 2001 4,580,000 $4,580 $96,056 ($49,108)
========================== ============== =================
See accompanying notes to the financial statements.
F-4
FREEWILLPC.COM, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE PERIOD JUNE 13, 2000 (DATE OF INCEPTION) TO DECEMBER 31, 2000
Date of Inception
06/13/00
Year Ended to
12/31/01 12/31/00
----------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($40,096) ($9,012)
Items not requiring cash:
Amoritization 3,333 1,945
Stock issued for services 0 3,500
Changes in operating assets and liabilities: 0
Increase in accounts receivable (13,093) 0
Increase in accounts payable 4,878 6,947
----------------------- ------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES: (44,978) 3,380
CASH FLOWS FROM INVESTING ACTIVITIES:
Prepaid Expense (43,700) 0
Payment of expense by shareholder 1,200 600
----------------------- ------------------------
NET CASH USED FROM INVESTING ACTIVITIES: (42,500) 600
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock issued 95,000 500
Offering costs (10,164) 0
Loan proceeds 3,119 0
----------------------- ------------------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES: 87,955 500
NET INCREASE IN CASH: 477 4,480
CASH AT BEGINNING OF YEAR: 4,480 0
----------------------- ------------------------
CASH AT END OF YEAR: $4,957 $4,480
======================= ========================
SUPPLEMENTAL DISCLOSURE:
No taxes paid for the period
No interest paid for the period
Non-cash investing-the company issued 200,000 shares valued at $0.05 per share
for a total of $10,000 for development of its website.
See accompanying notes to the financial statements.
F-5
FREEWILLPC.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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History:
-------
The Company was organized June 13, 2000, as a Nevada corporation under the name
of FreewillPC.com, Inc. and is in the development stage. The Company is in the
business of selling computers and computer peripheral equipment over the
Internet. Operations are in effect and as such the Company is no longer a
development stage enterprise.
Basis of Presentation:
---------------------
It is the Company's policy to prepare its financial statements on the accrual
basis of accounting in conformity with accounting principles generally accepted
in the United States. The accompanying financial statements as of December 31,
2001 and for the year then ended have been prepared in accordance with generally
accepted accounting principles and include all adjustments which in the opinion
of management are necessary in order to make the financial statements not
misleading. The Company's year end is December 31.
Supplier Concentration:
----------------------
The Company purchased product from only one supplier for its operations for the
period presented. Although products are available from other sources, the
vendor's inability to supply products in a timely manner could adversely affect
the Company's ability to satisfy customer demands.
Revenue Recognition:
-------------------
The Company recognizes revenues from product sales and delivery, net of returns
and discounts, when the products are shipped to customers. The company purchases
and resells computers and records sales and costs of sales. For the peripheral
equipment the Company sells for which it does not take possession of the
product, it records as revenue the difference between the purchase price and the
sales price of the items.
Use of Estimates:
----------------
In order to prepare financial statements in conformity with accounting
principals generally accepted in the United States, management must make
estimates, judgments and assumptions that affect the amounts reported in the
financial statements and determine whether contingent assets and liabilities, if
any, are disclosed in the financial statements. The ultimate resolution of
issues requiring these estimates and assumptions could differ significantly from
resolution currently anticipated by management and on which the financial
statements are based.
Cash and Cash Equivalents:
-------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with maturity of three months or less to be cash
equivalents.
Property and Equipment:
----------------------
Property and equipment is carried at cost. Depreciation is provided by the
straight-line method over each asset's estimated useful life. Upon retirement or
disposal, the asset cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in the determination of
net income.
F-6
FREEWILLPC.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
(CONTINUED):
-----------
Long-Lived Assets
-----------------
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed of, the Company records impairment losses when events and
circumstances indicate that the assets might be impaired and the undiscounted
projected cash flows associated with those assets are less than the carrying
amounts of those assets. Impairment loss on a long-lived asset is measured based
on the excess of the carrying amount of the asset over the asset's fair value,
generally determined based upon discounted estimates of future cash flows.
Net loss per Share:
------------------
Basic net loss per share excludes dilution and is computed by dividing net loss
by the weighted average number of common shares outstanding for the period
presented. Diluted net loss per common share was the same as basic net loss per
common share for the period presented since the Company has no potentially
dilutive securities and because of the Company's net loss.
Stock based compensation:
------------------------
The Company accounts for stock based compensation in accordance with SFAS 123,
Accounting for Stock-Based Compensation. It introduces the use of a fair
value-based method of accounting for stock based compensation. It encourages,
but does not require, companies to recognize stock-based compensation expenses
to employees based on the new fair value accounting rules. The Company has
adopted the new fair value accounting rule and records the issuance of stock at
the fair value of the consideration received.
Capitalized Web Site Development Costs and Software:
---------------------------------------------------
The Company accounts for its web site development costs and internally developed
software costs in accordance with Emerging Issues Task Force 00-2, Accounting
for Web Site Development Costs and the provisions of Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This requires the capitalization of the costs incurred. Capitalized costs
are amortized on a straight-line basis over the useful life of the software once
it has been placed into service.
Start-Up Costs:
--------------
The Company expenses the costs of start-up activities and organization costs as
they are incurred, in accordance with Statement of Position 98-5, Reporting on
the Cost of Start-up Activities.
Income Tax:
----------
The Company is subject to the greater of federal income taxes computed under the
regular system or the alternative minimum tax system. The Company uses an asset
and liability approach for the accounting and financial reporting of income tax
as required by SFAS No. 109, Accounting for Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on temporary
differences between the financial carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax asset to the amount expected
to be Amore likely than not realized in future returns.
F-7
FREEWILLPC.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE B - WEB SITE:
-----------------
The Company's primary asset is its web site that is the center of its
operational and income-generating activities for which it issued 200,000 shares
of common stock valued at $10,000. The cost of the web site is being amortized
over three years starting in June 2000, the first month of operation.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25, which was effective July 1, 2000. The
website development was paid for by issuing 200,000 shares of common stock
valued at $0.05 per share. Since there was no readily determinable market value
for the Company's common stock, the per share price was negotiated and
determined by the fair value of services received.
NOTE C - STOCKHOLDERS' EQUITY:
-----------------------------
Common Stock:
------------
The Company is authorized to issue 50,000,000 common shares of stock at a par
value of $0.001 per share. These shares have full voting rights. At December 31,
2001, there were 4,580,000 shares outstanding. The Company has not paid a
dividend to its shareholders.
Common stock issuances:
----------------------
On June 13, 2000, the Company issued 4,000,000 shares to the President for
$4,000, comprised of $500 cash and $3,500 of his services. The services were
valued at $3,500 and the stock issued at par since it was impossible to
determine the fair value of the services. The common stock was issued upon
formation of the Company for services performed before, during and after
formation of the Company.
On June 15, 2000, the Company issued to an unrelated party 200,000 shares for
the development of its website valued at $10,000. The value assigned of to the
website development was fair market value but the number of shares issued for
this website was negotiated and determined by the Company and the developers of
the website since there was no readily determinable market value for the shares.
The basis for valuing the shares at $0.05 per share, which is substantially
below the offering price per share to the public, is that the developers were
giving services in exchange for stock before offering shares to the public and
the website was a prerequisite for the Company to start in business which then
allowed the Company to offer shares to the public. The value substantially below
the public offering price was negotiated since the developers were not
guaranteed that the Company would be able to sell stock to the public and no
guarantee that the Company would be successful. The value of $0.05 per share is
substantially above the price the President paid two days earlier since the
President developed the plan for the Company over a period of time, formed the
Company, and purchased shares immediately upon formation; the plan included the
filing of a registration statement with the U.S. Securities and Exchange
Commission to raise funds at $0.25 per share.
In 2001, the Company filed a Form SB-1 with the U.S. Securities & Exchange
Commission and sold 380,000 shares at $0.25 per share. After offering costs, the
Company netted $84,456 or $0.22 per share.
F-8
FREEWILLPC.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE D - INCOME TAXES:
---------------------
The Company had a net operating loss of $9,012 for the period presented. No
deferred tax asset has been recognized for the operating loss as it is more
likely than not that all or a portion of the net operating loss will not be
realized and any valuation allowance would reduce the benefit to zero.
Operating losses expire: 2020 $ 9,012
Operating losses expire: 2021 $40,096
The components of the provision (benefit) for income taxes included in the
financial statements as of December 31 2001 are as follows:
Deferred tax assets:
Net operating loss carryforwards $(49,108)
Valuation allowance 49,108
----------
Total deferred income tax assets -0-
Total deferred income tax liabilities -0-
----------
Net deferred income tax assets $ -0-
The Company's effective tax rate on a pre-tax income (loss) from continuing
operations differs from the U.S federal statutory rate as follows:
U.S. federal statutory rate ( 34)%
Increase (decrease) in rates resulting from:
Change in valuation allowance for deferred tax asset 34%
---------
Effective tax rate 0%
NOTE E - RELATED PARTY TRANSACTIONS:
-----------------------------------
In June 2000, the Company issued to its President 4,000,000 shares in
consideration for $4,000, comprised of $500 cash and $3,500 of his services. The
services were valued at $3,500 and the stock was issued at par. In addition, a
shareholder is providing office space valued at $100 a month, and is being
recorded as contributed paid in capital.
NOTE F - GOING CONCERN:
----------------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Although the Company did not have
negative cash flow from operations, it is a development stage enterprise and has
not yet generated significant revenues. The Company has funded its operations to
date from the issuance of shares and debt. These matters raise substantial doubt
about its ability to continue as a going concern.
The company has minimal capital resources available to offset losses from
operating and other obligations expected to be incurred. The continued existence
is dependent upon several factors, including its ability to generate significant
revenue and to generate operating capital.
F-9
FREEWILLPC.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
NOTE F - GOING CONCERN (CONTINUED):
----------------------------------
The Company plans to generate sufficient revenue by:
Develop Targeted e-mail Marketing Campaign:
------------------------------------------
Targeted e-mail marketing campaigns are highly focused marketing efforts
designed to sell product to a defined demographic group. The design of each
campaign includes evaluating and segmenting the target population using personal
data, often in combination with demographic screening programs, to estimate the
sales potential of different groups. The Company's approach will be to target
small businesses and individuals within its local business environment allowing
for delivery of product free of delivery charges. This, the Company believes,
will give them a competitive advantage. The Company believes that this approach
to e-mail marketing campaigns is an effective and efficient means to generate
sales revenue.
Expand its Product Line:
-----------------------
The Company is constantly evaluating personal computer and peripheral products,
adding new products as they become available. The Company works closely with its
major vendors to identify and source first-to-market product offerings at
aggressive and market leading prices. The Company believes it will generate more
favorable terms with its vendors as volume increases.
Customer Segmentation & Targeted Advertising:
--------------------------------------------
The Company seeks to increase its customer base through targeted mailings as
well as increasing its penetration in existing customers. The Company has
developed an on-line catalog, featuring product offerings, designed to address
the needs of specific customer segments. The Company's web-based catalog will
provide detailed descriptions of product offerings, allowing for search and
on-line capabilities.
Accordingly, the Company's continued existence is dependent upon the successful
raising of capital, successful results from the Company's plan of operations, or
obtaining financing. There can be no assurance that the Company will be
successful in its efforts to raise sufficient operating capital, achieve future
profitable operations, or obtain additional funding. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
F-10