SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
For Period ended September 30, 2000
FREESOFTWARECLUB.COM, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 88-0414076
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(State of Incorporation) (I.R.S. Employer Identification No.)
600 Bancroft Way
Berkeley, CA 94710
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(Address of Principal Executive Offices) (Zip Code)
(510) 649-4922
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(Registrant's telephone number, including area code)
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 Exchange Act
of 1934 during the preceding 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of September 30, 2000, the registrant had 16,947,500 shares of its common
stock issued and outstanding.
FREESOFTWARECLUB.COM, INC.
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Balance Sheet as of September 30, 2000
Condensed Statements of Operations for the
Six Months Ended September 30, 2000 and April 15, 1999
(inception) to September 30, 1999 and from April 15, 1999
(inception) to September 30, 2000
Condensed Statements of Cash Flows for the Six Months
Ended September 30, 2000, and from April 15, 1999 (inception)
To September 30, 1999 and from April 15, 1999 (inception)
To September 30, 2000
Notes to Condensed Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and Plan
of Operations
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
PART I
ITEM 1: FINANCIAL STATEMENTS
FreeSoftwareClub.com, Inc.
(a development stage company)
BALANCE SHEET
ASSETS
September 30,
2000
(unaudited)
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CURRENT ASSETS
Cash $ 12,109
Accounts receivable 6,099
Inventory 24,363
Prepaid expenses 54,200
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Total current assets 96,831
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$ 96,831
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 153,690
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Total current liabilities 153,690
==========
COMMITMENTS AND CONTIGENCIES
STOCKHOLDERS' EQUITY
Common stock,$001 par value
authorized 100,000,000 shares;
16,947,500 issued and outstanding 16,948
Additional paid-in-capital 856,128
Deficit accumulated during
development stage <912,986>
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Total stockholders' equity <56,858>
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$ 96,831
==========
FreeSoftwareClub.com, Inc.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
Six
Months April 15, July 1, July 1, April 15,
Ended 1999 to 1999 to 2000 to 1999 to
Sept 30, Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 1999 2000 2000
------- -------- ------- ------- --------
Operating expenses
Website development $ 118,250 $ 105,000 $ 77,500 $ 42,250 $ 338,750
General &
administrative 512,584 31,987 25,938 138,560 576,246
Total Operating
expenses 630,834 136,987 103,438 180,810 912,986
------- -------- ------- ------- --------
Loss from
operations <630,834> <136,987> <103,438> <180,810> <912,986>
Provision for
income taxes -- -- -- -- 800
NET LOSS <630,833> <136,987> <103,438> <180,810> <913,786>
======= ======= ======= ======= =======
Net loss per
basic and
diluted share $ <0.04> $ <0.01> $ <0.01> $ <0.01> $ <0.06>
======= ======= ======= ======= =======
Weighted Average
Basic/diluted shares
outstanding 16,947,500 16,447,500 16,447,500 16,447,500 16,558,360
========== ========== ========== ========== ==========
FreeSoftwareClub.com, Inc.
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Six
Months April 15, April 15,
Ended 1999 to 1999 to
Sept 30, Sept 30, Sept 30,
2000 1999 2000
------- -------- -------
Net cash used in
Operating
activities $<518,193> $<122,475> $<832,736>
Cash flows financing
activities:
Proceeds from issuance
of common stock -- 124,758 737,258
Proceeds from issuance
of note payable -- -- 100,000
-------- -------- -------
Net cash provided by
financing activities -- 124,758 837,258
-------- -------- -------
NET INCREASE (DECREASE)
IN CASH <518,193> 3,360 12,109
Cash at beginning
of period 530,302 -- --
------- ------- -------
Cash at end of period $ 12,109 $ 3,360 $ 12,109
======= ======= =======
NonCash Financing Activities: In March 2000, a note payable in the amount of
$100,000 was converted into 66,667 shares of common stock.
Freesoftwareclub.com, Inc.
Notes to Condensed Financial Statements
September 30, 2000
(Unaudited)
Basis of Presentation
The accompanying condensed financial statements of Freesoftwareclub.com, Inc.
(the "Company") as of September 30, 2000, for the six months September 30,
2000, and from April 15, 1999 (date of inception) to September 30, 1999 and
for the period from April 15, 1999 (date of inception) to September 30, 2000,
have been prepared on the same basis as the annual audited financial
statements. In the opinion of management, such unaudited information
includes all necessary adjustments, consisting only of normal recurring
adjustments, for a fair presentation of this interim information. Operating
results and cash flows for interim periods are not necessarily indicative of
results for the entire year. The information included in this report should
be read in conjunction with our audited financial statements and notes
thereto included in our Annual Report on Form 10-KSB for the year ended March
31, 2000.
The financial statements have been prepared on a basis that contemplates
FreeSoftwareClub.com's continuing as a going concern and the realization of
assets and liquidation of liabilities in the ordinary course of business.
The Company has an accumulated deficit during the development stage of
$912,986 and negative working capital at September 30, 2000 of $56,859.
On October 23, 2000, the Company completed its redesigned website and
believes that membership will now increase and that revenue will be
generated. There can be no assurance that the Company will generate
sufficient funds from operations to remain a going concern for a reasonable
period of time.
Net Loss Per Share
Net loss per share is calculated by dividing net loss for the period by the
average numbers of common shares outstanding for the period. The Company has
173,044 potentially dilutive securities outstanding which are considered
anti-dilutive for the purpose of calculating diluted loss per share.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATIONS
Overview
During the quarter ended September 30, 2000, management focused on a complete
redesign of the company's business strategy and website.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES SUCH AS THE DEPENDENCE OF THE COMPANY ON AND THE ADEQUACY OF
CASH FLOWS. THESE FORWARD-LOOKING STATEMENTS AND OTHER STATEMENTS MADE
ELSEWHERE IN THIS REPORT ARE MADE IN RELIANCE ON THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Plan of Operations
Due to the changing nature of the Internet itself, the Company refocused its
business effort during the quarter. The Company's business model changed from
a focus on acquiring customers who would become paying members of the club
and would receive commercial software as a benefit of membership, to a
completely free model where the customer can become a member, download free
software and sign up for other free services provided by third parties, and
where the Company is paid by these third party vendors for the new customers
they acquire via the Company.
For all the merits of the Company's original business model, the cost of
acquiring commercial software in large bulk quantities and the attendant cost
of customer acquisition was deemed too high by management to continue that
strategy. Trends in the software publishing business were also changing, and
where the Company originally was able to acquire high value products at low
cost, it now became possible to acquire these same products at no cost, offer
them to the customer at no cost, and generate revenues from the publishers
themselves.
The new website also allows for other advertisers to sponsor the site in the
form of banner advertising and other promotional activities.
On September 15, 2000, Company CEO John Collins submitted his resignation as
CEO to the Board. Company founder and Chairman Richard Miles was elected to
the office of CEO. Mr. Collins remains a member of the Board.
Plans for a completely new website were drawn up during the quarter and work
was completed on October 23, 2000. The new website provides more immediate
benefit to potential customers by allowing them to join the club and receive
the club newsletter, as well as choose, or "opt-in" to other newsletters at
the time of enrollment. The Company has entered into agreements with other
newsletter publishers that will pay the Company for new subscribers they
acquire in this fashion.
Based on the first few weeks of operations beginning at the end of October,
the new model has been well received by the public, with over 6,000 new
members registering in the two weeks ending November 5, 2000. These new
registrations generated approximately $3,000 in immediate income for the
Company, and indicates the potential success of the Company's new business
model.
Marketing Strategies
The major thrust of the Company's marketing plan is to acquire new users by
the use of opt-in email promotions, and will concentrate on low cost
promotions to drive site traffic and generate memberships.
The newly designed website will also have a high appeal for the affiliates
that are already in place such as EMJ DataSystems, Online Direct, and others.
All other affiliate programs that require the Company to pay for promotion
have been postponed at this time.
The Company acquired the rights to send electronic mail to over 800,000
people at extremely low cost, and has completed setting up the ability to
send these promotional campaigns directly, and not through a third party.
This will dramatically reduce the cost of marketing to the Company, and the
first such mailings took place beginning on October 24, 2000. In addition,
the company has over 25,000 potential customers who registered on the site
and opted to receive the company's newsletter. The Company anticipates that
many of these potential customers will return to the site and become actual
customers once the new site redesign is completed and new offerings are in
place.
The Company's focus is on acquiring new products that can be offered free of
charge and that generate a revenue stream for the Company. The Company is not
putting further efforts into acquiring additional commercial products that
require cash outlay.
Results of Operations
The Company generated no revenue in the quarter ending September 30, 2000. As
a result of the initial business strategy, the company generated $3,737 in
revenues in the quarter ending September 30, 2000, primarily from membership
fees, with a very small amount coming from advertising income.
Total operating expenses of $222,667 for the three months ended September 30,
2000 resulted primarily from $86,000 for Legal, Accounting, and Insurance
fees, General and Administrative expenses of $44,000 related to salaries and
wages, web site development of $32,000, $21,000 in equipment and licenses,
$20,000 in advertising and promotional expenses, and other operations and
office expenses totaled approximately $20,000.
The Company's new CEO has taken immediate steps to reduce the cost of
operations. The total operating cost for the Company on a monthly average was
reduced from approximately $100,000 per month in July and August to
approximately $22,000 in September. This is primarily the result of a
reduction in work force, a reduction in marketing expenses, and negotiated
reduced fees from service providers. The Company anticipates that it will be
able to fully service the new business model within the new operational
costs.
Liquidity and Capital Resources
The Company's negotiation with investors to secure an additional round of
funding were unsuccessful in the quarter ending September 30, 2000. Action
was taken to reduce the Company's debt load and negotiate reduced payments to
creditors.
The Company finds itself with a much lower cost of operation as a result of
the actions taken by the CEO, and Company management remains committed to
raising additional capital in the next quarter. The primary objective of the
Company is in becoming a profitable and self-sustaining business as quickly
as possible.
Management has taken every step to manage cash flow to conserve cash
resources. The Company does not have sufficient cash on hand to maintain
operations for an extended period of time without further investment or
loans. Members of the Board of Directors agreed verbally to loan the Company
up to $75,000 to continue operations. The CEO was directed to have a
convertible note securing the funds arranged with legal counsel.
The inability to raise the above-described capital ($75,000) within the next
two to three months will have a material negative impact on the continued
operations of the Company's business.
The Company is preparing a Private Placement Offering Memorandum to raise an
additional $600,000, and expects that to close during the next quarter.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27.1) Financial Data Schedule.
(b) Reports on Form 8-K
None
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, thereunto duly authorized.
FREESOFTWARECLUB.COM, INC.
(Registrant)
/s/ Richard Miles 11/13/00
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Richard Miles
Chief Executive Officer,
and Director