UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2001,
Commission File Number 000-25761
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 Number)
600 Bancroft Way, Berkeley, California 94710
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 649-4922
Not Applicable
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(Former name, address or fiscal year if changed since last report)
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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The total number of shares outstanding of the issuer's common shares, par
value $ .001 as of the date of this report:
16,947,500
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
FREESOFTWARECLUB.COM, INC.
(A Development Stage Company)
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2001
FREESOFTWARECLUB.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM BALANCE SHEET
AS AT DECEMBER 31, 2001
(UNAUDITED)
2001 2000
ASSETS
CURRENT
Cash $ 296 $ 6,224
Accounts receivable 6,601 24,778
Inventory - 24,005
Due from shareholders 5,748 5,748
Prepaid expenses - 41,700
--------- ----------
12,645 102,455
--------- ----------
FIXED - AT COST
Computer equipment 16,380 -
Less: Accumulated depreciation (2,034) -
--------- ----------
14,346 -
--------- ----------
TOTAL ASSETS $ 26,991 $ 102,455
========= ==========
The accompanying notes are an integral part of these financial statements.
FREESOFTWARECLUB.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
INTERIM BALANCE SHEET
AS AT DECEMBER 31, 2001
(UNAUDITED)
2001 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable $ 281,372 $ 178,151
Notes payable 50,000 -
--------- ---------
TOTAL LIABILITIES 331,372 178,151
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, authorized
100,000,000, issued and outstanding
- 16,947,500 (2000 - 17,407,500) 16,948 17,408
Additional paid-in capital 826,058 941,528
Deficit accumulated during development stage (1,147,387) (1,034,632)
---------- -------
TOTAL STOCKHOLDERS' EQUITY (304,381) (75,696)
---------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,991 $ 102,455
========= =========
The accompanying notes are an integral part of these financial statements.
FREESOFTWARECLUB.COM, INC
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENT OF OPERATIONS
(UNAUDITED)
April 15, 1999
Nine Months Nine Months Date of
Ended Ended Inception to
December 31, December 31, December 31,
2001 2000 2001
REVENUE $ 25,495 $ 30,042 $ 105,873
--------- --------- ---------
EXPENSES
Web development and maintenance 18,500 136,750 750,966
General and administrative 143,234 638,465 474,865
Other - 7,067 26,629
--------- --------- ---------
161,734 782,282 1,252,460
--------- --------- ---------
LOSS BEFORE INCOME TAXES (136,239) (752,240) (1,146,587)
INCOME TAXES - - 800
--------- --------- ---------
NET LOSS $ (136,239) $ (752,240) $ (1,147,387)
========= ========= ==========
Weighted average number of shares
outstanding 16,947,500 16,871,610
========== ==========
Net Loss Per Share - basic and
diluted $ (0.008) $ (0.04)
========== ==========
The accompanying notes are an integral part of these financial statements.
FREESOFTWARECLUB.COM, INC
(A DEVELOPMENT STAGE COMPANY)
INTERIM STATEMENT OF CASH FLOWS
(UNAUDITED)
April 15, 1999
Nine Months Nine Months Date of
Ended Ended Inception to
December 31, December 31, December 31,
2001 2000 2001
OPERATING ACTIVITIES
Net loss for the period $ (136,239) $ (752,240) $ (1,147,387)
Non-cash items
Depreciation - - 2,034
Change in assets and liabilities
Accounts receivable 39,489 (25,089) (12,349)
Inventory - (24,005) -
Prepaid expenses 12,919 - -
Accounts payable 74,764 161,326 281,372
--------- --------- ---------
127,172 112,232 276,805
--------- --------- ---------
Net cash provided (used) in
operating activities (9,067) (640,008) (876,330)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of
common stock - 115,930 843,006
Increase in notes payable - - 50,000
--------- --------- ---------
Net cash provided from financing
activities - 115,930 893,006
--------- --------- ---------
INVESTING ACTIVITES
Purchase of computer equipment - - (16,380)
--------- --------- ---------
Net cash used in investing
activities - - (16,380)
--------- --------- ---------
NET CHANGE IN CASH (9,067) (524,078) 296
CASH AND EQUIVALENTS - BEGINNING
OF PERIOD 9,363 530,302 -
--------- --------- ---------
CASH AND EQUIVALENTS - END OF
PERIOD $ 296 $ 6,224 $ 296
========= ========= =========
Supplemental Cash Flow Information
Interest paid $ - $ - $ -
========= ========= =========
Taxes paid $ - $ - $ 800
========= ========= =========
Noncash Financing Activities
In March 2000, a note payable in
the amount of $ 100,000 was
converted into 66,667 shares of
common stock $ - $ - $ 100,000
========= ========= =========
The accompanying notes are an integral part of these financial statements.
FREESOFTWARECLUB.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM APRIL 15,1999(INCEPTION) TO DECEMBER 31, 2001
(UNAUDITED)
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON STOCK PAID IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
April 15, 1999 -
stock issued to
founders 5,747,971 $ 5,748 $ - $ - $ 5,748
June 15, 1999 -
stock issued for
cash 4,252,029 4,252 120,506 - 124,758
March 15, 2000 -
conversion of
stock through
reverse
acquisition 3,158,000 3,158 (3,158) - -
March 15, 2000 -
Issuance of
common stock in
exchange for
common stock of
Sacio, Inc. upon
acquisition 3,289,500 3,290 (3,290) - -
March 24, 2000 -
Issuance of stock
for cash (net of
costs of
$ 37,500) 433,333 433 612,067 - 612,500
March 24, 2000 -
Conversion of note
payable into common
stock 66,667 67 99,933 - 100,000
Net loss - year ended
March 31, 2000 - - - (282,081) (282,081)
Net loss - year ended
March 31, 2001 - - - (729,067) (729,067)
Net loss - period
ended Dec 31, 2001 - - - (136,239) (136,239)
--------- -------- --------- --------- ----------
Balances - Sept 30,
2001 16,947,500 $ 16,948 $ 826,058 $(1,147,387) $ (304,381)
========== ======== ========= ========== ==========
FreeSoftwareClub.com, Inc.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
September 30, 2001
(UNAUDITED)
NOTE 1 -Summary of Significant Accounting Policies:
Nature of Business
FreeSoftwareClub.com, Inc. (the "Company") was incorporated on April 15, 1999 in
the State of Nevada. The Company is an on-line membership club that offers
fully licensed software to members. The Company charges members a monthly fee
to access the Company's catalog of software offered.
Reverse Acquisition
In March 2000, FreeSoftwareClub.com, Inc, a Nevada corporation, ("FSC.com") was
acquired by Sacio, Inc., a Delaware corporation, ("Sacio") through an exchange
of common stock. Sacio had no significant assets or liabilities at the
acquisition date and had not had any operations for the last three years. Each
share of FSC.com stock was converted to 1.3158 shares of Sacio. After the
exchange, the former FSC.com shareholders owned 80% of the outstanding shares of
Sacio. The transaction was accounted for as a recapitalization of FSC.com;
therefore the financial statements represent the operations of FSC.com.
Concurrent with the acquisition, Sacio changed its name to FreeSoftwareClub.com,
Inc.
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
Basis of Presentation
Development Stage Company
The Company has not earned significant revenue from planned principal
operations. Accordingly, the Company's activities have been accounted for as
those of a "Development Stage Enterprise" as set forth in Financial Accounting
Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by
SFAS 7 are that the Company's financial statements be identified as those of a
development stage company, and that the statements of operations, stockholders'
equity (deficit) and cash flows disclose activity since the date of the
Company's inception.
Basis of Accounting:
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
FreeSoftwareClub.com, Inc.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2001
(UNAUDITED)
NOTE 1 -Summary of Significant Accounting Policies: (Continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considered all cash
and other highly liquid investments with initial maturities of three months or
less to be cash equivalents.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, which requires the
asset and liability approach to accounting for income taxes. Under this method,
deferred tax assets and liabilities are measured based on differences between
financial reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that are expected to be in effect when differences
are expected to reverse.
Fixed Assets
The Company follows the practice of capitalizing, at cost, all expenditures for
fixed assets in excess of $1,000. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets of three to five years using
a straight-line method.
Net (Loss) Per Common Share
The net (loss) per share is calculated by dividing net loss for the period by
the average number of common share outstanding for the period. The Company does
not have any potentially dilutive securities outstanding which might be
considered dilutive for the purpose of calculating diluted loss per share.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash,
accounts receivable, accounts payable, accrued expenses and notes payable,
approximate their fair value.
Product Development Costs
Product development costs include expenses incurred by the Company to maintain,
monitor and manage the Company's website. The Company expenses all cost
incurred that related to the planning and post implementation phases of
development. Costs incurred in the development phase are capitalized and
recognized over the product's estimated useful life if the product is expected
to have a useful life beyond one year. As of June 30, 2001, no costs have been
capitalized.
Other Comprehensive Income
The Company has no material components of other comprehensive income (loss) and
accordingly, net loss is equal to comprehensive loss in all periods.
FreeSoftwareClub.com, Inc.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2001
NOTE 1 -Summary of Significant Accounting Policies: (Continued)
Segment Information
The Company operates primarily in a single operating segment, providing software
and services that connect people to catalog sales over the Internet.
Note 2 - NOTES PAYABLE
The following is a summary of notes payable as of March 31, 2001
Note payable to a corporation, collateralized by Company's e-mail
database, 8% interest, due on demand $25,000
Note payable to a corporation, collateralized by Company's e-mail
database, 8% interest, maturity date - August 2001 25,000
------
$50,000
======
NOTE 3 - Income Taxes:
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards Number 109 ("SFAS 109"), "Accounting for Income
Taxes", which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.
The Company has deferred income tax assets, which have been fully reserved as
follows:
Deferred tax assets
Net operating loss carryforwards $1,147,387
Valuation allowance for deferred tax assets (1,147,387)
----------
Net deferred tax assets $ -
=========
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $1,147,387 for federal income tax purposes. These carryforwards,
if not utilized to offset taxable income will expire in 2020.
FreeSoftwareClub.com, Inc.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2001
NOTE 4 - Related Parties:
Certain officers and members of the Board of Directors of the Company are
principals of firms from which FreeSoftwareClub.com, Inc has contracted for the
majority of its website design, maintenance, marketing, and technical support
during the period ended. Under the terms of the agreements, The Company
receives website design and maintenance, consulting and promoting and creative
services. The agreement expired in May 2000 and management has extended the
agreement on a month-to-month basis. Monthly fees under the terms of the
contract are $6,000.
During the period then ended fees for these services totaled $25,182. At June
30, 2001, the Company had accounts payable totaling $65,383 to these related
parties.
NOTE 5- Going Concern
The Company is a development stage company, and as such is dependent upon its
ability to raise capital through private and public funding. In view of these
matters, realization of a major portion of the assets 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 financial requirements.
The future success of the Company is likely to be dependent on its ability to
obtain capital to develop and commercialize its proposed products, and
ultimately, upon its ability to attain future profitable operations. There can
be no assurance that the Company will be successful in obtaining such financing,
or that it will attain positive cash flow from operations. Management believes
that actions presently being taken to revise the Company's operating and
financial requirements provide the opportunity for the Company to continue as a
going concern.
NOTE 6- Contingencies
On December 1, 2000, the Company entered into an agreement with Network Commerce
Inc. and Speedyclick, Corp, a wholly owned subsidiary of Network Commerce Inc.
Speedyclick contracted to provide to the Company in accordance with its
agreement with the Company with opt-out registration opportunities by providing
to the Company one million registrations per month for 3 months commencing
December 1, 2000. As compensation, Speedyclick would receive a total of
1,200,000 shares of common stock of the Company, paid 400,000 per month over
the period of the contract. The contact was valued at $ 0.18 per share or
$ 216,000. However, Speedyclick only provided 1/3 of the required monthly
amount in the first month and went out of business. As a result the Company has
not issued any shares to Speedyclick or to its parent Network Commerce Inc.
There has been no further correspondence or contact by Network Commerce Inc. in
relation to this matter. The Company believes that there could be a potential
liability totaling approximately 133,000 shares or approximately $ 24,000 which
has not been reflected in the records of the Company.
FreeSoftwareClub.com, Inc.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2001
(UNAUDITED)
NOTE 6- Stock Plans
The company has adopted an "Equity Incentive Plan" as of June 1, 2000 for the
issuance of up to 2,000,000 shares of stock to employees(including officers and
directors who are also employees) of the Company. Non-qualifying stock options
may be granted to employees, officers, directors and consultants of the Company;
provided such consultants render bona fide services not in connection with the
offer and sale of securities in a capital-raising transaction. A person may be
granted more than one Award under this Plan.
In the event that the number of outstanding shares of the Company are affected
by a stock dividend, recapitalization, stock split, or reverse stock split or
any other such change, then the number of shares reserved for this Plan will be
adjusted proportionately as well as the exercise price and the number of shares
already outstanding under this Plan.
The exercise price of an Option will be determined by a Committee when the
Option is granted and may not be less than 85% of the Fair Market Value of the
Shares on the date of the grant; provided that (i) the Exercise Price of an
Incentive Share Option will not be less than 100% of the Fair Market Value.
Note 7 - Acquisition Offer
Subsequent to December 31, the Company has filed an information statement with
the Securities and Exchange Commission. This statement indicates that a
Canadian company 3608948 Canada Inc. has entered into an agreement to purchase
3,000,000 shares in exchange for shares in its company and become a wholly-
owned subsidiary of Freesoftwareclub.com. The terms also provide for a reverse
stock split and issuance of another 7,000,000 shares of post-split stock for
$300,000 to retire existing liabilities of the company.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATIONS
Overview
During the quarter ended December 31, 2001, management focused on raising funds
to maintain operations, and implementing the plan to generate increased site
traffic, subscriptions, and revenues.
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
During the quarter, the Company focused on continuing its efforts to maintain
revenue-generating programs, primarily by promoting goods and services to its
existing member database.
The primary efforts of Company management were focused on fund raising.
As anticipated in the prior quarter, The Board of Directors were presented with
an acquisition offer by a Canadian firm, 3608948 Canada Inc. dba "Ideas and
Associates". The Board met and authorized the CEO to continue negotiations
relative to an acquisition. Subsequently, the Board unanimously voted to
approve the terms and conditions of the offer as presented, and authorized the
CEO to continue working toward a successful conclusion to the negotiations. The
resolution was signed by all members of the Board.
The terms of the transaction include the Company issuing 3,000,000 shares in
exchange for all the issued and outstanding shares of Ideas and Associates,
resulting in Ideas and Associates becoming a wholly-owned subsidiary of the
Company. The terms also include provisions for a reverse stock split reducing
the number of shares outstanding, and another 7,000,000 post-split shares issued
to Ideas in exchange for $ 300,000 cash to be used to retire the liabilities of
the current operating company.
Certain members of the Board have agreed to reduce the number of shares they
hold in order to reduce the total number of shares outstanding in order to make
the transaction more attractive for Ideas & Associates and equitable for all
stockholders.
It is contemplated that certain shareholders will also contribute a portion of
their shareholdings back to the capital of the company in exchange for the
assets and liabilities of the current operating company.
The terms of the transaction were finalized on January 22, 2002. A preliminary
information statement was prepared and filed with the Securities and Exchange
Commission for review on January 28, 2002.
Wendell Nunes, one of the Board members, resigned effective January 25, 2002.
Mr. Nunes did not furnish the Board with a letter describing any disagreement
with any actions of the Board or Officers of the Company.
Marketing Strategies
The major thrust of the Company's marketing plan continues to be to acquire new
users by the use of opt-in email promotions, and will continue to concentrate on
low cost promotions to drive site traffic and generate memberships.
These offers have proven to be successful at generating site traffic and
revenues, and help maintain customer loyalty.
Results of Operations
The Company generated gross revenue of $ (1,769)in the quarter ended December
31, 2001 which was mainly due to an adjustment of commissions from the previou
quarter being overstated in the amount of $ 7,610. Therefore revenues were
actually $ 5,840 in the quarter ending December 31, 2001. These revenues came
from email list rentals, opt-in registrations, advertising, and commissions
earned from affiliated product promotions.
Total operating expenses of $ 39,625 for the three months ended December 31,
2001 resulted primarily from $ 10,500 in rent,$ 1,811 in service provider fees,
interest expense of 1,008, $ 9,026 in bad debts,$ 2,364 in General and
Administrative expenses (including telephone, etc.), $ 7,268 in salaries, wages
and payroll expenses, and $ 7,648 in ongoing website maintenance and marketing
expenses.
During the Quarter, the CEO took further steps to keep cash expenditures at the
barest minimum.
Liquidity and Capital Resources
The Company has little liquidity and operating income does not meet current
expenses. Management has focused on efforts to secure additional funding in the
period, resulting in the acquisition offer from Ideas & Associates. No other new
funding or funding sources were found during the period
The offer from Ideas & Associates as described above enables the Company to
retire most of its debt of the current operating business and continue
operations, and provides stockholders an opportunity for future growth.
Should these negotiations prove unsuccessful, it is unlikely that the Company
will be able to continue it operations into the foreseeable future.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
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:
11.0 Statement Regarding Computation of Per Share Earnings - see
statement of operations
(b) Reports on Form 8-K
8-K filed on July 16, 2001 notifying the change in auditors and
incorporated by reference.
SIGNATURES
Pursuant to the requirements 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)
Dated: January 31, 2002 /s/ RICHARD MILES
-------------------------------
Richard Miles - President