SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 000-27233
---------
RRUN VENTURES NETWORK, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 98-0204736
---------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
62 W. 8th Avenue, 4th Floor
Vancouver, British Columbia, Canada V5Y 1M7
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number,
including area code: (604) 682-6541
---------------
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 ( ).
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date.
Class Outstanding as of March 31, 2002
---------------------------------- -------------------------------------
$0.0001 par value Common Stock 15,614,724
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
1
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-QSB and Item 310 (b) of Regulation S-B, and,
therefore, do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments considered necessary
for a fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Operating results for the three months ended March 31, 2002 are not necessarily
indicative of the results that can be expected for the year ending December 31,
2002.
2
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
(Stated in U.S. Dollars)
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Stated in U.S. Dollars)
MARCH 31 DECEMBER 31
2002 2001
------------------------------------------------------------------
ASSETS
Current
Cash $ 31,993 $ 1,421
Goods and Services Tax
recoverable 1,671 5,014
Prepaid expense 14,089 342
---------------------------
47,753 6,777
Capital Assets 34,241 36,929
Investment 6,750 6,750
---------------------------
$ 88,744 $ 50,456
==================================================================
LIABILITIES
Current
Accounts payable $ 1,678,415 $ 1,113,855
Loans and advances payable 552,912 518,998
---------------------------
2,231,327 1,632,853
---------------------------
STOCKHOLDERS' DEFICIENCY
Share Capital
Authorized:
100,000,000 common shares,
par value $0.0001 per share
Issued and outstanding:
15,614,724 common shares
at March 31, 2002 and
14,614,724 at
December 31, 2001 1,562 1,462
Add: Share subscriptions received:
571,250 common shares at
March 31, 2002 and
50,000 at December
31, 2000 109,000 10,000
Additional paid-in capital 219,644 109,744
Deficit (2,472,789) (1,703,603)
---------------------------
(2,142,583) (1,582,397)
---------------------------
$ 88,744 $ 50,456
==================================================================
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
(Stated in U.S. Dollars)
---------------------------------------------------------------
INCEPTION
OCTOBER 12
THREE MONTHS ENDED 2000 TO
MARCH 31 MARCH 31
2002 2001 2002
---------------------------------------------------------------
Revenue $ 25,000 $ - $ 29,000
------------------------------------
Expenses
Administrative services 6,101 43,771 95,984
Amortization 2,687 226 9,115
Business development 191,166 - 407,574
Consulting 260,001 267,524 307,560
Equipment leases 7,474 - 22,395
Investor relations 171,774 - 297,921
Marketing 541 - 35,902
Media design 15,983 - 76,106
Office, rent and sundry 50,972 15,034 159,869
Professional fees 25,605 4,475 160,117
Software development 38,888 - 817,146
Travel 9,650 6,654 78,281
Wages and benefits 13,344 - 21,683
------------------------------------
794,186 337,684 2,489,653
------------------------------------
Loss Before The Following 769,186 337,684 2,460,653
Minority Interest In Loss
Of Subsidiary - - (219)
------------------------------------
Net Loss For The Period $ 769,186 $ 337,684 $2,460,434
=================================================================
Net Loss Per Share $ 0.05 $ 0.06
=====================================================
Weighted Average Number
Of Common Shares
Outstanding 14,781,391 6,108,780
=====================================================
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Stated in U.S. Dollars)
--------------------------------------------------------------------------------
INCEPTION
OCTOBER 12
THREE MONTHS ENDED 2000 TO
MARCH 31 MARCH 31
2002 2001 2002
--------------------------------------------------------------------------------
Cash Flows From
Operating Activities
Net loss for the period $(769,186) $(337,684) $(2,460,434)
Adjustments To Reconcile
Net Loss To Net Cash
Used By Operating Activities
Amortization 2,687 226 9,115
Issue of common stock for expenses 60,000 - 68,200
Minority interest in loss of subsidiary - - (219)
Goods and Services Tax recoverable 3,343 - (1,671)
Prepaid expense (13,747) 500 (14,089)
Accounts payable 614,561 218,732 1,652,612
Loans and advances payable 33,914 117,139 594,250
-----------------------------------
(68,428) (1,087) (152,236)
-----------------------------------
Cash Flows From
Investing Activities
Net asset deficiency of
legal parent at date of
reverse take-over transaction - - (12,355)
Purchase of capital assets - (6,022) (43,357)
-----------------------------------
- (6,022) (55,712)
-----------------------------------
Cash Flows From
Financing Activities
Shares issued for cash - - 13,400
Share subscriptions received 99,000 - 109,000
-----------------------------------
99,000 - 122,400
-----------------------------------
Increase (Decrease) In Cash 30,572 (7,109) (85,548)
Cash Acquired On Acquisition
Of Subsidiary - - 117,541
Cash, Beginning Of Period 1,421 10,794 -
-----------------------------------
Cash, End Of Period $ 31,993 $ 3,685 $ 31,993
=============================================================================
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
MARCH 31, 2002
(Unaudited)
(Stated in U.S. Dollars)
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------------------------------------------------------
Shares issued for
cash and services 4,200,000 $ 4,200 $ - $ - $ 4,200
Adjustment to number
Of shares
issued and
outstanding as
a result of
the acquisition
of RAHX, Inc.
RAHX, Inc. (4,200,000) (4,200) - - (4,200)
RRUN Ventures Inc. 5,708,780 5,709 (1,509) - 4,200
Adjustment to stated
value of
stockholders' equity
to reflect
minority interest
in the
net assets of
RAHX, Inc.
at the acquisition
date - - (219) - (219)
Net asset deficiency of
legal parent at date of
reverse take-over
transaction - - - (12,355) (12,355)
Shares issued to acquire
investment in Kaph Data
Engineering Inc. 400,000 400 6,350 - 6,750
Loss for the period - - - (79,249) (79,249)
----------- -------- --------- ------------ ------------
Balance, December
31, 2000 6,108,780 6,109 4,622 (91,604) (80,873)
Adjustment to
number of
shares issued
and outstanding
as a result of
the acquisition
of RRUN Ventures,
Inc.
RRUN Ventures,Inc. (6,108,780) (6,109) (4,622) - (10,731)
RRUN Ventures
Network Inc. 288,420 288 10,443 - 10,731
Fair value of
shares issued
in connection
with the
acquisition of
RRUN Ventures,
Inc. 305,439 306 28,325 - 28,631
----------- -------- --------- ------------ ------------
593,859 594 38,768 (91,604) (52,242)
Increase in
issued shares
due to 20 for
1 stock split 11,283,321 594 (594) - -
Shares issued
for debt 1,867,544 187 54,257 - 54,444
Shares issued
for cash 670,000 67 13,333 - 13,400
Shares issued
for services 200,000 20 3,980 - 4,000
Loss for the year - - - (1,611,999) (1,611,999)
----------- -------- --------- ------------ ------------
Balance, December
31, 2001 14,614,724 1,462 109,744 (1,703,603) (1,592,397)
Shares issued
for debt 500,000 50 49,950 - 50,000
Shares issued for
services 500,000 50 59,950 - 60,000
Loss for the period - - - (769,186) (769,186)
----------- -------- --------- ------------ ------------
Balance, March 31,
2002 15,614,724 $ 1,562 $219,644 $(2,472,789) $(2,251,583)
============================================================
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
(Stated in U.S. Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of March 31, 2002 included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with United States generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. It is suggested that
these consolidated financial statements be read in conjunction with the December
31, 2001 audited consolidated financial statements and notes thereto.
2. NATURE OF OPERATIONS
a) Organization
The Company was incorporated in the State of Nevada, U.S.A., on October 12,
2000.
b) Development Stage Activities
The Company was organized as a holding company to develop or acquire innovative
ventures with an emphasis on serving the lifestyle needs of the 18 - 34 year
Digital Generation through the production and marketing of lifestyle products
and services. The Company's initial venture is RAHX, a business concept focused
on delivering, for its customers, a consolidated Entertainment Experience
Network comprised of many services ranging from digital media peer to peer file
exchange to live entertainment and online video games. The Company's other
venture is AXXUS, an enhanced e-commerce and communication backbone technology.
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
(Stated in U.S. Dollars)
2. NATURE OF OPERATIONS (Continued)
c) Going Concern
Since inception, the Company has suffered recurring losses, net cash outflows
from operations and, at March 31, 2002, has a working capital deficiency of $
2,183,574. The Company expects to continue to incur substantial losses to
complete the development and testing of its technology. Since its inception,
the Company has funded operations through common stock issuances and related
party loans in order to meet its strategic objectives. Management believes that
sufficient funding will be available to meet its business objectives, including
anticipated cash needs for working capital, and is currently evaluating several
financing options. However, there can be no assurance that the Company will be
able to obtain sufficient funds to continue the development of and, if
successful, to commence the sale of its products under development. As a result
of the foregoing, there exists substantial doubt about the Company's ability to
continue as a going concern. These consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of consolidated financial statements for a period
necessarily involves the use of estimates which have been made using careful
judgement.
The consolidated financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:
a) Consolidation
These consolidated financial statements include the accounts of the Company, its
100% owned subsidiaries, RRUN Labs Inc. and AXXUS Corporation, and its 67% owned
subsidiary, RAHX, Inc.
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
(Stated in U.S. Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Development Stage Company
The Company is a development stage company as defined in the Statements of
Financial Accounting Standards No. 7. The Company is devoting substantially all
of its present efforts to establish a new business and none of its planned
principal operations have commenced. All losses accumulated since inception
have been considered as part of the Company's development stage activities.
c) Investments
Investments in companies owned less than 20% are recorded at the lower of cost
or fair market value.
d) Software Development Costs
The costs to develop new software products and enhancements to existing software
products will be expensed as incurred until technological feasibility has been
established. Once technological feasibility has been established, any
additional costs will be capitalized.
e) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes" (SFAS 109). This standard requires the use of an
asset and liability approach for financial accounting and reporting on income
taxes. If it is more likely than not that some portion or all if a deferred tax
asset will not be realized, a valuation allowance is recognized.
f) Amortization
Capital assets are being amortized on the declining balance basis at the
following rates:
Computer equipment 30%
Computer software 100%
Office furniture and equipment 20%
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(Unaudited)
(Stated in U.S. Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Stock Based Compensation
The Company accounts for stock based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25 -
"Accounting for Stock Issued to Employees" (APB No. 25) and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock Based Compensation" (SFAS No. 123). Under APB No. 25,
compensation expense is recognized based on the difference, if any, on the date
of grant between the estimated fair value of the Company's stock and the amount
an employee must pay to acquire the stock. Compensation expense is recognized
immediately for past services and rateably for future services over the option
vesting period.
h) Financial Instruments
The Company's financial instruments consist of cash, GST recoverable, prepaid
expenses and accounts payable.
Unless otherwise noted, it is management's opinion that this Company is not
exposed to significant interest or credit risks arising from these financial
instruments. The fair value of these financial instruments approximate their
carrying values, unless otherwise noted.
i) Net Loss Per Share
Net loss per share is calculated using the weighted average number of common
shares outstanding during the period. Fully diluted loss per share is not
presented as the impact of the exercise of options is anti-dilutive.
Item 2. Management's Discussion and Analysis or Plan of Operations
FORWARD LOOKING STATEMENTS
This report on Form 10-QSB contains certain forward-looking statements within
the meaning of section 21(e) of the Securities Exchange Act of 1934, as amended,
and other applicable securities laws. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues, or other financial
items; any statements of the plans, strategies, and objectives of management for
future operation; any statements concerning proposed new products, services, or
developments, any statements regarding future economic conditions or
performance, statements of belief, and any statement of assumptions underlying
any of the foregoing. Such forward-looking statements are subject to inherent
risks and uncertainties, and actual results could differ materially from those
anticipated by the forward-looking statements.
RESULTS OF OPERATIONS
Calendar Year Ended December 31, 2000
For the year ended December 31, 2000, we earned no revenues. During the year we
incurred expenses of $79,468. The expenses incurred were predominately
administrative, consulting and professional fees relating primarily to the
merger of RRUN Ventures Inc. with United Management Inc. Since we had no
revenues, we incurred a net loss from operations of $79,249 for the fiscal year
after a Minority Interest In Loss of Subsidiary of $219.
Calendar Year Ended December 31, 2001
For the year ended December 31, 2001, we earned revenues of $4000. These one
time revenues were from Digital Design Interactive services provided by one of
our internal support units. These revenues will not be recurring as that
internal support unit is not a revenue producing unit. During the year we
incurred expenses of $1,615,999. Of theses expenses, $778, 258 were software
development costs. We incurred a net loss from operations of $1,611,999 for the
fiscal year.
Calendar Quarter Ended March 31, 2002
For the quarter ended March 31, 2002, we earned revenues of $25,000. The
revenues were from licensing of rights for the use of our AXXUS technology. The
licensing agreement was executed during the quarter and additional revenue will
be earned from that agreement.
3
During the quarter, we incurred expenses of $794,186. These operating expenses
included $38, 888 in software development, $260,001 in consulting fees and
$191,166 in business development costs.
We incurred a net loss from operations of $769,186 for the fiscal quarter ended
March 31, 2002.
We do not anticipate significant revenue growth until such time as:
1. the development of RAHX 1.0 software is completed, commercially released and
has secured a significant customer base to generate revenues and;
2. the development and launch our RAHX Live business division unit .
At this time, we continue to be a development stage company and can provide no
assurance that we will be successful in completing development of our software
or that we will earn revenues from our software, web site and related products
once development is complete.
Liquidity and Financial Condition
We had cash-on hand of totaling $31,993 as of March 31 2002.
We require approximately $6,000,000 in operational capital for the 12 month.
We hopes to secure the financing to satisfy the capital needs for each phase
through the execution of various funding methods, primarily private placement
investments. We hopes to achieve this by securing relationships with investment
bankers, venture capitalist, and/or finance advisors that have the experience
and relationships to aid the Company with its capital raising efforts. The
source of the private placement financing will be comprised of a mix of
principal shareholders, private investors and venture capital companies. If the
funding is unavailable, in whole or in part, at the expected time, we will delay
implementation of entire components of certain aspects of the implementation
plan until the necessary funding is secured. There cannot be any assurance that
we will raise sufficient capital to meet it business plan. In addition to delays
to the implementation plan, if sufficient capital is not raised, we may suffer
consequences including but not limited to the following; we may have to suspend
or discontinue operations of one or more of its business units, such as RAHX; we
may have to suspend or discontinue operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Other than the proceedings described herein, RRUN is not a party to any material
legal proceedings and to RRUN's knowledge, no such proceedings are threatened or
contemplated. At this time we have no bankruptcy, receivership or similar
proceedings pending.
4
Randolph C. Demuynck filed a lawsuit in February, 2002 in the Lynchburg General
District Court for the Commonwealth of Virginia. The action concerned an alleged
claim for unpaid wages of an employee of RRUN Labs, Inc., a subsidiary of RRUN
Ventures Network, Inc. The amount of the lawsuit is $7,524.42, not including
interest accruing from October 30, 2001 at 9% plus court costs of $56.
James E. Silverstrim filed a lawsuit in February, 2002 in the Lynchburg General
District Court for the Commonwealth of Virginia. The action concerned an alleged
claim for unpaid wages of an employee of RRUN Labs, Inc., a subsidiary of RRUN
Ventures Network, Inc. The amount of the lawsuit is $11,439.67, not including
interest accruing from October 30, 2001 at 9% plus court costs of $56.
In April, 2002, the Company received notice that Luke Kolesar filed a lawsuit
against the Company in Lynchburg General District Court for the Commonwealth of
Virginia. The action concerned an alleged claim for unpaid wages of an employee
of RRUN Labs, Inc., a subsidiary of RRUN Ventures Network, Inc. The amount of
the lawsuit is $6,853.85, not including interest accruing from October 30, 2001
at 9% plus court costs of $56.
In addition, the Company believes that there are approximately two-dozen other
former employees of RRUN Labs, Inc. who are owed wages by RRUN Labs, Inc. The
total amount of unpaid wages claims, not yet subject to any lawsuit against the
Company, is approximately $168,000.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
-------------------------------------------
During January of 2002, we issued 100,000 shares of its previously authorized,
but unissued common stock. The shares were issued to one person in exchange for
cash. The transaction was valued at $0.25 per share. The transaction was an
isolated transaction with a person having a close affiliation with us and was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) of the Act because of not being part of a public offering. The offering
was for a limited purpose and did not use the machinery of public distribution.
During February of 2002, we issued 500,000 shares of its previously authorized,
but unissued common stock. The shares were issued to two individuals in
exchange for consulting services. The transaction was valued at $0.12 per
share. The shares were registered on Form S-8 filed by the Company with the
Securities and Exchange Commission.
During March of 2002, we issued 500,000 shares of its previously authorized, but
unissued common stock. The shares were issued to one person in exchange for
cancellation of debt. The shares were registered on Form S-8 filed by the
Company with the Securities and Exchange Commission.
5
During March of 2002, we issued 31,250 shares of its previously authorized, but
unissued common stock. The shares were issued to one unrelated company in
exchange for cash. The transaction was valued at $0.32 per share. The
transaction was an isolated transaction with a person having a close affiliation
with us and was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) of the Act because of not being part of a public
offering. The offering was for a limited purpose and did not use the machinery
of public distribution.
During March of 2002, we issued 10,000 shares of its previously authorized, but
unissued common stock. The shares were issued to one unrelated company in
exchange for cash. The transaction was valued at $0.30 per share. The
transaction was an isolated transaction with a person having a close affiliation
with us and was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) of the Act because of not being part of a public
offering. The offering was for a limited purpose and did not use the machinery
of public distribution.
As at March 31, 2002, we also issued incentive stock options to the following
officers, directors and consultants.
Optionee Options Granted
--------------- ----------------
Ray Hawkins 200,000
Pavel Bains 150,000
Edwin Kwong 180,000
Emanuel Koseos 120,000
Other Consultants and employees 1,550,000
------------
Total # of Options Granted 2,200,000
These options were issued at various exercise prices between $0.10/share and
$0.20/share. One Million Five Hundred Fifty Thousand (1,550,000) of these
options were awarded to 8 employees and consultants working for RRUN, and Six
Hundred Fifty Thousand (650,000) options were awarded to 4 Officers and
Directors of RRUN.
As at March 31, 2002, we also issued warrants to purchase common stock to
consultants and advisors. The warrants issued allow the holders to purchase One
Million (1,000,000) shares of our common stock at exercise prices ranging from
$0.10 to $1.00 per share. No warrants were issued to our directors or
6
officers. No warrant holder received an issuance of warrants to make such
warrant holder a 5% or greater stockholder of the Company.
As at March 31, 2002, of all warrants issued, one warrant was exercised by one
individual for a total of 180,000 shares at $0.20 per share. In addition, one
warrant to one unrelated company for 100,000 shares was cancelled.
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
----------
99.1 Risk Factors
(b) Reports on Form 8-K
----------------------
None
7
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorised.
RRUN Ventures Network, Inc.
Date: May 20, 2002
By: /s/ Ray Hawkins
-------------------------------
Ray Hawkins, President
By: /s/ Edwin Kwong
-------------------------------
Edwin Kwong, Principal Accounting Officer
8