Form 10QSB for RRUN VENTURES NETWORK, INC.
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 September 30, 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 September 30, 2002
$0.0001 par value Common Stock 24,391,382
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 nine months ended September 30, 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
SEPTEMBER 30, 2002
(Unaudited)
(Stated in U.S. Dollars)
3
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Stated in U.S. Dollars)
------------------ -------------------
SEPTEMBER 30 DECEMBER 31
2002 2001
------------------ -------------------
ASSETS
Current
Cash $ 2,096 $ 1,421
Goods and Services Tax recoverable 1,809 5,014
Prepaid expense 36,578 342
Notes receivable 48,650 -
------------------ -------------------
89,133 6,777
Capital Assets 28,998 36,929
Investments 6,750 6,750
------------------ -------------------
$ 124,881 $ 50,456
================== ===================
LIABILITIES
Current
Accounts payable $ 2,094,781 $ 1,113,855
Loans and advances payable 555,224 518,998
------------------ -------------------
2,650,005 1,632,853
------------------ -------------------
STOCKHOLDERS' DEFICIENCY
Share Capital
Authorized:
100,000,000 common shares, par value $0.0001 per share
Issued and outstanding:
24,391,382 common shares at September 30, 2002 and
14,614,724 common shares at December 31, 2001 2,439 1,462
Add: Share subscriptions received:
36,250 common shares at September 30, 2002 and
50,000 common shares at December 31, 2001 1,450 10,000
Additional paid-in capital 787,573 109,744
Deficit (3,316,586) (1,703,603)
------------------ -------------------
(2,525,124) (1,582,397)
------------------ -------------------
$ 124,881 $ 50,456
================== ===================
F-1
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(Unaudited)
(Stated in U.S. Dollars)
------------------- ------------------- ------------------- ------------------- ---------------
THREE NINE THREE NINE INCEPTION
MONTHS MONTHS MONTHS MONTHS OCTOBER 12
ENDED ENDED ENDED ENDED 2000 TO
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
2002 2002 2001 2001 2002
------------------- ------------------- ------------------- ------------------- ---------------
Revenue $ 7,000 $ 62,000 $ 4,000 $ 4,000 $ 66,000
------------------- ------------------- ------------------- ------------------- ---------------
Expenses
Administrative services 61,563 67,702 35,629 105,273 157,585
Amortization 2,689 8,061 906 1,375 14,489
Business development 81,975 442,247 - - 658,655
Consulting 108,000 436,402 163,371 577,403 483,961
Equipment leases 4,535 19,453 - - 34,374
Investor relations 6,981 282,933 - - 409,080
Marketing - 538 - - 35,902
Media design 5,022 27,079 - - 87,199
Office, rent and sundry 5,866 130,398 14,877 39,266 239,295
Professional fees 30,704 88,770 38,548 49,049 223,282
Software development 31,606 103,716 - - 881,974
Travel 21,682 46,921 17,306 30,029 115,552
Wages and benefits 2,906 20,763 - - 29,102
------------------- ------------------- ------------------- ------------------- ---------------
363,529 1,674,983 270,637 802,395 3,370,450
------------------- ------------------- ------------------- ------------------- ---------------
Loss Before The Following
356,529 1,612,983 266,637 798,395 3,304,450
Minority Interest In Loss Of -
Subsidiary - - - (219)
------------------- ------------------- ------------------- ------------------- ---------------
Net Loss For The Period $ 356,529 $ 1,612,983 $ 266,637 $ 798,395 $ 3,304,231
=================== =================== =================== =================== ===============
Net Loss Per Share $ 0.02 $ 0.10 $ 0.03 $ 0.12
==================================== =================== =================== =================== ===================
Weighted Average Number Of Common
Shares Outstanding
20,385,339 15,467,532 9,166,075 6,913,402
=================== =================== =================== ===================
F-2
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Stated in U.S. Dollars)
------------------ ------------------- ------------------- ------------------- --------------
THREE NINE THREE NINE INCEPTION
MONTHS MONTHS MONTHS MONTHS OCTOBER 17
ENDED ENDED ENDED ENDED 2000 TO
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
2002 2002 2001 2001 2002
------------------ ------------------- ------------------- ------------------- --------------
Cash Flows From Operating Activities
Net loss for the period $ (356,529) $ (1,612,983) $ (266,637) $ (798,395) $ (3,304,231)
Adjustments To Reconcile Net Loss
To Net Cash Used By Operating
Activities
Amortization 2,689 8,061 906 1,375 14,489
Issue of common stock for
expenses 107,520 167,520 4,000 4,000 175,720
Minority interest in loss of
subsidiary - - - - (219)
Goods and Services Tax
recoverable 804 3,205 (358) (358) (1,809)
Accounts receivable 25,000 - - - -
Prepaid expense (24,623) (36,236) (8,306) (7,806) (36,578)
Notes receivable 19,600 (48,650) - - (48,650)
Accounts payable 175,590 1,030,926 78,652 387,456 2,068,977
Loans and advances payable
5,242 76,714 79,789 305,969 637,050
------------------ ------------------- ------------------- ------------------- ---------------
(44,707) (411,443) (111,954) (107,759) (495,251)
------------------ ------------------- ------------------- ------------------- ---------------
Cash Flows From Investing Activities
Net asset deficiency of legal
parent at date of reverse
take-over transaction - - - - (12,355)
Purchase of capital assets (130) (130) (5,127) (11,385) (43,487)
------------------ ------------------- ------------------- ------------------- ---------------
(130) (130) (5,127) (11,385) (55,842)
------------------ ------------------- ------------------- ------------------- ---------------
Cash Flows From Financing Activities
Shares issued for cash 78,798 420,798 13,400 13,400 434,198
Share subscriptions received
(31,950) (8,550) - - 1,450
------------------ ------------------- ------------------- ------------------- ---------------
46,848 412,248 13,400 13,400 435,648
------------------ ------------------- ------------------- ------------------- ---------------
Increase (Decrease) In Cash 2,011 675 (103,681) (105,744) (115,445)
Cash Acquired On Acquisition Of
Subsidiary - - 117,541 117,541 117,541
Cash, Beginning Of Period 85 1,421 8,731 10,794 -
------------------ ------------------- ------------------- ------------------- ---------------
Cash, End Of Period $ 2,096 $ 2,096 $ 22,591 $ 22,591 $ 2,096
================== =================== =================== =================== ===============
F-3
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
SEPTEMBER 30, 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 1,095,408 110 90,378 - 90,488
Shares issued for services 3,615,000 361 167,159 - 167,520
Shares issued for cash and notes receivable
5,221,250 522 435,776 - 436,298
Shares cancelled (155,000) (16) (15,484) - (15,500)
Loss for the period - - - (1,612,983) (1,612,983)
---------------- ------------ ---------------- ------------------ ----------------
Balance, September 30, 2002 24,391,382 $ 2,439 $ 787,573 $ (3,316,586) $ (2,526,574)
================ ============ ================ ================== ================
F-4
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
(Stated in U.S. Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of September 30,
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 online and offline entertainment services. The Company's other
venture is AXXUS, an enhanced e-commerce and communication backbone
technology. At this time, the Company's focus is RAHX's live
entertainment business, specifically nightclubs.
F-5
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 2002, has a working
capital deficiency of $2,560,872. 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., RVNI Management
Ltd. and AXXUS Corporation, and its 67% owned subsidiary, RAHX, Inc.
F-6
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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%
F-7
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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. Diluted loss per share is
not presented as the impact of the exercise of options is
anti-dilutive.
F-8
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
For The Nine Month Period Ended September 30, 2002
For the nine-month period ended September 30, 2002, the Company earned
revenues of $62,000. The revenues were related to the licensing of rights for
the use of our AXXUS technology.
During the nine months period ended September 30, 2002, the Company
incurred operational expenses of $1,674,983, of which $1,030,926 is payable.
These operating expenses included $103,716 in software development, $442,247 in
business development costs and $88,770 in Professional Fees. During the same
period, $436,402 in fees were expensed to management, of which $412,082 is
payable.
During the nine months period ended September 30, 2002, the Company
incurred a net loss from operations of $1,612,983.
For The Three Month Period Ended September 30, 2002 Compared To The Three Month
Period Ended September 30, 2001
For the three month period ended September 30, 2002, the Company earned
revenues of $7,000, as compared to no revenues for the same period ended
September 30, 2001. The revenues in 2002 were related to the licensing of rights
for the use of our AXXUS technology.
For the three month period ended September 30, 2002, the Company incurred
operational expenses of $363,529, as compared to $270,637 the same period in
2001. These operating expenses included software development expenses of $31,606
and $0, and consulting fees of $108,000 and $163,371, business development
expenses $81,975, and $0, and professional fees of $30,704, and $38,548, for the
three month period ending September 30, 2001, and 2002, respectively.
The Company incurred a net loss from operations of $356,529 for the fiscal
quarter ended September 30, 2002, as compared to $266,637 for the same period in
2001.
4
Liquidity and Financial Condition As Of September 30, 2002
We had cash-on hand of totaling $2,096 as of September 30, 2002.
Due to major changes in market conditions, management decided to change our
business strategy to maximize our chances of success. Since inception the
Company's original business strategy was to operate as a venture development
organization focused on content distribution utilizing the Internet. Originally
RRUN's core business venture is RAHX, a software platform that uses Peer to Peer
(P2P) technologies to enable and enhance the distribution of digital media files
over the Internet. Beginning earlier this year the Company's RAHX venture has
shifted its strategy from being focused solely on P2P music file exchange to one
of developing an Entertainment Experience Network, now focused on live
entertainment. The Company does not expect to continue funding the completion of
the software. The software has not reached a level of commercial viability, and
will not be able to do so without significant funding. The software was
initially being designed to enable file exchange in a legal manner; however, the
software code to enable file exchange in a legal manner is not complete. We have
chosen not to proceed with further development of the software, due to lack of
funding and the determination that the release of software that allows illegal
file exchanging of content may present risk of litigation upon the Company by
companies in the content and music industries., At this time, any future plans
to license out the current software code which had been under development is not
feasible because the Company can not continue to fund the development of the
software code to completion or for other applications. Management is continuing
to evaluate options in regards to the current status of the software code,
settlement of the debts incurred in developing the software code, the retention
of key development staff and/or consultants and the completion of the licensing
and development commitment our subsidiary AXXUS has with Triangle BAHX, LLC.
Our business strategy has been to build urban lifestyle-based businesses
based around software and on-line communities. We believe that our vision to
build lifestyle businesses is still viable but that we need to change to an
off-line focus with the on-line focus coming later. Accordingly we are focusing
our immediate efforts on building a chain of licensed entertainment
establishments, as the base for our urban lifestyle businesses. These
establishments will still utilize a branding approach so that we can sell other
urban lifestyle products and services.
Our immediate aim is to acquire our first establishment so that we can use
it as a flagship for the chain and demonstrate our unique and proprietary
entertainment concepts for use in our other establishments. We intend that the
later establishments will be developed in new and existing locations in major
cities throughout the United States and Canada.
In order to finance the first acquisition, we plan to raise investment
capital through different types of securities offerings. We plan to fund new
establishment locations, including our first acquisition, through direct
investments into the individual establishments and providing the investors with
cash dividends and some capital stock in the Company to the investors. This is
hoped to reduce the potential dilution to our existing shareholders. We also
plan to raise investment capital by sale of stock in RAHX, our lifestyle
subsidiary, which again is hoped to reduce dilution to our existing
shareholders. We plan to invite direct investments into the Company to provide
funds for general corporate purposes. We believe that this plan will enable us
to achieve our development goals with acceptable dilution to our existing
shareholders.
5
We believe that the first acquisition of an nightclub entertainment
establishment will require approximately a minimum of $500,000 for the
acquisition, plus approximately $100,000 in legal, accounting and administrative
expenses. In addition our first acquisition will require a minimum of another
$400,000 for working capital and general corporate purposes. This is a minimum
total of approximately $1,000,000 that will be required in the next quarter
during which we are expecting to make the first acquisition. In the following 6
months, we plan to make another or second acquisition. We believe that the cost
of a second acquisition will be approximately a minimum of $1,500,000 and that
approximately another $500,000 minimum will be required for the same purposes as
listed above for the first acquisition and for working capital and general
corporate purposes. Thus, we anticipate needing a minimum of $3,000,000 of
investment capital during the next nine months.
After the first two acquisitions, we intend to develop other entertainment
establishments from initial buildout rather than from acquisitions. Our plan is
to open six additional entertainment establishments by the end of 2003 and we
anticipate that additional funding will be required to accomplish this.
Management anticipates that funding requirements for this plan will be less than
the overall cost of opening these clubs, since the revenues from the first two
clubs is expected to generate enough cash flow to reduce the level of capital
required. We have developed comprehensive business and financial plans that
result in our development of a chain of entertainment establishments that should
operate on a cash positive basis and without incurring substantial dilution to
stockholders such that the Company can increase its overall valuation
substantially.
Management plans on initiating a series of securities offerings to raise
the investment capital needed to meet our acquisition plans. Although we will
make efforts to minimize dilution to current shareholders, we may not be able to
avoid dilution due to many factors, including but not limited to, the closing of
financing at lower than the desired market price of the Company's common stock.
If needed capital investment for our acquisitions or developments is not
available, in whole or in part, we intend to delay implementation of our
acquisition or development plans until sufficient investment capital becomes
available. We cannot give any assurances that we will raise sufficient
investment capital to meet the business plan. In addition to delays to the
implementation of our acquisition or development plans due to insufficiency of
investment capital, we may suffer other consequences, including but not limited
to the following. We may have to suspend or discontinue operations of one or
more of our business units, such as RAHX, or we may have to suspend or
discontinue operations of the Company if we become insolvent as a result.
6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 30, 2002, Micro Concept Systems Inc. ("Plaintiff") filed suit in
the Supreme Court of British Columbia against the Company. The suit alleges non-
payment of $30,143 for computer equipment sold to the Company by the Plaintiff.
The Plaintiff obtained a Garnishing Order Before Judgment pursuant to which it
has garnished the Company's account $1,884.
The Company believes that, as it commences revenue-producing operations and
as it raises capital, we will have the resources to settle the abovementioned
case and we have every intention of doing so. We are working to reduce or
prevent collection litigation by creditors or others.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
Overview
Until we close our first revenue producing acquisition or begin to produce
significant revenues, we will be reliant on capital received from private
placements, loans, and the exercise of options and warrants. Due to the
depressed market for our securities, we may not be able avoid significant
dilution to current shareholders. In addition, we expect to continue to retain
certain management, staff and consultants, such as legal counsel, and may need
to compensate these individuals through the issuance of our common stock as
compensation. These stock based compensations may result in significant dilution
to current shareholders due to the depressed market for our securities. We also
continue to reduce or prevent collection of outstanding vendor debts and
accounts with creditors, such as suppliers and consultants, which could result
in litigation against the Company. There can be no guarantee that all of these
negotiations will be successful and the outcome of these negotiations may
include settlements in cash and/or issuance of common stock. These stock based
settlements may result in significant dilution to current shareholders due to
the depressed market for our securities. We plan on continuing to meet certain
of our expenses through the issuance of our shares of common stock, which may
cause additional and significant dilution to existing shareholders due to the
depressed market for our securities.
During the quarter ended September 30, 2002, the Company granted options
for the purchase of 4,100,000 common shares of the Company, 3,000,000, of which,
were granted to Dr. Ted Prince, an Officer and Director of the Company. The
exercise price of 2,000,000 of the options granted to Dr. Ted Prince was $0.12
per share. The exercise price of 1,000,000 of the options granted to Dr. Ted
Prince was $0.045 per share. The exercise price of 600,000 of the options
granted to a consultant of the Company was $0.04 per share. The exercise price
of 500,000 of the options granted to a consultant of the Company was $0.07 per
share. The options described in this paragraph were granted to Dr. Ted Prince
and two consultants of the Company as incentive stock options to encourage their
focus on the business progress of the Company. The transactions were isolated
transactions with persons having a close affiliation with the Company and were
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.
7
During the quarter ended September 30, 2002, the Company issued 1,100,000
common shares upon the exercise of options for those shares. 500,000 of the
shares were issued for the exercise price of $0.07 per share. 600,000 of the
shares were issued for the exercise price of $0.04 per share for the aggregate
exercise price for all shares of $59,000. The shares were issued to two
consultants of the Company. The transactions were isolated transactions with
persons having a close affiliation with the Company and were 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. The
options described in this paragraph were exercised pursuant to a so-called
cashless exercise whereby the Company loaned the option holder the money to
exercise the option. Due to a depressed market for the shares described in this
paragraph following the exercise of the options, the Company discounted, during
the quarter, notes held by the Company for the purchase of such shares in the
total amount of $36,000.
In July 2002, the Company issued a total of 1,500,000 common shares to two
individuals at a price of $0.025 per share for total consideration of $37,500.
The transactions were isolated transactions with persons having a close
affiliation with the Company and were 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 September 2002, the Company issued 36,250 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 $0.04 per share for
a total consideration of $1,450. 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 September 2002, the Company issued 610,408 shares of its previously
authorized, but unissued common stock. The shares were issued to one unrelated
company in exchanged for cancellation of a loan. The transaction was valued at a
price of $0.068 per share for total consideration of $41,508. 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 September 2002, the Company issued 250,000 shares of its previously
authorized, but unissued common stock. The shares were issued to one individual
as a fee for the providing of a loan. The transaction was valued at a price of
$0.027 per share for total consideration of $6,750. 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.
8
During September 2002, the Company issued 395,741 shares of its previously
authorized, but unissued common stock. The shares were issued to two individuals
in exchange for cancellation of debt due to the rendering of consulting
services. The transaction was valued at $0.09 per share. The transaction was an
isolated transaction with 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 July 2002, the Company issued 800,000 shares of its previously
authorized, but unissued common stock. The shares were issued to one individual
in exchange for cancellation of debt due to the rendering of consulting
services. The transaction was valued at $0.04 per share. The shares were
registered on Form S-8 filed by the Company with the Securities and Exchange
Commission.
During July of 2002, the Company issued 300,000 shares of its previously
authorized, but unissued common stock. The shares were issued to two individuals
in exchange for consulting services. The shares were registered on Form S-8
filed by the Company with the Securities and Exchange Commission.
During August of 2002, the Company issued 980,000 shares of its previously
authorized, but unissued common stock. The shares were issued to two individuals
in exchange for consulting services. The shares were registered on Form S-8
filed by the Company with the Securities and Exchange Commission.
During September of 2002, the Company issued 1,020,000 shares of its
previously authorized, but unissued common stock. The shares were issued to two
individuals in exchange for consulting services. The shares were registered on
Form S-8 filed by the Company with the Securities and Exchange Commission.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
9
Item 5. Other Information
In September 2002, our subsidiary, RAHX, Inc., entered into a letter of
intent for the acquisition of 1485684 Ontario Limited c/o/b as The Sequel
Nightclub, located in Toronto, Canada. We have not closed the financing
necessary to consummate this acquisition. As a result, we no longer have an
exclusive or first right to acquire 1485684 Ontario Limited c/o/b as The Sequel
Nightclub. Although we are still pursuing the financing to complete the
acquisition, we anticipate continuing difficulties in receiving the financing
necessary for this acquisition, due to generally depressed conditions of the
finance industry and a general lack of investor interest.
In April 2002, the Company executed a partnership agreement with Pinpoint
Media to add its "Party Quest" live entertainment tour/reality TV show property
to our product portfolio. Due to lack of capital, we have been unable to
continue financing of the Party Quest Reality TV Show property, and therefore,
we have not been able to continue with our plan of acquiring the property. We
have recently begun further discussions with Pinpoint Media, the owners of the
Party Quest Reality TV Show property, regarding the status of our involvement
regarding both ownership and a strategic alliance with Pinpoint Media.
In November 2002, the Board of Directors accepted the resignation of Dr. Ted
Prince from the Board of Directors and from the offices of President and
Co-Chief Executive Officer. Subsequently Ray Hawkins re-assumed the offices of
President and Chief Executive Officer. The remaining Directors filled the
vacancy created on our Board of Directors by appointing Pavel Bains as a
director. The Board of Directors also accepted the resignation of Saya
Kyvrikosaios from the Board of Directors and from the office of Vice President
effective June 20, 2002.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
10
SIGNATURES
In accordance with 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 authorised.
RRUN Ventures Network, Inc.
Date: November 19, 2002
By: /s/ Ray Hawkins
----------------------
Ray Hawkins, President and Chief
Executive Officer
By: /s/ Edwin Kwong
----------------------
Edwin Kwong, Principal Accounting Officer
and Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ray Hawkins, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report on Form 10-QSB of RRUN VENTURES NETWORK, INC. for the quarterly period
ended September 30, 2002 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Quarterly Report on Form 10-QSB fairly presents in all material
respects the financial condition and results of operations of RRUN VENTURES
NETWORK, INC.
By: /s/ Ray Hawkins
--------------------
Name: Ray Hawkins
Title: Chief Executive Officer
Date: November 19, 2002
I, Edwin Kwong, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report on Form 10-QSB of RRUN VENTURES NETWORK, INC. for the quarterly period
ended September 30, 2002 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Quarterly Report on Form 10-QSB fairly presents in all material
respects the financial condition and results of operations of RRUN VENTURES
NETWORK, INC.
By: /s/ Edwin Kwong
----------------------
Name: Edwin Kwong
Title: Chief Financial Officer
Date: November 19, 2002