SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended ________________
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from June 30, 2001 to December 31, 2001
--------------- ------------------
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)
Registrant's telephone number, including area code: (604) 682-6541
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: Common stock
authorized at $.0001 par value.
Check whether the issuer (l) has 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. [X] Yes
[ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues for 2001 were $4,000.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the last reported sale price of such stock as of April 9, 2002
is $ 3,851,710. Our common stock is quoted at the present time. At April 9,
2002, our stock's closing price was $0.30 per share. This price, however, is an
inter-dealer price without retail mark-up, mark-down or commission and may not
represent an actual transaction.
The number of shares of the issuer's Common Stock outstanding as of December 31,
was 14,614,724.
Documents Incorporated by Reference: Proxy Statement and Reconfirmation of
Offering Prospectus filed pursuant to Rule 424(b)(3) of the Securities Act of
1933. This statement was filed on August 8, 2001 and is incorporated by
reference into Parts I, II and III of this filing.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
Item 1. Description of Business
Corporate History
United Management, Inc. was incorporated on January 29, 1997 under the laws of
the State of Nevada. In December 2000, United entered into an agreement to
merge with RRUN Ventures, Inc. by acquiring all of RRUN's issued and outstanding
shares of capital stock. RRUN Ventures Inc. was founded in Vancouver, British
Columbia in June of 2000 and incorporated in October 2000 under the laws of
Nevada. Final approval of this merger was obtained from the shareholders in
August, 2001. At the same time as the approval of the merger, United adopted its
new name, RRUN Ventures Network, Inc. Also acquired in the merger was a
majority shareholder position in RAHX, Inc., a Nevada corporation, which was
incorporated in 2000. In September, 2001, RRUN co-founded AXXUS Corporation, a
Nevada Corporation, which was incorporated in September, 2001.
In September, 2001,RRUN founded RRUN Labs Incorporated and subsequently
acquired 100% of the common stock of RRUN Labs Incorporated, a Delaware
Corporation., which was incorporated in September, 2001. Additional
information regarding AXXUS and RRUN Labs may be found in the press releases
dated October 10th and11th attached to Form 10-KSB filed on October 15,
2001. In addition, a discussion of the discontinuance of operations of RRUN
Labs may be found in Form 8-K filed with the Commission on November 21,
2001.
General Overview
RRUN Ventures Network Inc. ("RRUN" or "RRUN vni") is a venture development and
holding company building and/or acquiring companies that will be serving the
lifestyle needs of the 18-34 year Digital Generation through the production and
marketing of lifestyle products and services.
RRUN vni hopes to build a network of innovative, profitable and global
businesses. Furthermore, RRUN vni hopes to build shareholder value by developing
innovative business concepts, processes and technologies. In addition, RRUN vni
hopes to create an environment that attracts and retains talent, and nurtures
the ideas and leaders of tomorrow.
The company intends to invest capital into the following lines of business:
1. Media and Entertainment - businesses that produce and/or distribute content
for the consumers across various mediums. These include music, live
entertainment, filmed entertainment, online and offline publishing, online
and offline interactive gaming, and digital media distribution.
2. Infrastructure Technologies - businesses that provide the foundation for
people to interact and transact through multiple technology products. These
include communication, commerce, and payment systems.
2
3. Lifestyle Products and Services - businesses that serve consumers with the
products and services that satisfy their lifestyles. These include
clothing, mobile phones, PDA's and ticketing services.
Currently the Company has two business units, RAHX Inc. (RAHX) and AXXUS
Corporation (AXXUS), with RAHX being the Company's lead venture. The RAHX and
AXXUS ventures both have offline and online technology components. The online
components are built on proprietary technology that utilizes Peer to Peer (P2P)
Distributed Architecture and contain Digital Rights Management Systems and
Advanced Integration and Personalization Software.
In addition to RAHX and AXXUS, the Company has other business units currently in
development.
In September of 2001 RRUN added a wholly owned research and development
subsidiary, RRUN LABS Incorporated. RRUN LABS was formed to play a role in the
development of the RAHX and AXXUS technologies. RRUN Labs operations were
suspended indefinitely in November 2001 and all staff was terminated. This was
due to RRUN's inability to continue funding the RRUN Labs operation.
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. RRUN hopes to deliver a number of RAHX branded entertainment products
and services to its target market via an integrated network approach.
Revenue Generation
As a venture development and holding company RRUN hopes to generate revenue
through the following methods:
1. Product Sales - sales of products and services generated via the RRUN vni
subsidiaries/business units.
2. Administration Fees - RRUN vni will charge its business units a number of
fees that include: rent, utilities, leasing, corporate services.
3. Revenue Sharing - as a method of return of investment from a business unit,
RRUN vni may directly share in the revenue generated by the unit.
4. Dividends - at the end of each period, RRUN vni will receive its
proportionate profit share from the dividends issue, if any, from each of
its business units.
5. Sale Of Business Units - RRUN vni will only sell a partial or full
ownership stake in a business unit when the sale will benefit the RRUN vni
shareholders more than continuing the operations of the unit through the
RRUN vni organization.
6. Financing Charges - RRUN vni will earn interest and other financial related
income for lending capital to its business units.
7. Venture Development & Support Services - RRUN vni will charge its
subsidiaries fees for the use of its functional units that help develop the
business unit. This includes use of the Accounting, HR, Marketing, Sales,
Technology Development, and Finance .
3
CURRENT BUSINESS UNITS
RAHX INC. (PRONOUNCED "ROCKS")
RAHX Inc. (RAHX) is currently the core business unit of RRUN. RAHX intends to
promote and market entertainment products and services for the 18-34 year old
Digital Generation.
RAHX product offerings are intended to include, but not be limited to, digital
media software and online services, concerts and video games.
The first product offerings intended to be released from RAHX are:
1. RAHX 1.0 - a software and online web service that will allow users to
exchange digital media files but also connect with their favorite shopping
and services vendors. RAHX 1.0 will be powered by technology from AXXUS.
RAHX 1.0 is a key product in development for RAHX. RAHX 1.0's digital media
component/entertainment engine is called RAHX FX (File Exchange).
2. RAHX Live - a planned live entertainment production service. RAHX Live will
service its target market with dynamic live entertainment ranging from
concerts, festivals and special events.
The Company anticipates that attendees of RAHX Live events will remain connected
and informed of upcoming events through RAHX 1.0. The management anticipates
that additional offline and online product and service offerings will be
evaluated, developed and added to the Entertainment Experience Network according
to feasibility and return on investment.
RAHX 1.0 PRODUCT DETAILS
The Company intends to develop RAHX 1.0. This product will be an online web
service that uses Peer to Peer (P2P) technologies to enable and enhance the
distribution of digital media files and communication and commerce with business
vendors over the Internet. The RAHX 1.0 service will be enabled through its
P2P oriented software that is installed with both consumers and their favorite
vendors. Consumers will be able to communicate and exchange files among
themselves in addition to being able to communicate and conduct commerce with
vendors. RAHX 1.0's digital media component/entertainment engine will be called
RAHX FX (File Exchange). RAHX FX is planned to be one of the initial key
services of RAHX 1.0.
RAHX FX COMPONENT PRODUCT DETAILS
RAHX FX provides media users and content owners with an end-to-end solution of
distributing music over the Internet by performing the following functions:
- Facilitate transfer and exchange of digital media files;
- Manage the income flow from consumers to content owners;
4
- Track content usage;
- Store income for the benefit of content owners;
- Distribute income to content owners and;
- Protect consumers with Internet security and content owners with digital
rights management.
RAHX 1.0 TECHNOLOGY OVERVIEW
For consumers, the RAHX 1.0 Service will be powered by the RAHX Lifestyle
Manager (RAHX LM 1.0).
- The RAHX LM will have two fundamental components: a lifestyle engine
and an entertainment engine:
- The lifestyle engine component features 1) instant messaging so
users can communicate with one another; 2) an opt-in programmable
concierge service that allows the user to set preferences to
receive media product messages (i.e. release of new movie
trailer, new music single, restaurant bookings, movie tickets,
concert tickets etc.), amongst other functionalities.
- The entertainment engine (RAHX FX) will allow users to search and
download media (games, music, movies, etc.) through a paid legal
system.
For entertainment businesses, the RAHX 1.0 Service will be powered by the RAHX
Business Manager (RAHX BM 1.0).
- The RAHX BM 1.0 will have two fundamental components: a direct
marketing engine (for communication with consumers) and a business
management engine (for communication and transactions with suppliers,
partners and internal use).
RAHX FX TECHNOLOGY OVERVIEW
RAHX FX will combine standard Internet and EDI protocols with XML programming
and various other software tools. RAHX FX will consist of four subsystems: a
file exchange system; content management system, commercial transaction system,
and digital rights management system. These four systems are integrated to
function as one unified RAHX FX system.
This RAHX FX technology will produce the following features and capabilities:
- Royalty tracking - RAHX FX compiles accounting of all music single downloads
by detailing copyright owners and accurately reporting music royalty remittance;
- Customer debit accounts - RAHX FX establishes debit accounts for its customers
to facilitate their purchases of downloaded music;
- Transaction facilitation - RAHX FX uses a transaction-facilitating engine that
simultaneously debits the account of a buyer and credits the accounts of the
music owners;
5
- Catalogue database - RAHX FX syncs with new and existing and new music
databases to accurately identify all music recordings within the exchange
network; and
- Firewall protection - RAHX FX provides a security firewall to protect end
users.
RAHX 1.0 REVENUE GENERATION
The Core RAHX 1.0 Business Model will operate as follows:
1. Consumers are provided with the RAHX 1.0 Service (including the RAHX
LM software) at no cost and are offered premium services through a
monthly subscription fee. These premium services include content
services and increased levels of entertainment services.
2. Small to mid sized businesses an initial sign up fee, which includes
the cost of RAHX BM software, and monthly subscription service to
utilize the Business Service. Enterprise level businesses pay an
initial sign-up fee, monthly service fees, and additional
customization fees. All businesses pay for premium services such as
marketing services, loyalty programs, and the right to private label
the RAHX LM software.
3. The interconnection between businesses and consumers that RAHX 1.0
provides creates a critical mass of buyers and sellers.
4. Every activity RAHX 1.0 facilitates generates transaction fees.
Within RAHX 1.0, the Company anticipates RAHX FX to earn income for RRUN through
a two-pronged business model Direct to Consumer Model and Licensing Model:
1. In the Direct to Consumer Model, RAHX will provide an FX ( file
exchange) service or P2P media service directly to consumers and will
use its RAHX FX component of RAHX 1.0 to generate transaction fees by
acting as an agent to facilitate transactions between consumers and
content owners.
2. In the Licensing Model, RAHX may license its RAHX FX software to other
P2P media services that desire a method to generate revenue. RAHX will
bill these file exchange services software license fees and
transaction facilitation fees. Under this model, RAHX will earn a
smaller transaction fee rate than in the direct to consumer model.
AXXUS CORPORATION
AXXUS will be the backbone technology of RRUN's venture network. AXXUS focuses
on "lifestyle improving" technologies. Services under AXXUS include the
creation, integration, and implementation of customized e-commerce and
communications solutions for businesses focused on the Digital Generations. RAHX
1.0 is the first application of AXXUS' core product, the AXXUSNET Platform. This
product suite is an integrated platform that will enable online and offline
systems to deliver various services. In doing so, AXXUS hopes to create a common
"standard" of delivery in function and software design for communication,
commerce and interactive services. AXXUS is primarily focused on being a
technology backbone for the RAHX 1.0 online
6
web service and its RAHX FX component. As RRUN develops, AXXUS will begin to
develop its own business plan.
1. In development stage is THE AXXUS NETWORK MARKETPLACE, another product that
will be introduced using AXXUS technology. It is hoped that this global
marketplace will be made up of an infrastructure-type network of everyone
in the supply chain including consumers, retailers, distributors,
wholesalers and manufacturers. AXXUS intends to extend market reach by
channeling online and offline services into a multidimensional and
multilevel distribution network that integrates intelligent devices and
user valuation systems. AXXUS will be the lead venture in the second
initiative of RRUN and hopes to establish a standard in delivering products
and services that improve the way consumers and businesses interact,
transact and communicate over digital mediums to ultimately enhance the
lifestyle experience of the end user. RAHX will use AXXUSNET for an
entertainment industry application. Other applications of AXXUS will be
developed for other industries through future partners and/or licensees.
AXXUS also plans to provide support services to its partners such as RAHX
and also provide AXXUS Enterprise Services - customized technology
solutions built for large businesses.
RAHX MARKET ANALYSIS
RAHX 1.0 Digital Media and P2P Media Services Market Analysis
Currently, there is an effort to merge telecommunications and content management
to enhance the delivery of content to consumers. Cable and wireless
technologies are being re-focused as content distribution platforms, resulting
in an increase of audio and video distribution devices. The mass proliferation
of P2P applications and broadband technologies has enabled consumers to increase
their enjoyment of digital entertainment:
1. One-third of all Internet users will use next-generation peer-to-peer
computing services to store and share personal data by 2005. (National
Post, 2001)
2. 28 million or one third of US homes will use a high-speed connection by the
year 2005, a 5-year increase of 22 million people. (Jupiter Communications,
2000)
Consumers are now requiring entertainment to be directly delivered to their
devices on demand. As a result, the market potential for delivering legal and
secure entertainment through Internet technologies is expected to be
significant:
Before P2P Media Services emerged, Internet users located certain digital media
such as music over the web by spending time searching websites for specific
music recordings, or by visiting MP3 music sites like MP3.com and Emusic.com,
where they were given access to a limited amount of music and were required to
pay for it. Napster entered the P2P Media Service and provided users with a
convenient method of locating music. Users were now able to type a music title
in a search field and any computer that contained the search item throughout the
network was displayed.
7
Digital Media Services such as the RAHX FX component of RAHX 1.0 should have a
growing market for which it can use for the benefit of its shareholders. For
example, consumers are already able to trade movies in the controversial Div-X
format. Just like MP3s impacted the music industry, Div-X is doing the same for
the movie industry. Div-X movies are DVD quality and can be copied from a PC
hard drive to a regular CD. The CD is then played in a standard DVD player.
Other digital files currently being exchanged over P2P Media Services are
e-books, text documents, photo images, and software programs. In addition, we
believe P2P Media Services in the future will also facilitate online video
gaming and video on demand. As a result, RRUN believes that the consumer demand
for these Digital Media and P2P Media Services will continue to expand,
resulting in potentially greater revenue streams for companies that possess a
sustainable business model.
RAHX 1.0'S RAHX FX COMPONENT COMPETITIVE BUSINESS CONDITIONS
In the past few years, there were over 25 music P2P Media Services on the
Internet, and eight, have emerged as the major participants due to their claims
of large consumer user bases: Napster, Gnutella, Hotline, Cute MX, iMesh,
AudioGalaxy, Morpheus and Spin Frenzy. As of today a number of these services
may no longer exist. These companies were the first to offer P2P Media
Services, and, quickly amassed large user bases because they charged no user
fees
Napster, Morpheus, and other companies with the same "free music sharing"
concept, are currently or have been subject to a number of highly publicized
lawsuits because, among other things, it was argued that they promote the use of
a software that violates the rights of music copyright owners including major
record labels Sony and Universal. As a result of these lawsuits, two new
competitors in the Digital Media Services market were formed through joint
ventures with music industry giants and Internet powerhouses. MusicNet, a joint
venture between RealNetworks, AOL Time Warner, Bertelsmann AG and EMI recorded
Music, and Pressplay, a joint-venture between Sony Music Entertainment and
Universal Music Group with the affiliates of Yahoo, MSN and MP3.com, have both
announced plans to enter into the market. Both new companies plan to offer
digital download services and possible P2P file sharing services in exchange for
either a subscription fee or sharing fee charge. As of today both Musicnet and
Pressplay have begun testing or launched with limited catalogs. Details of the
structure of these companies have yet to be fully disclosed.
INTELLECTUAL PROPERTY
PATENTS
The RAHX 1.0 (including RAHX FX, RAHX LM, RAHX BM) and AXXUS (including AXXUS
NET) platforms are proprietary properties consisting of numerous individual
proprietary assets. RRUN has begun to prepare the necessary documents to
facilitate the Company's plan to file for various patents. RRUN has begun
preparing the system architecture designs that will accompany the patent
applications.
8
In regards to RAHX and its' subsystems, RRUN intends to patent the base concept,
business model, and subsequently the data model architecture. The patenting
will include software/hardware components at a high level. Individual software
and/or hardware components built to work within the initial framework of the
RAHX platform will also undergo copyright, followed by patenting. It takes two
to three years to complete a patent, so as the system grows, it is initially
copyrighted and a patent is filed when the entire system is integrated. At the
inception phase any component will be linked to a manufacturing process that may
be copyrighted for uniqueness, and included in the design requirements for the
patent.
POTENTIAL LIABILITY
From Digital Distribution of Copyrighted Music in addition to the Risk Factors
described in the Exhibit to this filing, the operation of RRUN's RAHX FX digital
media component may result in liabilities or levels of unacceptance that may
affect its profitability. Specifically, one or more of the factors listed below
may result in liability or levels of unacceptance that may harm its present or
future operations:
1) If RRUN's RAHX FX products and services do not accurately or completely
provide rights reporting information, record companies and artists might not use
its platform to digitally deliver their recorded music, and its business might
be harmed.
2) RRUN might incur liability for the content of the recorded music that it
digitally delivers for the following reasons:
- Because RRUN digitally delivers recorded music to third parties, it might be
sued for negligence, copyright infringement, trademark infringement or other
reasons.
- These claims might include, among others, claims that by hosting, directly or
indirectly, the websites of third parties, it is liable for copyright or
trademark infringement or other wrongful actions by these third parties through
these websites.
- While RRUN has taken steps to prevent these claims, we cannot assure you that
RRUN will successfully defend these claims. Even if a claim does not result in
liability, RRUN could incur significant costs in investigating and defending
against them.
3) RRUN's success and ability to compete substantially depends on its
internally developed technologies and trademarks, which it protects through the
application of patent, copyright, trade secret and trademark laws.
- There is a possibility that patent applications or trademark registrations
may not be approved. Even if they are approved, its patents or trademarks may be
successfully challenged by others or invalidated.
- If its trademark registrations are not approved because third parties own
these trademarks, its use of these trademarks would be restricted unless it
enters into
9
arrangements with the third-party owners, which might not be possible on
commercially reasonable terms or at all.
- Despite its efforts to protect its proprietary rights from unauthorized use or
disclosure, parties may attempt to disclose, obtain or use its solutions or
technologies.
- The steps RRUN has taken may not prevent others from misappropriating its
solutions or technologies in foreign countries where laws or law enforcement
practices may not protect its proprietary rights as fully as in the United
States.
PROTECTION OF PROPRIETARY RIGHTS
RRUN's success and ability to compete substantially depends on its internally
developed technologies and trademarks, which it protects through a combination
of patent, copyright, trade secret and trademark laws. Patent applications or
trademark registrations may not be approved. Even if they are approved, its
patents or trademarks may be successfully challenged by others or invalidated.
If its trademark registrations are not approved because third parties own these
trademarks, its use of these trademarks would be restricted unless it enters
into arrangements with the third-party owners, which might not be possible on
commercially reasonable terms or at all. The primary forms of intellectual
property protection for its products and services internationally are patents
and copyrights. Patent protection throughout the world is generally established
on a country-by-country basis.
To date, RRUN has not applied for any patents outside the United States. It may
do so in the future. Copyrights throughout the world are protected by several
international treaties, including the Berne Convention for the Protection of
Literary and Artistic Works. Despite these international laws, the level of
practical protection for intellectual property varies among countries. In
particular, United States government officials have criticized various
countries, including China and Brazil, for inadequate intellectual property
protection. If its intellectual property is infringed in any country without a
high level of intellectual property protection, its business could be harmed.
RRUN generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners, and generally controls access to
and distribution of its technologies, documentation and other proprietary
information.
Despite its efforts to protect its proprietary rights from unauthorized use or
disclosure, parties may attempt to disclose, obtain or use its solutions or
technologies. The steps RRUN has taken may not prevent others from
misappropriating its solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect its
proprietary rights as fully as in the United States. RRUN has licensed, and it
may license in the future, certain proprietary rights to third parties.
While it attempts to ensure that the quality of its brand is maintained by its
business partners, they may take actions that could impair the value of its
proprietary rights or its reputation. In addition, these business partners may
not take the same steps RRUN has taken to prevent others from misappropriating
its solutions or technologies.
10
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
RAHX FX is designed to accurately record, collect, and distribute music
royalties to their rightful owners. Since digital music emerged on the
Internet, record companies have been searching for a viable system that allows
them to use a financial system that will appeal to consumers. The RAHX FX
digital media component allows for consumers to purchase music for a reasonable
price, and in turn deposit the money into the account of the copyright owner.
Second, if other P2P media services employ the RAHX FX
financial subsystem, RRUN expects that it may save record companies and
copyright owners the time and money otherwise expended in lawsuits. Third, RRUN
anticipates that through RAHX FX, artists and record labels can generate revenue
for no additional costs. For every dollar generated on a sale of a CD, tape, or
vinyl record, the artist and record label incurs costs due to the manufacturing
and marketing dollars spent on the physical recording. With digital music,
there is no additional manufacturing or marketing costs as the music product of
the artist and record label is only a digital file of a sound recording.
Fourth, RRUN believes that RAHX FX will allow consumers to easily locate
outdated or hard-to-find songs; and can provide compensation to copyright owners
for these music recordings. Many times record companies stop distributing music
recordings because it may be too expensive to manufacture and inventory product
that is not in high demand. As a result, consumers are unable to find older
music, and artists are not able earn revenue from these potential sales. RAHX
FX expects that it can provide a system that will benefit both consumers and
artists. Fifth, RRUN expects that RAHX FX will give independent artists an
opportunity to showcase their talent and generate revenue from the sales of
their music. Through RAHX FX, independent artists may have another medium that
directly distributes their music over the Internet. As a result, artists may be
able to maximize their revenues and retain control of their music.
EMPLOYEES
At December 31, 2001, RRUN had five Executive Officers and three Directors, and
employed a total of 13 people including officers and employees . RRUN and its
subsidiaries intend to hire additional employees in the foreseeable future.
RESEARCH AND DEVELOPMENT EXPENDITURES
RRUN expects to incur research and development expenditures over the twelve
months following December 31, 2001. The amounts to be incurred are entirely
dependent upon the amount of additional funding we will require to support such
efforts. It is impossible to give a meaningful forecast at this time as to the
amounts of research and development expenditures that will be incurred.
Year Ended Year Ended
June 30, 2001 Dec. 31, 2001
------------- -------------
RRUN Ventures Network, Inc. $0 $778,258
11
Item 2. Description of Property
We have no real estate property holdings and at this time we have no agreements
to acquire any properties. During August 2001, the Company moved its
headquarters into leased premises at 62 W. 8th Avenue, 4th Floor, Vancouver,
British Columbia, Canada V5Y 1M7. RRUN has an option to secure additional space
in the building. The lease commitment expires on December 31, 2002.
Item 3. 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.
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. All amounts have been included in the
Financial Statements as of December 31, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the fiscal year
ended December 31, 2001, to a vote of security holders through the solicitation
of proxies or otherwise.
12
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
Prior to September, 2001, there was no trading market for our common stock. The
Company received approval for listing and in September, 2001, the Company
obtained a trading symbol of "RRUN" and began trading on the NASD
Over-the-Counter Bulletin Board. Although we have a listing on the Bulletin
Board, it is impossible to know or predict from day to day how active that
market will be. There presently is a trading market for our stock, however, we
cannot guarantee that a trading market will continue. As at December 31, 2001
there were 144 record holders of the Company's common stock.
Market Price
Our common stock is quoted at the present time. At April 9, 2002, our stock's
closing price was $0.30 per share. This price, however, is an inter-dealer price
without retail mark-up, mark-down or commission and may not represent an actual
transaction. The Securities and Exchange Commission has adopted a Rule that
defines a "penny stock," for purposes relevant to us, as any equity security
that has a market price of less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. Our common stock
is presently considered a "penny stock" and is subject to such market rules.
HIGH LOW
----- -----
2001**
First Quarter Not Trading*
Second Quarter Not Trading*
Third Quarter $3.10 $1.50
Fourth Quarter $1.50 $0.45
2002**
First Quarter $0.60 $0.10
--------------------------------------------------------------------------------
*Trading of our stock did not begin until late September 2001.
** The prices are all "closing" prices and appear as approximate figures.
Dividends
We have not paid any dividends to date, and have no plans to do so in the
immediate future.
Transfer Agent
We have retained the services of Jersey Transfer and Trust as our transfer agent
at this time.
13
Recent Sales of Unregistered Securities
During September of 2001, the Company issued 1,845,000 shares of its previously
authorized, but unissued common stock. The shares were issued to three persons
in exchange for the cancellation of debt. The transactions were valued at $0.02
per share. 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 of 2001, the Company issued 670,000 shares of its previously
authorized, but unissued common stock. The shares were issued to three persons
in exchange for cash. The transactions were valued at $0.02 per share. 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 of 2001, the Company issued 200,000 shares of its previously
authorized, but unissued common stock. The shares were issued to one company in
exchange for consulting services. The transaction was valued at $0.02 per
share. The transaction was an isolated transaction with a person having a close
affiliation with the Company 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 of 2001, the Company issued 2,544 shares of its previously
authorized, but unissued common stock. The shares were issued to one person in
exchange for the cancellation of debt. The transaction was valued at $1.00 per
share. The transaction was an isolated transaction with a person having a close
affiliation with the Company 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 of 2001, the Company issued 20,000 shares of its previously
authorized, but unissued common stock. The shares were issued to one person in
exchange for the cancellation of debt. The transactions were valued at $0.75
per share. The transaction was an isolated transaction with a person having a
close affiliation with the Company 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 December of 2001, the Company 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 $0.20 per share. For each
share issued, the purchaser was also given warrants for the purchase of 2 common
shares at $0.20 per share. The transaction was an isolated transaction with one
person having a
14
close affiliation with the Company 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.
RRUN also issued during the fiscal year ended December 31, 2001, incentive stock
options to the following officers, directors and consultants.
Optionee Options Granted
-------- ---------------
Ray Hawkins 100,000
Pavel Bains 100,000
Edwin Kwong 100,000
Saya Kyvrikosaios 100,000
Emanuel Koseos 100,000
16 other consultants & employees 781,500
-----------
Total # of Options Granted 1,281,500
The options have various exercise prices of between $0.10/share and $0.75/share.
The options were issued to a total of 21 officers, directors, employees and
consultants all having a close association with the Company and were exempt from
registration under Section 4(2) of the Securities Act of 1933.
RRUN also issued common stock warrants to staff, consultants and advisors. No
warrants were issued to Directors and Officers. No warrant holder received an
issuance of warrants to make such warrant holder a 5% or greater stockholder of
the Company. The total number of warrants issued as of December 31, 2001 was
1,744,650 shares with an exercise price ranging from $0.10 to $3.00 per share.
None of these common stock warrants has been exercised as of December 31, 2001.
The warrants were issued for services rendered to a total of 14 staff,
consultants and advisors, all having a business association with the Company
and were exempt from registration under Section 4(2) of the Securities Act of
1933.
Item 6. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
The following discussion should be read along with the financial statements and
notes, and by other more detailed financial information appearing in other parts
of this annual report.
BUSINESS STRATEGY FOR RAHX 1.0
15
From System Architecture Design to Alpha and Beta releases and testing to full
release, RAHX hopes to be develop RAHX 1.0 at an accelerated cycle of six to
nine months. The development of all features of RAHX 1.0 will require a staff
of 25 consisting of programmers/integrators, project managers, and a projected
budget of $2 million. In the event the Company does not acquire the necessary
capital, the Company plans to reduce the number of features in the 1.0 version
of the product and to reduce the staff and capital required while still
attaining the commercial release of a version of the product.
RRUN intends to file for a patent on RAHX and all of its components when it
completes its working prototype. Although the technology used to create RAHX is
proprietary, RRUN expects that others may be able to substantially reproduce the
patented results within six months. RRUN expects that it must devote a minimum
of approximately 5% of RAHX Inc. revenues towards RAHX research and development.
Over the twelve months following December 31, 2001, RRUN will conduct
significant product research and development, or R & D for its Peer to Peer
based (P2P) product, RAHX 1.0 and its RAHX FX component.
The R & D anticipated to be executed by RRUN for RAHX 1.0 will include but will
not be limited to:
- Development of the RAHX 1.0 software and its RAHX FX software subset
components
- Development of the RAHX 1.0 back end platform system (AXXUS)
- Development of various RAHX 1.0 software licensee user tools
Such research and development is dependent upon our ability to raise sufficient
capital to support R & D.
Within the twelve months following December 31, 2001, RRUN intends to invest
significantly in equipment to be used in developing products, the RAHX 1.0 and
AXXUS back end technology and corporate file servers. Such investment is
dependent upon RRUN's ability to raise additional capital.
The equipment invested in will include but not limited to:
- Audio and Video Production equipment for the development of the interactive
front end websites
- Web, File, DNS and Proxy Servers that will handle the products' capacity needs
- Networking/Communication servers to load balance the traffic coming through
the RAHX websites
RRUN will continue its main operations out of its Vancouver, British Columbia,
Canada facility. RRUN currently operates a business development office in Los
Angeles, CA and hopes to open other business development offices in U.S. cities.
RRUN VENTURES NETWORK INC. IMPLEMENTATION PLAN
16
RRUN requires approximately $6,000,000 in operational capital for the 12 month
period following December 31, 2001. The RRUN Ventures Network Inc.
implementation is planned over a period of four phases totaling 12 months. Each
phase is three months. The implementation plan during each phase describes the
activity of RAHX across various departments such as Operations, Finance, Venture
Development/Product Development, and Sales/Marketing/Business Development.
RRUN hopes to secure the financing to satisfy the capital needs for each phase
through the execution of various funding methods, primarily private placement
investments. RRUN hopes to achieve this by securing relationships with
investment bankers, venture capitals, and/or finance advisors that have the
experience and relationships to aid RRUN 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 capitalist companies.
If the
funding is unavailable, in whole or in part, at the expected time, RRUN 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 RRUN will raise sufficient capital to meet it business plan. In
addition to delays to the implementation plan, if sufficient capital is not
raised, RRUN may suffer consequences including but not limited to the following;
RRUN may have to suspend or discontinue operations of one or more of its
business units, such as RAHX; RRUN may have to suspend or discontinue its entire
operation.
RRUN's 2002 implementation plan regarding its core business unit RAHX is:
Phase One (Jan - March 2002): continue RAHX 1.0 software development; form RAHX
Live division of RAHX, Inc.; continue sourcing additional vertical markets for
AXXUS Net Software; commence venture development of new RRUN business units;
Phase Two (April - June 2002): Finalize Operations and Marketing plans; Commence
testing of RAHX 1.0 service and software; develop first RAHX live events;
release completed components of the RAHX 1.0 service; commence additional staff
hiring.
Phase Three (July - September 2002): Secure capital; commence marketing of RAHX
1.0; open business development office in Toronto, Ontario; introduce new
features of RAHX 1.0 when complete.
Phase Four (October - December 2002): continue marketing of RAHX 1.0; Secure
next stage of Capital; open business development office in New York, NY;
introduce new features of RAHX 1.0 when complete.
MARKETING PLAN
KEY OBJECTIVES
With RAHX 1.0 and its RAHX FX component being the initial key product under
RRUN, the marketing strategy is designed to help the Company realize the
following objectives:
1. Develop a RAHX.com brand awareness to attract customers;
17
2. Build a strong RAHX user and business customer base for its RAHX 1.0 service;
3. Develop RAHX awareness in the Digital Media industry.
The marketing strategy covers elements of distribution, promotion, and pricing.
The marketing strategy spans across the upcoming fiscal year in accordance with
the aforementioned RRUN implementation plan.
DISTRIBUTION STRATEGY
The objectives of the distribution strategy are:
1) To execute a rapid, efficient and widespread deployment of:
- The RAHX 1.0 online web service and its respective software products (RAHX FX,
RAHX LM, RAHX BM)
2) To produce, launch and promote the RAHX.com and RAHX.net websites to serve as
the distribution location for the RAHX 1.0 software products
3) To achieve a significant distribution reach through RAHX 1.0 business
customers.
Whether we are able to achieve our distribution strategy will depend upon our
ability to raise sufficient capital to support such strategy.
PROMOTION STRATEGY
The objective of the promotion strategy is to effectively invest promotion and
advertising dollars to attain a critical mass of RAHX users and RAHX enabled
business. Dependent upon our ability to raise sufficient capital, within the
first year RRUN hopes to:
- Develop RAHX brand awareness
- Build a base of loyal RAHX users
- Build a base of loyal RAHX business users
- Develop relationships with digital music companies and P2P Media Services
- Develop relationships with leading companies in the content industries, i.e.,
music, movies, publishing, etc.
The details of the promotion strategy are as follows:
The promotional mix will revolve around Direct Sales, Internet Marketing, Trade
Shows, Promotions, Advertising and Publicity in support of the launches of
RAHX.com and RAHX 1.0.
1) Direct Sales
RRUN intends to build a RAHX sales team that will research, develop, and
maintain relationships with potential customers. This team is expected to serve
as liaisons with licensee customers and constantly be on the front lines
searching out new customers at tradeshows, conventions, etc.
18
2) Internet Marketing
RRUN seeks to develop a marketing program that will research, develop and
implement an online marketing strategy to create RAHX.com and RAHX 1.0 service
and software brand awareness and get the RAHX message to consumers and potential
licensee customers. This will include search engine positioning, affiliate
programs, online news releases, direct mailing lists, newsgroup monitoring,
newsletter distribution, and other innovative web marketing tools still in
development.
3) Trade Shows
Attendance at industry trade shows can provide RAHX 1.0 with an excellent cost
effective opportunity to source potential partners, competition, and other
product development opportunities. The RAHX sales team would attend trade shows
that focus on the P2P and digital entertainment industry.
4) Promotions
- Promotional teams - RAHX aims to develop brand awareness in the minds of its
target consumer market and increase the RAHX 1.0 user base through street-level
marketing tactics. The RAHX Promotion Teams will visit local hot spots
frequented by the target consumers, including universities, nightclubs, sporting
events, etc.
- Sponsorships - RAHX plans to sponsor entertainment, sporting, music and other
events in each North American market that targets typical RAHX consumers. This
effort can provide an opportunity to develop RAHX brand awareness and to
associate the RAHX brand with the lifestyle of the target consumer.
5) Advertising
Dependent upon our ability to raise capital, RAHX plans to implement an
advertising campaign in each local market to create RAHX brand awareness and
increase RAHX membership. The advertising campaign may be done through print,
radio, and the Internet. Each of these mediums will be targeted towards the
consumer market.
6) Publicity
RAHX seeks to generate publicity through news releases, publicity campaigns and,
charity events. These marketing initiatives are intended to spread the RAHX
name in each local market and tie RAHX in with the local community.
PRICING STRATEGY
RAHX 1.0 will be offered to consumers and businesses and licensees for free
through the RAHX websites. However, as stated, consumers will be charged for
premium services, and for downloading music a subscription fee or a per music
recording price. RAHX and the content owners will set the actual price for the
music fees.
19
FORWARD-LOOKING STATEMENTS
Many statements made in this report are forward-looking statements that are not
based on historical facts. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements. The forward-looking statements made in this report
relate only to events as of the date on which the statements are made.
Item 7. Financial Statements
The information requested by this item is set forth in Item 13 of this Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
In response to this item we incorporate by reference our response set forth
under Item 8 of our Form 10KSB filed with the Securities and Exchange Commission
on October 15, 2001.
PART III
Item 9. Directors and Executive Officers of the Registrant
Name Age Offices Held
-------------------------------- ---- ------------------------------------
Ray A. Hawkins (1) 32 President, Chief Executive Officer,
Director
Edwin Kwong (1) 30 Chief Operations Officer, Chief
Financial Officer, Treasurer,
Secretary and Director
Saya Kyvrikosaios (1) 34 Chief Venture Development. Officer,
Director
Pavel Bains 25 Executive Vice President - Media &
Entertainment
Emanuel Koseos 40 Chief Technology Officer
(1) Directors were appointed to the Board on August 17, 2001.
TERMS OF OFFICE
All executive officers are employed by RRUN on a full-time basis. The above
listed directors will serve until the next annual meeting of the shareholders or
until their death, resignation, retirement, removal, or disqualification, or
until their successors have been duly elected and qualified. Vacancies in the
existing Board of Director are filled by
20
majority vote of the remaining Directors. The officers serve at the will of the
Board of Directors. Saya Kyvrikosaios and Emanuel Koseos are related as
Brothers. There are no other family relationships between any executive officer
And director.
MANAGEMENT
Ray Hawkins - Director, President & CEO.
As the President & CEO, Mr. Hawkins duties include the forging of business
development, securing of partnerships, and overseeing product development, and
marketing campaigns. Mr. Hawkins is a serial entrepreneur with over a decade of
experience in the fields of media, entertainment, and marketing. From
1990-1995, Mr. Hawkins operated his own music artist management firm, RAH
Talent. During that time Mr. Hawkins also acted as the CEO of Empire
Communications, a record label that produced a number of cutting edge music
artists. From 1993-1997 Mr. Hawkins acted as a music consultant, procuring
cutting edge music for movie and television production houses like Paramount
Pictures and video game companies like Electronic Arts. From 1996-1999 Mr.
Hawkins was the founder, President, and CEO of TAXI Communications Network Inc.,
a leading edge media and marketing firm that produced a popular local culture
magazine, TAXI Vancouver, and developed urban based marketing campaigns for
companies like Labatt Breweries, Universal Music, Virgin Megastore and Molson
Canada.
Edwin Kwong - Director, COO and CFO.
Mr. Kwong uses his background in finance and project management to oversee the
day-to-day operations of RRUN.Mr. Kwong has over 5 years of international
management consulting experience in Project Management and Finance in Canada and
Asia. In 1993 Mr. Kwong received a Bachelor of Commerce in Finance from the
University of British Columbia. In 1996 Mr. Kwong received a Graduate Diploma
in Asian Pacific Management. From 1994-1996 Mr. Kwong worked as Investment
Advisor Assistant for Great Pacific Management in Vancouver. From 1996 to 1997
Mr. Kwong acted as a consultant in Hong Kong for Manulife International Ltd. and
Ernst and Young Management Consulting. From 1997-1998 Mr. Kwong was a Project
Executive for Hopewell Holdings in Hong Kong and Indonesia. In 1998 Mr. Kwong
completed his Level 1 examination in the Chartered Financial Analyst program.
From 1999-2000 Mr. Kwong was the Senior Business Specialist for Intria Items
Inc., a financial technology solutions division of Canadian Imperial Bank of
Commerce.
Saya Kyvrikosaios - Director, Chief Development Officer.
Mr. Kyvrikosaios is a well-diversified management and technology professional
and uses his skills and experience to lead the product and technology
development for RRUN. From 1991-1995 Mr. Kyvrikosaios acted as the Branch
Manager and Implementation Consultant for Laurentian Bank. From 1995-1998 Mr.
Kyvrikosaios was the Project Manager and Technology Implementation Consultant
for Credit Union Enterprise Datawest Ltd. From 1998-2000 Mr. Kyvrikosaios acted
as the Project Leader of Western Canada for INTRIA Items Inc., a subsidiary of
the Canadian Imperial
21
Bank of Commerce. In 1999 Mr. Kyvrikosaios received his Bachelor's degree in
Business Administration from Simon Fraser University.
Pavel Bains, Executive Vice President, Media & Entertainment.
Mr. Bains has over five years of experience in marketing and promotion,
e-commerce development, and business strategy. Prior to RRUN, Mr. Bains was
employed as a Marketing Representative for both Labatt Breweries and Budweiser
where he produced promotional and marketing programs aimed at the urban market.
Mr. Bains has also tenured with the National Basketball Association's Vancouver
Grizzlies in a media relations role. Mr. Bains has a Bachelor's degree in
Business Administration from Simon Fraser University where he won a
top-consulting award for his work for Amazon.com.
Emanuel Koseos, Chief Technology Officer.
Mr. Koseos has two decades of diverse leadership experience with a variety of
entrepreneurial, high technology, and market-making businesses. His most recent
role was as a Senior Engineer at Ericsson Incorporated (U.S.). Mr. Koseos
continues his entrepreneurial interests through Kaph Data Engineering, as an
independent business development consultant specializing in systems integration
and Internet technologies. Mr. Koseos is a member of MIT Technology Panel,
USENIX, Adobe Developer Group, Linux Kernel Hackers, Active Perl Developers,
Rational Partners, DevX, and SiteBuilder Networks. He maintains business
partnerships with Amazon, Beyond, Infoseek, ATT, Talk City, and Real Networks
Internet-based businesses.
SIGNIFICANT EMPLOYEES
Other than those individuals described above, RRUN does not have any employees
who are not executive officers that are expected to make a significant
contribution to the business.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following persons have failed to file, on a timely basis, the identified
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year:
Number Transactions Known Failures
Of late Not Timely To File a
Name and principal position Reports Reported Required Form
---------------------------------- ------- ------------ ------------------
Ray A. Hawkins 1 0 0
CEO, President and Director
Edwin Kwong 1 0 0
COO, CFO, Treasurer,
Secretary and Director
Saya Kyvrikosaios 1 0 0
Chief Venture Development.
22
Officer and Director
Pavel Bains 2 0 0
Executive Vice President,
Media & Entertainment
Emanuel Koseos 0 0 0
Chief Technology Officer
Note: Form 3 was filed by each Director within 30 days of the occurrence of the
event necessitating the filing. Such event was the appointment by the Company to
the Board of Directors or as an Officer of the Company.
Item 10. Executive Compensation
The following table sets forth certain information as to our President and the
highest paid officers and directors for our last fiscal year ended December 31,
2001. No other compensation was paid to any such officers or directors during
this time period.
23
Annual Compensation Table
--------------------------------------------------------------------------------
--------------
Annual Compensation (1) Long Term
Compensation
----------------------- --------------------
------
Other
All
Annual Restricted
LTIP Other
Compen- Stock Options/
payouts Compen-
Name Title Year Salary Bonus sation Awarded SARs (#)
($) sation
-------- ----------- ---- -------- ------ ------- --------- -------- --
----- -------
Ray A. President, 2001 $16,137 $0 $0 $0 100,000
$0 $0
Hawkins CEO and
Director
--------------------------------------------------------------------------------
--------------
Edwin COO, CFO 2001 10,734 0 0 0 100,000
0 0
Kwong and Director
--------------------------------------------------------------------------------
--------------
Saya Chief 2001 24,712(2) 0 0 0 100,000
0 0
Kyvrikosaios Development
Officer and
Director
--------------------------------------------------------------------------------
--------------
Pavel Exec. Vice 2001 16,752(3) 0 0 0 100,000
0 0
Bains President
--------------------------------------------------------------------------------
--------------
Emanuel Chief 2001 6,645 0 0 0 100,000
0 0
Koseos Technology
Officer
--------------------------------------------------------------------------------
--------------
(1) Unless otherwise noted, compensation is for the six month period ended
December 31, 2001. There was no compensation paid by the Company to the
officers or directors of the Company prior to that time. As of December 31,
2001, no retirement, pension or insurance programs or other similar programs
have been adopted by RRUN for the benefit of its employees.
(2) Mr. Saya Kyvrikosaios was paid approximately 60% of this total in the six
month period ending June 30, 2001.
(3) Mr. Pavel Bains was paid approximately 56% of this total in the six month
period ending June 30, 2001.
Subsequent to December 31, 2001, the Company executed Management Services
Memorandums with five key directors/officers which are effective January 1,
2002. In addition to total signing bonuses of $258,000 which have no specific
payment date and are payable in cash or shares of the Company or its
subsidiary, RAHX, Inc., the memorandums provide for performance bonuses and
total annual compensation as follows:
Year ended December 31, 2002 $ 460,000
Year ended December 31, 2003 $ 460,000
Year ended December 31, 2004 $ 460,000
Year ended December 31, 2005 $ 380,000
Year ended December 31, 2006 $ 380,000
Options/SAR Grants in Last Fiscal Year
(Individual Grants)
-------------------------------------------------------------------------------
Percent
Number of of Total
Securities options/SARs
Underlying granted Exercise
Options/SARs employees in or base
Name granted (#) fiscal year price ($/Sh) Expiration date
----------------- ----------- ------------ ------------ ---------------
Ray A. Hawkins 100,000 7.8% $ 0.10 9/5/2004
Edwin Kwong 100,000 7.8% $ 0.10 9/5/2004
Saya Kyvrikosaios 100,000 7.8% $ 0.10 9/5/2004
Emanuel Koseos 100,000 7.8% $ 0.50 9/5/2004
Pavel Bains 100,000 7.8% $ 0.10 9/5/2004
-------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
24
Value of
Number of unexercised
unexercised in-the-money
options/SARs options/SARs
Shares at FY-end(#) at FY-end($)
acquired on exercisable/ exercisable/
Name exercise (#) Value realized ($) unexercisable
unexercisable
------------------ ------------ ------------------ ------------- ------------
--
Ray A. Hawkins 0 0 75,000/25,000
$15,000/$5,000
Edwin Kwong 0 0 75,000/25,000
$15,000/$5,000
Saya Kyvrikosaios 0 0 75,000/25,000
$15,000/$5,000
Emanuel Koseos 0 0 10,000/90,000
$2,000/$18,000
Pavel Bains 0 0 75,000/25,000
$15,000/$5,000
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table lists as of March 31, 2002, the beneficial ownership of
RRUN's common stock by each person known by RRUN to beneficially own more than
5% of RRUN's common stock outstanding and by the officers and directors of RRUN
as a group. Except as otherwise indicated, all shares are owned directly. RRUN
knows of no other person who is the beneficial owner of more than five percent
of RRUN's common stock. Unless specifically indicated, the shareholders listed
possess sole voting and investment power with respect to the shares shown.
Directors, Officers and 5% Shares Beneficially
Stockholders Owned
----------------------------------------------------------------------------
Number Percent
------- -------
550605 B.C. Ltd. 2,814,000(1) 18.0%
4th Floor, 62 W. 8th Avenue
Vancouver, B.C. V5Y 1M7
Kaph Data Engineering Inc. 530,000(2) 3.4%
409 Lakewood Street
Lynchburg, VA 24501
Ray A. Hawkins 2,517,324(3) 15.9%
71-1075 Granville Street
Vancouver, B.C. V6Z 1L4
Pavel Bains 855,000(3) 5.4%
#101 - 1001 Broadway
Vancouver, B.C. V6H 4E4
Edwin Kwong 780,000(3) 4.8%
#5 - 744 West 7th Avenue
Vancouver, B.C. V5Z 1B8
Saya Kyvrikosaios 575,000(3) 3.7%
20230 Ashley Cresent
Maple Ridge, B.C. V2X 9N1
Emanuel Koseos 115,000(3) 0.8%
4th Floor, 62 W. 8th Avenue
Vancouver, B.C. V5Y 1M7
All RRUN directors and 4,824,343(4) 29.5%
officers as a group (5persons)
(1) Ray A. Hawkins owns 74% of 550605 B.C. Ltd.
(2) Emanuel Koseos owns 85% of Kaph Data Engineering Inc.
(3) Includes shares issuable upon the exercise of options within 60 days.
(4) Includes 795,000 shares issuable upon the exercise of options within 60
days.
Item 12. Certain Relationships and Related Transactions
Except as disclosed below, none of the following parties since the date of
RRUN's incorporation has had any material interest, direct or indirect, in any
transaction with RRUN or in any presently proposed transaction that, in either
case, has or will materially affect RRUN.
- Director or officer of RRUN
- Proposed nominee for election as a director of RRUN
- Person who beneficially owns, directly or indirectly, shares carrying more
than 10% of the voting rights attached to all outstanding shares of RRUN.
- Promoter of RRUN
- Relative or spouse of any of the foregoing persons
Certain Relationships and Related Transactions
1. Incentive Stock Options. Option rights issued to Officers and Directors under
our Incentive Stock Option Plan. A copy of the Plan as well as Incentive Stock
Option Agreements for each Executive Officer and Director were attached as
Exhibits to Form 10-KSB filed on October 15, 2001.
2. As of September 1, 2001, RRUN Ventures Network Inc. owed a total of $321,598
to RRUN Ventures Network Inc.'s President and CEO, Ray Hawkins. RRUN is
obligated to repay such loans as per terms of a Promissory Note issued to Ray
Hawkins dated September 1, 2001. This debt is interest free and has a repayment
term of one year from the date of September 1, 2001. In exchange for a
reduction
of $50,544 indebtedness by RRUN, Ray Hawkins subscribed to additional shares of
common stock of the Company. Such stock subscriptions are described in further
detail under the "Resent Sales of Unregistered Securities". The Company also
repaid $11,537 during the fourth quarter of 2001. In addition, at September 1,
2001, Ray Hawkins was granted the option to convert to common shares an
additional $20,000 in debt owed by the Company. The terms of such conversion
are that Ray Hawkins is granted the right to convert such debt to stock at
$0.02 per share; however, Ray Hawkins cannot execute such conversion until
after February 28, 2002.
In February, 2002, the Company executed an amendment to the Promissory Note
dated September 1, 2001 with Ray Hawkins. The amended Promissory reflected the
amount owning from RRUN to Ray Hawkins as of December 31, 2001, as a total of
$259,517.00. RRUN is obligated to repay such loans as per terms of the amended
Promissory Note issued to Ray Hawkins in February, 2002. The debt is interest
free and has a repayment term of one year from the date of the February, 2002
Promissory Note. Ray Hawkins was granted the option to convert to common shares
the entire amount of outstanding debt owed to Ray Hawkins by the Company. The
terms of such conversion are that Ray Hawkins is granted the right to convert
such debt to stock at $0.02 per share. Ray Hawkins cannot execute such
conversion until after September 1, 2002.
26
amount of outstanding debt owed to Ray by the Company. The terms of such
conversion are that Ray Hawkins is granted the right to convert such debt to
stock at $0.02 per share. Ray Hawkins cannot execute such conversion until after
September 1, 2002.
3. Emanuel Koseos, our Chief Technology Officer, is the owner of Kaph Data
Engineering Inc. Kaph is a related party to RRUN as follows: (1) RRUN Ventures
Inc. owned 15% of Kaph Data Engineering inc. As of August 17, 2001 RRUN now owns
that 15% of Kaph Data Engineering inc. as a result of the merger between United
Management Inc. and RRUN Ventures Inc. and (2) Kaph provided and may continue to
provide professional services to RRUN. Compensation paid to Kaph for such
services is determined at the fair market value of such services customarily
paid in the industry.
4. In September , 2001, RRUN Ventures Network, Inc. owed a total of $9,435 to
RRUN Ventures Network, Inc.'s COO, Edwin Kwong. RRUN is obligated to repay such
loans. This debt is interest free and repayable within one year from date of the
promissory note issued to Edwin Kwong from RRUN dated
September 1, 2001. In exchange for a reduction of $3,900 indebtedness by RRUN,
Edwin Kwong subscribed to additional shares of common stock of the Company. Such
stock subscriptions are described in further detail under the "Resent Sales of
Unregistered Securities". In addition, at September 1, 2001, Edwin Kwong was
granted the option to convert the outstanding balance in debt to common shares
at $0.02 per share; however, Edwin Kwong cannot execute such conversion until
after September 1, 2002.
At December 31, RRUN Ventures Network Inc. owed a balance of $103,053 to Edwin
Kwong. This debt is interest free and is repayable within one year from the
Date of each promissory note, respectively issued to Edwin Kwong.
As of February 7, RRUN executed two Promissory Notes totaling $100,035. In
addition, Edwin Kwong was granted the option to convert to common shares the
outstanding balance in debt owed by the Company at $0.10 per share; however,
Edwin Kwong cannot execute such conversion until after May 31, 2002. As of
February 27, 2002, RRUN executed a Promissory Note totaling $5,550, where by
Edwin Kwong was granted the option to convert to common shares the outstanding
balance in debt owed by the Company at $0.17 per share; however, Edwin Kwong
cannot execute such conversion until after August 31, 2002.
27
PART IV
--------
Item 13. Exhibits, Financial Statements Schedules and Reports on Form 8-K
Exhibits
Item 13(a) Financial Statements
RRUN's audited Consolidated Financial Statements, as described below, are
attached hereto.
1. Audited Financial Statements
(a) Auditor's Report
(b) Consolidated Balance Sheets
(c) Consolidated Statements of Operations and Deficit
(d) Consolidated Statements of Cash Flows
(e) Consolidated Statements of Stockholder's Deficiency
(f) Notes to Consolidated Financial Statements
28
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
Morgan & Company
Chartered Accountants
AUDITORS' REPORT
To the Shareholders
RRUN Ventures Network Inc.
(Formerly United Management, Inc.)
(A development stage company)
We have audited the consolidated balance sheets of RRUN Ventures Network Inc.
(formerly United Management, Inc.) (a development stage company) as at December
31, 2001 and 2000, and the consolidated statements of operations and deficit
accumulated during the development stage, cash flows and stockholders' equity
for the year ended December 31, 2001, and for the period from inception, October
12, 2000, to December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2001
and 2000, and the results of its operations and cash flows for the year ended
December 31, 2001, and for the period from inception, October 12, 2000, to
December 31, 2000 in accordance with United States generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1(c) to the
consolidated financial statements, the Company has suffered recurring losses and
net cash outflows from operations since inception. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 1(c).
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, B.C. /s/ Morgan & Company
March 28, 2002 Chartered Accountants
Tel: (604) 687-5841 P.O. Box 10007 Pacific Centre
FAX: (604) 687-0075 Suite 1488-700 West Georgia Street
www.morgan-cas.com Member of ACPA Vancouver, B.C. V7Y 1A1
International
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
DECEMBER 31
2001 2000
------------ ---------
ASSETS
Current
Cash $ 1,421 $ 10,794
Goods and Services
Tax recoverable 5,014 -
Prepaid expense 342 500
------------ ---------
6,777 11,294
Capital Assets (Note 4) 36,929 -
Investment (Note 5) 6,750 6,750
------------ ---------
$ 50,456 $ 18,044
====================================================
LIABILITIES
Current
Accounts payable $ 1,113,855 $ 32,114
Loans and advances
payable (Note 6) 518,998 66,803
------------ ---------
1,632,853 98,917
------------ ---------
STOCKHOLDERS' DEFICIENCY
Share Capital
Authorized:
100,000,000 common
shares, par value
0.0001 per share
Issued and outstanding:
14,614,724 common shares
at December 31, 2001 and
6,108,780 at
December 31, 2000 1,462 6,109
Add: Share subscriptions
received:
50,000 common shares
at December 31, 2001 and
0 at December 31, 2000 10,000 -
Additional paid-in
capital 109,744 4,622
Deficit (1,703,603) (91,604)
------------ ---------
(1,582,397) (80,873)
------------ ---------
$ 50,456 $ 18,044
====================================================
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
-------------------------------------------------------------
INCEPTION
OCTOBER 12
YEAR ENDED 2000 TO
DECEMBER 31 DECEMBER 31
2001 2000 2001
-------------------------------------------------------------
Revenue $ 4,000 $ - $ 4,000
Expenses
Administrative services 59,719 30,164 89,883
Amortization 6,428 - 6,428
Business development 216,408 - 216,408
Consulting 34,950 12,609 47,559
Equipment leases 14,921 - 14,921
Investor relations 126,147 - 126,147
Marketing 35,361 - 35,361
Media design 60,123 - 60,123
Office, rent and sundry 98,927 9,970 108,897
Professional fees 112,731 21,781 134,512
Software development 778,258 - 778,258
Travel 63,687 4,944 68,631
Wages and benefits 8,339 - 8,339
------------------------------------
1,615,999 79,468 1,691,467
------------------------------------
Loss Before the
Following 1,611,999 79,468 1,691,467
------------------------------------
Minority Interest in
Loss of Subsidiary - (219) (219)
------------------------------------
Net Loss For The Year $1,611,999 $ 79,249 $1,691,248
=============================================================
Net Loss Per Share $ 0.18 $ 0.01
===============================================
Weighted Average
Number Of Common
Shares Outstanding 8,854,553 5,612,594
===============================================
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
------------------------------------------------------------------
INCEPTION
OCTOBER 12
YEAR ENDED 2000 TO
DECEMBER 31 DECEMBER 31
2001 2000 2001
---------------------------------------------------------------------
Cash Flows From Operating
Activities
Net loss for the year $(1,611,999) $(79,249) $(1,691,248)
Adjustments To Reconcile Net
Loss To Net Cash Used By
Operating Activities
Amortization 6,428 - 6,428
Issue of common stock
for expenses 4,000 4,200 8,200
Minority interest in loss
of subsidiary - (219) (219)
Goods and Services Tax
recoverable (5,014) - (5,014)
Prepaid expense 158 (500) (342)
Accounts payable 1,005,937 32,114 1,038,051
Loans and advances payable 493,533 66,803 560,336
-------------------------------------
(106,957) 23,149 (83,808)
-------------------------------------
Cash Flows From Investing
Activities
Net asset deficiency of legal
parent at date of reverse
take-over transaction - (12,355) (12,355)
Purchase of capital assets (43,357) - (43,357)
-------------------------------------
(43,357) (12,355) (55,712)
-------------------------------------
Cash Flows From Financing
Activities
Shares issued for cash 13,400 - 13,400
Share subscriptions received 10,000 - 10,000
-------------------------------------
23,400 - 23,400
-------------------------------------
Increase (Decrease) In Cash (126,914) 10,794 (116,120)
Cash Acquired On Acquisition
Of Subsidiary 117,541 - 117,541
Cash, Beginning Of Year 10,794 - -
-------------------------------------
Cash, End Of Year $ 1,421 $ 10,794 $ 1,421
=====================================================================
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
DECEMBER 31, 2001
(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)
============================================================
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
1. 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.
c) Going Concern
Since inception, the Company has suffered recurring losses, net cash outflows
from operations and, at December 31, 2001, has a working capital deficiency of
$1,626,076. 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.
2. 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
judgment.
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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%
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 ratably 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.
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
3. ACQUISITION OF SUBSIDIARY
a) Effective November 13, 2000, RRUN Ventures, Inc. acquired 67% of the
issued and outstanding shares of RAHX, Inc. by issuing 2,814,000 common shares.
Since the transaction resulted in the former shareholders of RAHX, Inc. owning
the majority of the issued shares of RRUN Ventures, Inc., the transaction, which
is referred to as a "reverse take-over", has been treated for accounting
purposes as an acquisition by RAHX, Inc. of the net assets and liabilities of
RRUN Ventures, Inc. Under this purchase method of accounting, the results of
operations of RRUN Ventures, Inc. are included in these consolidated financial
statements from November 13, 2000.
RRUN Ventures Inc. had a net asset deficiency at the acquisition date,
therefore, the 2,814,000 common shares issued on acquisition were issued at an
ascribed value of $Nil with the net asset deficiency of $12,355 charged to
deficit. RAHX, Inc. is deemed to be the purchaser for accounting purposes.
Accordingly, its net assets are included in the consolidated balance sheet at
their previously recorded amounts.
The acquisition is summarized as follows:
Current Assets $ 11,357
Current Liabilities 23,712
----------
Net Asset Deficiency $ (12,355)
==========
b) Effective August 17, 2001, RRUN Ventures Network Inc. acquired 100% of
the issued and outstanding shares of RRUN Ventures, Inc. by issuing 305,439
common shares. Since the transaction resulted in the former shareholders of
RRUN Ventures, Inc. owning the majority of the issued shares of RRUN Ventures
Network Inc., the transaction, which is referred to as a "reverse take-over",
has been treated for accounting purposes as an acquisition by RRUN Ventures,
Inc. of the net assets and liabilities of RRUN Ventures Network Inc. Under this
purchase method of accounting, the results of operations of RRUN Ventures
Network Inc. are included in these consolidated financial statements from August
17, 2001.
Control of the net assets of RRUN Ventures Network Inc. was acquired for
consideration of $28,631 representing the fair value of the assets of RRUN
Ventures Network Inc. RRUN Ventures, Inc. is deemed to be the purchaser for
accounting purposes. Accordingly, its net assets are included in the balance
sheet at their previously recorded values.
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
3. ACQUISITION OF SUBSIDIARY (Continued)
The acquisition is summarized as follows:
Current Assets (cash) $ 117,541
Current Liabilities (88,910)
------------
$ 28,631
============
4. CAPITAL ASSETS
2001 2000
------------------------------- ------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------------------------- ------------
Computer equipment $40,621 $ 6,106 $ 34,515 $ -
Computer software 445 222 223 -
Office furniture and equipment 2,291 100 2,191 -
------------------------------- ------------
$43,357 $ 6,428 $ 36,929 $ -
=============================== ============
5. INVESTMENT
Kaph Data Engineering Inc. - 159 common shares
representing 15% of the Company's issued and
outstanding common share capital $ 6,750
============
6. STOCK OPTIONS AND WARRANTS OUTSTANDING
A total of 1,281,500 stock options have been granted at various prices between
$0.10 and $0.75 per share and expire between September 5 and September 10,
2004. In accordance with the vesting provisions of these agreements, 735,800
stock options are exercisable at December 31, 2001.
In addition, common stock warrants for the purchase of up to 1,944,650 common
shares have been issued at December 31, 2001 with exercise prices between
$0.10 and $3.00 per share. These warrants expire between September 4, 2004 and
September 18, 2006.
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
7. RELATED PARTY TRANSACTIONS
Loans and advances payable are due to related parties, are interest free, and
are repayable within one year. Certain of the loans and advances are
convertible to common shares as follows:
CONVERSION CONVERSION
AMOUNT PRICE AFTER
----------- ---------- -----------------
$ 20,000 $ 0.02 February 28, 2002
$ 25,654 $ 0.02 September 1, 2002
$ 1,386 $ 0.02 September 14, 2002
$ 1,000 $ 0.02 September 17, 2002
$ 205,095 $ 0.10 May 31, 2002
$ 9,417 $ 0.12 August 31, 2002
8. COMMITMENT
The Company has leased real estate at $2,675 per month to December 31, 2002,
And at $9,000 per month to October 31, 2002.
9. SUBSEQUENT EVENT
a)
Subsequent to December 31, 2001, the Company executed Management Services
Memorandums with five key directors/officers which are effective January 1,
2002. In addition to total signing bonuses of $258,000, which have no
specific payment date and are payable in cash or shares of the Company or its
subsidiary, RAHX, Inc., the memorandums provide for performance bonuses and
total annual compensation as follows:
Year ended December 31, 2002 $ 460,000
Year ended December 31, 2003 $ 460,000
Year ended December 31, 2004 $ 460,000
Year ended December 31, 2005 $ 380,000
Year ended December 31, 2006 $ 380,000
b)
Subsequent to December 31, 2001, a total of 2,200,000 stock options have been
granted at various prices between $0.10 and $0.20 per share and expire between
February 5 and February 25, 2005.
RRUN VENTURES NETWORK INC.
(Formerly United Management, Inc.)
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
(Stated in U.S. Dollars)
9. SUBSEQUENT EVENTS (Continued)
c) Subsequent to December 31, 2001, the Company issued common stock warrants
for the purchase of up to 900,000 common shares at various prices between
$0.10 and $1.00. These warrants expire between January 17 and March 22, 2005.
d) Subsequent to December 31, 2001, the Company issued 500,000 common shares
to settle accounts payable of $50,000 at December 31, 2001.
e) Subsequent to December 31, 2001, the Company issued 500,000 common shares
as part consideration under a business consulting agreement entered into in
February 2002.
f) Subsequent to December 31, 2001, the Company amended the terms of certain
loans and advances referred to in Note 7 such that an additional $239,517 is
convertible to common shares at $0.02 per share after February 28, 2002.
Item 13(b) Exhibits
---------------------
2.1 Agreement and Plan of Reorganization (1)
2.2 Amendment to Merger Agreement (1)
3.1 Amended Articles of Incorporation (1)
3.2 Amended Bylaws (2)
3.3 Stock Option Plan of RRUN Ventures Network, Inc. (2)
10.1 Sample of Form of Promissory Note: Ray Hawkins
10.2 Sample of Form of Promissory Note: Edwin Kwong
10.3 Lease Agreement dated November 9, 1999 with RAH Media
10.4 Assignment of Lease dated August 31, 2001 with RAH Media
10.5 Management Services Memorandum: Ray Hawkins
10.6 Management Services Memorandum: Edwin Kwong
10.7 Management Services Memorandum: Saya Kyvrikosaios
10.8 Management Services Memorandum: Pavel Bains
10.9 Management Services Memorandum: Emanuel Koseos
16. Letter from Cordovano & Harvey (3)
21. Subsidiaries of the Registrant
99.1 Risk Factors
99.2 Press Release dated October 11, 2001 (2)
99.3 Press Release dated October 10, 2001 (2)
99.4 Incentive Stock Option Agreement with Ray Hawkins (2)
99.5 Incentive Stock Option Agreement with Edwin Kwong (2)
99.6 Incentive Stock Option Agreement with Saya Kyvrikosaios (2)
99.7 Incentive Stock Option Agreement with Pavel Bains (2)
99.8 Incentive Stock Option Agreement with Emanuel Koseos (2)
(1) Incorporated into this Form 10-KSB by reference to the Registrant's previous
filing of this Exhibit in its Form 8-K filed with the Commission on August 20,
2001.
(2) Incorporated into this Form 10-KSB by reference to the Registrant's previous
filing of this Exhibit in its Form 10-KSB filed with the Commission on October
15, 2001.
(3) Letter dated August 28, 2001 is incorporated into this Form 10-KSB by
reference to the Registrant's previous filing of this Exhibit in its Form 8-K/A
filed with the Commission on September 17, 2001.
Item 13(c) Reports on Form 8-K
-----------------------------------
On November 21, 2001, the Company filed a report on Form 8-K. It was reported
under Item 5 of the report that the Company had indefinitely suspended the
operations of its RRUN Labs research and development subsidiary and terminated
all employees of that subsidiary. No financial statements were filed with the
report.
29
There were no other reports on Form 8-K filed during the last quarter of the
fiscal year ended December 31, 2001.
30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RRUN Ventures Network, Inc.
By: /s/ Ray Hawkins
----------------------------------------
Ray Hawkins, President
Date: April 16, 2002
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Ray Hawkins
-----------------------------------------
Ray Hawkins, Director
Date: April 16, 2002
By: /s/ Edwin Kwong
-----------------------------------------
Edwin Kwong, Director
Date: April 16, 2002