SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 000-27233
RRUN VENTURES NETWORK, INC.
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(Exact name of Registrant as specified in its charter)
NEVADA 98-0204736
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(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
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(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 2002 were $5,000.
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 March 31, 2003 is $ 276,437. Our common stock
is quoted at the present time. At March 31, 2003, our stock's
closing price was $0.005 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 March 31, 2003 was 58,154,790.
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 ("RAHX"). In
September, 2001, RRUN co-founded AXXUS Corporation, a Nevada
Corporation, which was incorporated in September, 2001. In August
of 2002, the Company formed RVNI Management Ltd., a British
Columbia Corporation, as a wholly owned subsidiary. In November
of 2002 the Company divested of its AXXUS Corporation subsidiary.
A discussion of the divestiture of AXXUS Corporation may be found
in Form 8-K filed with the Commission on December 16, 2002.
General Overview
RRUN Ventures Network Inc. ("RRUN" or "RRUN vni" or "the
Company") was organized as a venture development and 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 previously focused on delivering, for
its customers, a consolidated Entertainment Experience Network
comprised of online and offline entertainment services. The
Company's other initial venture was AXXUS, an enhanced e-commerce
and communication backbone technology.
Beginning in the spring of 2002 the Company began to add the
development of offline entertainment ventures in order to
establish traditional entertainment revenue streams.
As per our Quarterly Statements for the period ending June 30,
2002 the Company declared it would shift its strategy to one
where we would change to an off-line focus with the on-line focus
coming later. Accordingly we began focusing our immediate efforts
on building a chain of licensed entertainment establishments, as
the base for our urban lifestyle businesses.
In the final quarter of 2002 the Company took a major step in
implementing its plan to transition from an entertainment and
lifestyle technology oriented venture development company to an
entertainment ventures company focused on live entertainment
ventures. This step was the divestiture of it AXXUS Corporation
subsidiary. A discussion of the divestiture of AXXUS Corporation
found in Form 8-K filed with the Commission on December 16, 2002
is as follows:
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On December 4, 2002, the Company completed the divestment of its
subsidiary AXXUS Corporation in exchange for the cancellation of
Company debt in the amount of $411,406. The upshot of the
transaction was the disposition by the Company of its
uncompleted technology projects in exchange for the cancellation
of debt owed by the Company to the contractor developing the
technology. Since inception the Company's original business
strategy was to operate as a venture development organization
initially focused on content distribution utilizing the
Internet. Originally, the Company's core business venture was
RAHX 1.0, a software platform that uses Peer to Peer (P2P)
technologies to enable and enhance the distribution of digital
media files over the Internet. The technology has not reached
commercial viability and the Company can no longer fund its
development. Accordingly, it was determined to be in the best
interest of the Company to divest itself of the unfinished
technology in exchange for the cancellation of debt owed by the
Company for its development. The Stock Purchase Agreement which
consummated the transaction was between the Company and Emanuel
Koseos who had been serving as our Chief Technology Officer, a
position from which he resigned effective November 27, 2002.
Upon execution of the AXXUS Corporation divestiture all the
technology products AXXUS was developing for itself, the RAHX
subsidiary and licensees, including but not limited to AXXUS 1.0,
RAHX 1.0 and its various forms was effectively removed from the
Company's business. In addition, the divestiture of AXXUS ended
the indirect business relationship the Company had with Triangle
BAHX, LLC since Triangle BAHX, LLC had a licensing agreement
directly with AXXUS Corporation.
Current Business Strategy
Our business strategy has been to build through venture
development urban lifestyle-based businesses based around
software and on-line communities. We believe that our vision to
build lifestyle businesses is still viable but that we need to
change to an off-line focus with the on-line focus coming later.
Accordingly the Company will remain as a venture development and
holding company with plans on focusing our immediate efforts on
building a network of licensed entertainment establishments, and
a live events business as the core business base for our urban
lifestyle businesses. These establishments and events will still
utilize a branding approach so that we can leverage the brand(s)
to sell other urban lifestyle products and services.
As the Company progresses on its focus, it may venture develop
other lifestyle businesses that synergize with its new core
business of licensed entertainment establishments and live
events. These other potential venture development businesses may
include, but not be limited to, music, online entertainment,
merchandising, membership services, and media publishing and
filmed entertainment. Many of these potential venture
development businesses were previously identified as being in the
future plans for the Company.
Currently the Company's RAHX business unit may be the lead unit
to house the new core businesses of RRUN. RAHX is party to a
number of business relationships that lends itself to remain the
business unit for RRUN's live entertainment core business.
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Other subsidiaries may be formed to house core business operations or
synergistic secondary business operations.
The Company's key target market is the 18-34 year old. The
current USA market segment is an estimated 70 M individuals for
the 18-34 year old group according to a US Census Bureau report.
According to CBS Marketwatch.com, this market signifies an
attractive demographic group for advertisers as they control over
$140 billon in consumer spending and influence an additional $300
billon in purchases. This racially diverse group is tech savvy,
enjoys live entertainment and make up the large majority of the
rock, hip hop, R&B and dance/electronica listener.
The Company intends to initially focus investment capital it
intends to acquire into the following lines of business:
1. Live Licensed Entertainment Establishments
("Establishment(s)")
- namely nightclubs
- lounges, bars
- supperclubs
2. Live Events and Concerts ("Live Events")
- special events (single events, festivals, etc.)
- concerts
3. Sponsorship Services
Additional lines of business under consideration for investment
are:
1. Media and Entertainment - businesses that produce
and/or distribute content for the consumers across
various mediums. These include music, filmed
entertainment, online and offline publishing, online
and offline interactive gaming, and digital media
distribution.
2. Entertainment Technologies - businesses that provide
the foundation for people to interact and transact
with entertainment products through multiple
technology products.
Our overall implementation plan of this strategy is to build our
lines of businesses through acquisitions, mergers and venture
development.
Our immediate implementation of the strategy is to: 1) acquire
our first establishment so that we can use it as a flagship for
the network and demonstrate our unique and proprietary
entertainment concepts for use in our other establishments; and
2) develop and/or acquire our first events.
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We are confident in our ability to make this transition and
execute this strategy due to the background of our President &
CEO, Ray Hawkins and his prior experience with live
entertainment.
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. Primarily the
planned licensed entertainment business units and live events
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 plans to earn interest and other
financial related income for possibly lending capital to its
business units. This lending activity may only happen upon the
Company acquiring its capital needs.
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.
Our Core Business
We believe that there is a large, unmet demand for live
entertainment worldwide. We believe that the live entertainment
business has historically fulfilled only a limited portion of
consumer demand because of inherent constraints of time,
geography, availability and cost of live event productions. We
believe there are numerous economically and demographically
advantageous markets which are under-served by existing live
entertainment companies.
We plan to be a leading live entertainment company with a network
of premier entertainment establishments (namely nightclubs), a
robust live events business, a strong brand name and an
integrated Internet and digital strategy.
We believe our new core businesses, in combination, provides a
unique business model in the live entertainment industry.
Currently we believe our combination of a network of nightclubs,
lounges, supper clubs and other types of entertainment
establishments with live events and concerts further combined
with media and internet distribution provides RRUN with a
tremendous market opportunity.
5
We plan to execute a strategy of comprehensive integration of our
businesses. The integration of RRUN's business units creates
competitive advantages for the Company. RRUN believes that while
a variety of competitors exist with each of the Company's
divisions, none offer the unique scope of services provided by
RRUN. This intra-company synergy provides RRUN with an
opportunity to create additional sources of revenues and profits
for the Company.
Specifically, as the Company continues its development and
transition to new core businesses, RRUN will be engaged primarily
in:
- owning and operating entertainment establishments
(nightclubs, lounges, supper clubs, venues); and
- promoting live events and concerts;
- selling corporate sponsorships and advertising.
Entertainment Establishments
Today, there exists an opportunity for a business to enter the
entertainment establishment industry. This industry is sometimes
referred to as the bar and tavern industry. The Company plans on
entering the industry with a corporate mindset that is built on a
long-term objective, a growth strategy, and a customer-centric
focus on providing the best entertainment experience.
RRUN aims to become the leader in operating entertainment
establishments, namely nightclubs by:
- Developing a network of nightclub venues under one
corporation;
- Transforming each establishment into different concepts,
each aimed at a different market segment;
- Delivering the best entertainment experience and customer
service to each establishment's customers;
- Gaining a competitive advantage by standardizing all
operating systems and achieving a lower cost structure; and
- Gaining competitive advantage by using its Live Events unit
to produce events and concerts exclusively for the RRUN
establishments.
We intend that the establishments will be developed in new and
existing locations in major cities throughout the United States
and Canada.
We intend our focus to be centered on developing dance oriented
nightclubs, lounges and supperclubs. As the network develops we
may add more types of establishments.
RRUN plans to develop its network of nightclubs through acquiring
some properties and developing others. Since each city market is
different it intends to operate each venue under a different
entertainment concept aimed at different market segments. By
leveraging its Live Events unit it believes it can gain cost
savings and a competitive advantage. This can be done by having
our own nightclubs host our live events.
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RRUN plans on achieving its vision through the execution of the
following strategies:
1. Focus initially on investing capital it intends to acquire
into traditional offline entertainment businesses such that
will generate cash flow and earnings quickly.
2. Build a network of live entertainment establishments through
development and acquisition.
3. Build an efficient central services unit to support the
integration, administration, accounting and financing of the
entertainment network and to reduce common cost.
4. Coordinate marketing between the establishments and events
units to enhance marketing potential.
5. Develop licensing and other relationships to capitalize on
the brand name(s) and to broaden the types of products and
services that can be sold through the brand(s), thus
increasing revenue and earnings potential.
As a planned future owner and operator of entertainment
establishments RRUN plans to generate revenues through liquor
sales, cover charges, merchandise sales, membership sales.
Live Events
There are many companies that provide or organize live events.
However there are no major companies that focus on events
produced for nightclubs, or events strictly aimed at the 18-34
year old market.
RRUN's Live Events unit plans to service its target market with
dynamic live entertainment ranging from concerts, festivals and
special events such as fashion shows and contests.
The Live Events unit will be a stand alone business although
synergistic with other Company units. Therefore the Live Events
unit will produce events outside of the network of establishments
in other venues and possibly in establishments owned by
competitors. We plan to be a promoter of live events in USA,
Canada and eventually internationally as our business grows. The
live concert events that we plan to promote and distribute will
reflect a diverse array of music genres, including pop, rock,
hard rock, latin, hip hop, rap, blues, R&B, jazz, soul, funk, and
may appeal to an equally diverse demographic base although
focused on 18-34 year olds.
The Live Events unit aims to become the leader in promoting and
marketing special events and concerts targeted at 18-34 year olds
by:
- Focusing on producing only entertainment focused special
events and concerts.
- Being very DJ and urban music driven.
- Producing hi-concept one of a kind events.
- Opening regional operations in specific geographic markets.
- Having the exclusive rights to producing events at all RRUN
entertainment establishments.
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- Obtaining touring rights from touring shows. Touring shows
consist primarily of revivals of previous commercial
successes or new productions of theatrical shows.
- Executing exclusive partnerships with local independent
event promoters to produce and promote special events and
concerts. Gaining competitive advantage by using these
independent promoters to lower costs, reduce risks, and
learn specific market intelligence of that area.
We plan to execute on this believed competitive advantage through
the following:
- RRUN plans to take advantage of the above opportunity by
producing events and concerts primarily for its nightclubs.
- RRUN management has extensive knowledge of the networks of
the independent special events promoters and intends to use
this special knowledge to acquire them or form partnerships
with them, and to promote both independent special events
and also events targeted to its nightclub operations.
As a planned producer of live events RRUN plans to generate
revenues through profit sharing agreements with promoters, a
percentage of the promoters' ticket sales, merchandising,
sponsorships, licensing and the exploitation of intellectual
property and other rights related to the production. RRUN plans
to produce tours on both a national and regional basis.
A key future growth driver for the Company's Live Event unit is
the possible presentation of live performances at our
establishments by digitally capturing a wide array of audio and
visual live entertainment content and distributing it through a
variety of media, including the internet, and other forms of
digital media, television and radio. This opportunity is
especially apparent for touring shows that can attract a media
viewing audience.
The Company anticipates that attendees of RRUN's live events will
remain connected and informed of upcoming events through various
technology based products. The management anticipates that
additional offline and online product and service offerings for
its customers will be evaluated, developed according to
feasibility and return on investment.
Sponsorships and Advertising
RRUN plans to actively pursue the sale of corporate sponsorships
"official" event or tour sponsors such as, credit card companies,
phone companies, film manufacturers and radio stations, among
others. Sponsorship arrangements can provide significant
additional revenues at negligible incremental cost.
Distribution Model - The Building of the Establishment Network
RRUN's distribution model is:
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- To distribute entertainment through its entertainment
establishments and events;
- To promote its live events and media through its
establishments;
- To use licensing to extend its brand name and potential
patronage of its directly operated businesses.
Establishment Network Building Strategy:
1. Identify a geographic market with high potential.
2. Open one or more entertainment establishments.
3. Establish a regional Live Events unit office and begin
producing events for the entertainment establishments.
4. Distribute content recorded from the events through various
media and internet channels.
5. Identify a new geographic market and repeat the whole process.
The end result is a network of interconnected cities all over
North America. Because each line of business is directly
connected to one another, their individual strengths are stronger
than if they were on their own. As a result, each line of
business is able to leverage the network to its target market.
For example:
- The entertainment establishments can help ensure a full
nightclub because live entertainment is readily available.
- The live events can ensure a multi-city tour through the
establishments for major artists and live acts
- A to be developed interactive unit can provide consumers
with all the information they need in regards to their
favourite artists coming to their city to perform and
content to view.
The first targeted geographic markets for the research and
development and the subsequent building of the establishment
network are Ontario, Canada British Columbia, Canada, California,
USA, and Florida, USA.
Live Entertainment Market Analysis
Entertainment Establishments
Nightlife is a big business. Bar & Nightclub magazine estimates
that clubs account for about 60,000 of the 220,000 liquor
licenses in the United States. Leaving aside strip clubs there
are three general club formats: mix-and-mingle, live music, and
dance. Throw in sports bars, beach clubs, and so forth, and you
start to see why industry sales run in the tens of billions
annually. (Excerpt from inc. magazine, 2002)
In the mid-1990s, the total number of operating liquor licenses
in restaurants and bars in the USA exceeded 225,000 and beer and
wine licenses reached more than half a million. Generally, the
number of liquor licenses distributed is based on the population
of the county. In 1996, food and beverage workers held 4.6
million jobs, with 390,000 of those being bartenders. (Excerpt
from entrepreneur magazine, 2001)
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According to the National Restaurant Association's 2003
Restaurant Industry Forecast: Executive Summary, the bar and
tavern business is estimated to generate $14 billion in 2003.
Live Events and Concerts (specifically live music entertainment)
According to Pollstar, the industry leader for the concerts
industry, the U.S. industry is now a $2 billion dollar industry.
The industry is dominated by Clear Channel Entertainment and
House of Blues Entertainment.
The live music entertainment business is a large and growing
industry. Artists have traditionally embraced live performances
as a critical promotional tool for their recordings, as a
platform to maintain direct interaction with fans and as a way to
achieve a sense of authenticity and spontaneity in their work.
Similarly, consumers have typically sought out live performances
to experience a personal connection with their favorite artists
and fellow music enthusiasts and a unique presentation of their
favorite songs.
Participants in the Live Music Entertainment Industry
The process of bringing a live concert to an audience requires
the involvement of four key parties:
- artists;
- booking agents and other artists' representatives;
- promoters; and
- venue owners and operators.
An artist's representative, such as a booking agent, works with
an artist to arrange a venue and date, or series of venues and
dates, for performances and typically enters into contracts with
promoters operating in the various regions of the planned tour. A
promoter is responsible for securing individual venues for the
event on given dates, marketing the event, selling tickets and
arranging for local production services, such as stage, set,
sound and lighting. The promoter may also provide limited
production services. The promoter offers the artist a guaranteed
dollar amount per show based on the expected attendance and the
ticket price that is negotiated with the artist. The promoter and
artist's representative also negotiate how the revenue in excess
of the promoter's operating expenses and the artist's guaranteed
amount will be split.
A venue operator provides the venue or establishment which will
host the event, and is responsible for supplying, either through
internal means or by subcontracting, all of the necessary
supplementary services required for the event. The venue operator
is paid a fee for the use of the venue and receives a rental
payment based on a percentage of ticket revenues. The operator
also generates revenues from the services it supplies, including
concessions sales, merchandise sales, parking and other ancillary
services, as well as sponsorships. Additionally, the operator
generates ancillary revenues from other high margin services such
as VIP parking, corporate box seating, and related amenities,
which generally command premium pricing. Industry participants,
like House
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of Blues, often perform more than one of the booking,
promotion and venue operation functions.
Venues typically fall into one of the following categories:
- stadiums, generally accommodating more than 32,000 patrons;
- arenas, generally accommodating 15,000 to 25,000 patrons;
- amphitheatres, open air performance spaces generally
accommodating 4,000 to 32,000 patrons;
- theatres, enclosed venues generally accommodating up to
6,000 patrons in fixed seating; and
- concert clubs, generally accommodating 2,000 or fewer
patrons in more casual settings than theatres.
COMPETITORS AND COMPETITIVE BUSINESS CONDITIONS
Competitors Overview
In its entertainment establishments and live events business RRUN
faces three major competitors. These are:
1. The Ministry of Sound
2. House of Blues
3. Clear Channel Entertainment
The Ministry of Sound is the nearest competitor to RRUN. It runs
a chain of nightclubs and runs both live events and has a
media/merchandising arm. However the Ministry of Sound operates
primarily in the UK.
The House of Blues operates in the US and operates only in large
live venues. It has a live events arm and a media arm. However it
is oriented towards a mass market and not specifically to 18-34
year olds.
Likewise Clear Channel Entertainment primarily operates in the US
but is again oriented towards a mass market. It is the largest
live entertainment company in the world and is not focused on
developing niches such as hip-hop or nightclubs.
These competitors are summarized below.
Figure 1 Competitors
RRUN Ministry of House of Blues Clear Channel
Sound Entertainment
Target 18-34 year 18-34 year 21-50 year old All ages.
consumer old urban. old urban. mass market.
Niche or Niche urban Niche dance Mass market, all Mass market,
mass market culture, hip culture. cultures. no cultures.
hop, R&B,
dance, rock
etc.
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Live Venues Medium to Medium to Large concert Large stadiums,
large-size large-size halls 1,000- 10,000 people
nightclubs, nightclubs, 2000 people. and up.
500-1000 500-1000
people. people.
Live events Urban concerts Dance music All forms of All forms of
Special Events concerts. music. music. Sporting
(ie. Fashion events and
shows). Theatrical.
Media Plans for On- Online radio. Online radio. Synergy with
Line and offline Music Webcasts. sister radio
media. On-line downloads. Music company.
information downloads.
exchange.
Entertainment Establishments Competitive Conditions
The nightclub industry is highly competitive and fragmented.
There are an uncountable number of nightclubs and other bar and
tavern and food and beverage service operations that will compete
directly and indirectly with the Company. In addition, many bar
and tavern chains have significantly greater financial resources
than the Company. Nightclub revenues are affected by changing
consumer tastes and discretionary spending priorities, local
economic conditions, demographic trends, traffic patterns, the
ability of business customers to deduct bar and tavern expenses,
the increasing trend towards prohibition of smoking in nightclubs
and the type, number and location of competing nightclubs. In
addition, factors such as inflation and increased food, liquor,
labour and other employee compensation costs can adversely affect
profitability. The Company believes that its ability to compete
effectively and successfully will depend on, among other things,
management's ability to offer a quality entertainment experience
for moderate prices, management's ability to control labour
costs, and ultimately on the executive determinations as to
extensions of the brand (i.e., selection of sites for new
locations and related strategies).
Live Events Competitive Conditions
We expect to compete for music consumers, for relationships with
artists, their representatives and record companies, as well as
for advertisers and sponsors in markets where we plan to own or
operate an establishment and in markets where RRUN does not now
or plan to own or operate establishment.
In markets where we plan to own or operate an establishment, RRUN
will compete with other venues or establishment to serve artists
likely to perform in that general region.
In markets where RRUN does not own or operate establishment, RRUN
will compete with other venues for dates for popular national
tours. Consequently, touring artists have significant
alternatives to RRUN establishments in scheduling tours. In
addition, in the markets in which RRUN will promote live events
and musical concerts, it will face competition from event
producers, promoters, as well as from certain artists that
promote their own concerts. RRUN believes that barriers to entry
into the live events and promotion services business are low and
that certain local promoters are increasingly expanding the
geographic scope of their operations.
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In addition to the competitive factors outlined above for each of
the Company's business units, the success of the Company's
entertainment operations are dependent upon numerous factors
beyond the Company's control, including economic conditions,
amounts of available leisure time, transportation costs,
lifestyle trends and weather conditions.
Intellectual Property
Trademarks
We believe that our success may depend to a significant extent on
the strength of our trademarks, servicemarks, trade dress,
copyrights and other proprietary rights that we plan to file for
registration. The Company plans to file Intent-To-Use Trademark
Applications for certain brands we are developing for our
business units, establishments and live events for the various
classes of goods and services in which the Company's marks will
be utilized. In addition, the Company may file Intent-To-Use
Trademark Applications for other proprietary programs developed
by the Company. There can be no assurance, however, that these
trademarks will proceed to registration, and if so registered,
that the trademarks, in any one or more classes, will not violate
the proprietary rights of others, that any registration of the
trademarks or the Company's use thereof will be upheld if
challenged, or that the Company will not be prevented from using
the trademarks.
Patents
The Company is developing propriety events and venue innovations
and certain entertainment technology innovations it may attempt
to protect with patents.
Potential Liability
In addition to the Risk Factors described in the Exhibit to this
filing, the operation of RRUN's live entertainment businesses 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:
GOVERNMENTAL LICENSES AND APPROVALS
The Company is subject to various rules, regulations and laws
affecting its business. Each of the Company's planned
establishments is subject to licensing and regulations by a
number of governmental authorities, including alcoholic beverage
control and health, safety and fire agencies in the state,
province or municipality in which the establishment is located.
Difficulties in obtaining or failure to obtain the required
licenses or approvals could prevent or delay the development of a
new establishment in a new location.
Various Canadian federal and provincial labour laws govern the
Company's relationship with its employees, including such matters
as minimum wage requirements, overtime and other working
conditions. Significant additional government-imposed increases
in minimum wage, paid leaves of absences and mandated health
benefits, or increased tax reporting and tax payment requirements
for employees who receive gratuities, may
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impose significant burdens on the Company. The Company's planned
establishments in the United States are subject to similar requirements.
Alcoholic beverage control regulations require each of the
Company's planned establishments to apply to a state authority
and, in certain locations, county and municipal authorities, for
a license and permit to sell alcoholic beverages in the premises.
Typically, licenses must be renewed annually and may be revoked
or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of the daily operations of
the Company's planned establishments. The failure to receive or
retain, or a delay in obtaining a liquor license in a particular
location could adversely affect the Company's ability to obtain
such a license elsewhere.
EFFECT OF EXISTING AND PROBABLE GOVERNMENTAL REGULATIONS
The Company is subject to "dram-shop" statutes in California and
Florida and may become subject to similar proposed legislation in
Canada. "Dram-shop" statutes generally provide a person injured
by an intoxicated person the right to recover damages from an
establishment which wrongfully served alcoholic beverages to such
a person. The Company plans to carry liquor liability coverage
which it believes to be consistent with the coverage carried by
other entities in the bar and tavern and restaurant industry.
Even though the Company may be covered by insurance, a judgment
against the Company under a "dram-shop" statute in excess of the
Company's liability coverage could have a material adverse effect
on the Company.
REGULATION AND LICENSES
The Company is subject to federal, state and local laws affecting
its business, including various health, sanitation and safety
standards. The Company's entertainment operations are subject to
state and local government regulation, including regulations
relating to live music performances. Each live concert
performance must comply with regulations adopted by federal
agencies and with licensing and other regulations enforced by
state and local health, sanitation, safety, fire and other
departments. Difficulties or failures in obtaining the required
licenses or approvals can delay and sometimes prevent the
promotion of live events and concerts. The failure to receive or
retain, or delay in obtaining, a license to serve alcohol and
beer in a particular location could adversely affect the
Company's operations in that location and impair the Company's
ability to obtain licenses elsewhere. The failure or inability of
the Company to obtain and maintain insurance coverage could
materially and adversely affect the Company.
Employees
At December 31, 2002, RRUN had three Executive Officers and three
Directors, and employed a total of 3 people including officers
and employees. RRUN and its subsidiaries intend to hire
additional employees in the foreseeable future.
Research and Development Expenditures
The Company places significant emphasis on the design and
interior decor of its planned establishments. The Company's
planned establishments unit designs may
14
require somewhat higher
capital costs and furniture and fixtures investment to open a new
establishment than is typical in the industry. Landlord
contributions may defray a part or a substantial part of interior
design and decor at a typical new establishment. The Company
believes that its planned design and decor features may enhance
the entertainment experience. Certain planned establishments may
offer patio seating, which may add substantially to seasonal
capacity, revenues and profits. Table layouts are planned to be
flexible, permitting re-arrangement of seating to accommodate
large groups and effective utilization of maximum seating
capacity.
The Company also believes that the location of an establishment
is important to its success. In general, significant time and
resources will be spent in determining whether a prospective site
is acceptable. Certain planned establishments may be located at
high-profile sites at malls/office complexes within larger
metropolitan areas. In selecting future sites, the Company plans
to analyze demographic information for each prospective site,
occupancy capacity, property uses, and factors such as
visibility, traffic patterns, accessibility, proximity of
shopping areas, offices, parks, tourist attractions, and
competitive establishment.
RRUN expects to incur research and development expenditures over
the twelve months following December 31, 2002. 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
Dec. 31, 2001 Dec. 31, 2002
------------- -------------
RRUN Ventures Network, Inc. $778,258 $78,877
Status of Previously Publicly Announced Developments
STATUS REGARDING PREVIOUSLY PUBLIC ANNOUNCED COMPANY'S PLAN TO
BUY BACK 3 MILLION SHARES.
On February 21, 2002 the Board of Directors authorized management
of the Company to execute a plan to buy back up to 3 Million
common shares for a period of one year within their discretion
based on Company resources. As of Feb 21, 2003 the term of the
plan has expired. During the one year term the Company did not
execute any transactions to buy back any of its common shares
from the public float due to insufficient cash resources.
STATUS REGARDING PREVIOUSLY PUBLIC ANNOUNCED PARTNERSHIP
AGREEMENT WITH PINPOINT MEDIA
In April 2002, the Company executed a partnership agreement with
624143 B.C. LTD. dba Media Productions and Brant Pinvidic
(collectively "Pinpoint Media") to add its "Party Quest" live
entertainment tour/reality TV show property to our product
portfolio. Due to lack of capital, we have been unable to
continue financing of the Party Quest Reality TV Show property,
and therefore, we have not been able to continue with our plan of
acquiring the property. In the Company's quarterly report for
the period ended
15
September 30, 2002 the Company stated that we
have recently begun further discussions with Pinpoint Media, the
owners of the Party Quest Reality TV Show property, regarding the
status of our involvement regarding both ownership and a
strategic alliance with Pinpoint Media. Management feels that
meaningful development of this relationship is doubtful and also
feels this partnership is no longer a viable opportunity for
business development and subsequent revenue generation.
STATUS REGARDING PREVIOUSLY PUBLIC ANNOUNCED LETTER OF INTENT
WITH PAW, LLC.
In May 2002 Company announced a Letter of Intent with PAW, LLC.
The rights and obligations of the Letter of Intent have expired
and subsequently there is no relationship between the Company and
PAW, LLC.
STATUS REGARDING PREVIOUSLY PUBLIC ANNOUNCED FINANCE AGREEMENT
WITH NCC BLACKWATER CAPITAL MARKETS LLC.
In May 2002 the Company announced a finance agreement with NCC
Blackwater Capital Markets LLC. The agreement has been
subsequently terminated by the Company according to the terms of
the agreement.
STATUS REGARDING PREVIOUSLY PUBLIC ANNOUNCED ACQUISITION OF
1485684 ONTARIO LIMITED C/O/B AS THE SEQUEL NIGHTCLUB
In September 2002, our subsidiary, RAHX, Inc., entered into a
letter of intent for the acquisition of 1485684 Ontario Limited
c/o/b as The Sequel Nightclub, located in Toronto, Canada. We
have not closed the financing necessary to consummate this
acquisition. As a result, we no longer have an exclusive or first
right to acquire 1485684 Ontario Limited c/o/b as The Sequel
Nightclub. Although we are still pursuing the financing to
complete the acquisition, we anticipate continuing difficulties
in receiving the financing necessary for this acquisition, due to
generally depressed conditions of the finance industry and a
general lack of investor interest. On March 20, 2003 The Company
executed a consulting agreement with Terrence Lall, the majority
owner of 1485684 Ontario Limited c/o/b as The Sequel Nightclub.
The consulting agreement provides for Mr. Lall to render services
to the Company including but not limited to the development of
entertainment establishments, namely nightclubs for the Company.
Under the agreement Mr. Lall could over time receive 5% of the
Company's issued and outstanding shares.
In November 2002 the Company announced a Joint Venture Agreement
with Razzor Records and in December 2002 the Company announced a
Strategic Partnership Memorandum Agreement with Klublife
Publishing, Inc. Also in December 2002 the Company announced a
Strategic Partnership Memorandum of Understanding with
Presidential Campaign. At the time of their execution, all three
agreements were not expected to provide any significant results
until 2003. The three relationships resulting from their
respective agreements are still in place and the Company plans to
include these relationships and their pending developments in its
2003 business plan.
Item 2. Description of Property
16
We have no real estate property holdings and at this time we have
no agreements to acquire any properties. The Company currently
has its headquarters at premises at 62 W. 8th Avenue, 4th Floor,
Vancouver, British Columbia, Canada V5Y 1M7. The lease
commitment expired on December 31, 2002. The Company is
currently occupying the same premises on a month to month basis
while it is considering renegotiating of a new lease.
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, 2002.
On July 30, 2002, Micro Concept Systems Inc. ("Plaintiff") filed
suit in the Supreme Court of British Columbia against the
Company. The suit alleges non-payment of $30,143 for computer
equipment sold to the Company by the Plaintiff. The Plaintiff
obtained a Garnishing Order Before Judgment pursuant to which it
has garnished the Company's account $1,884.
The Company believes that, as it commences revenue-producing
operations and as it raises capital, we will have the resources
to settle the abovementioned case and we have every intention of
doing so. We are working to reduce or prevent collection
17
litigation by creditors or others. Settlements in stock may
result in unforeseen dilution to current shareholders.
Item 4. Submission of Matters to a Vote of Security Holders
(a) We held an Annual General Meeting of our shareholders (the
"Annual General Meeting") on December 30, 2002 for the fiscal
year ended December 31, 2001.
(b) Please refer to Item 4(C)(i) below
(c) Set forth below is a brief description of each matter voted
upon at the Annual General Meeting and the number of affirmative
votes and the number of negative votes cast:
(i) the board of directors of the corporation nominated Ray
Hawkins, Edwin Kwong and Pavel Bains to stand for election as
members of the board of directors for the coming year which three
persons shall constitute the entire board of directors. No other
nominations were made.
Votes for .......................... 36,904,595
Votes against .......................... 0
Votes abstaining .......................... 7,480,195
(ii) the board of directors of the corporation requested the
shareholders of the corporation confirm the appointment of Morgan
& Company as the Company's auditors.
Votes for .......................... 36,904,595
Votes against .......................... 0
Votes abstaining .......................... 7,480,195
(iii) the board of directors of the corporation requested the
shareholders of the corporation ratify the amended bylaws
previously approved by the board of directors.
Votes for .......................... 36,904,595
Votes against .......................... 0
Votes abstaining .......................... 7,480,195
(iv) the board of directors of the corporation requested the
shareholders of the corporation approve the amendments to the
articles of incorporation to increase the authorized capital from
100,000,000 common shares to 250,000,000 common shares and to
authorize 200,000,000 preferred shares.
Votes for .......................... 36,904,595
Votes against .......................... 0
Votes abstaining .......................... 7,480,195
18
Not withstanding the approval by the shareholders regarding the
increase in authorized capital, the Company has not as yet, filed
an amendment to the articles of incorporation effecting that
increase.
(d) Not applicable
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, 2002 there were 152 record holders
of the Company's common stock.
Market Price
Our common stock is quoted at the present time. At March 31,
2003, our stock's closing price was $0.005 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 $0.42 $0.12
Second Quarter $0.32 $0.08
Third Quarter $0.10 $0.015
Fourth Quarter $0.026 $0.004
2003*
First Quarter $0.008 $0.0023
-------------------------------------------------------------------
19
*The prices are all "closing" prices and appear as approximate
figures.
**Trading of our stock did not begin until late September 2001.
The source of these high and low prices was the OTC Bulletin
Board. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent
actual transactions.
The market price of our common stock is subject to significant
fluctuations in response to variations in our quarterly operating
results, our public announcements regarding our then business
activities, general trends in the market for the products and
services we have been developing, and other factors, over many of
which we have little or no control. In addition, board market
fluctuations, as well as general economic, business and political
conditions, may adversely affect the market for our common stock,
regardless of our actual or projected performance.
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.
Recent Sales of Unregistered Securities
During October of 2002, the Company issued 500,000 shares of its
previously authorized, but unissued common stock. The shares
were issued to one debtholder for the expense related to a loan
transaction with the Company. The transactions were valued at
$0.027 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 October of 2002, the Company issued 395,741 shares of its
previously authorized, but unissued common stock. The shares
were issued to two consultants in exchange for the cancellation
of debt. The transactions were valued at $0.09 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 November of 2002, the Company issued 1,430,000 shares of
its previously authorized, but unissued common stock. The
shares were issued to two consultants in exchange for rendering
of services. One transaction of 1,030,000 shares was valued at
$0.03 per share. One transaction of 400,000 shares was valued at
$0.009 per share. The transactions were isolated transactions
with persons having a close affiliation with
20
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 December of 2002, the Company issued 1,700,000 shares of
its previously authorized, but unissued common stock. The
shares were issued to two consultants in exchange for consulting
services. . Each of the two transactions of 850,000 shares each
were valued at $0.01 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 December of 2002, the Company issued 10,872,667 shares of
its previously authorized, but unissued common stock. The
shares were issued to four consultants in exchange for
consulting services. One transaction of 3,500,000 shares was
valued at the par value of the Company. One transaction of
625,000 shares was valued at $0.04 per share. One transaction of
4,647,667 shares was valued at $0.015 per share. The other
transaction of 3,600,000 shares was valued at $0.01 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 December of 2002, the Company issued 645,000 shares of
its previously authorized, but unissued common stock. The
shares were issued to one debtholder in exchange for the
cancellation of a loan. The transactions were valued at $0.0155
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.
RRUN also granted during the fiscal year ended December 31,
2002, incentive stock options to the following officers,
directors, employees and consultants.
Optionee Options Granted
-------- ---------------
Ray Hawkins 200,000
Edwin Kwong 180,000
Pavel Bains 150,000
E. Ted Prince 3,000,000
13 other Consultants & employees 6,005,000
---------
Total # of Options Granted 9,535,500
The options have various exercise prices of between $0.01/share
and $0.30/share. The options were issued to a total of 17
officers, directors, employees and consultants all
21
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 subscribers, staff,
consultants and advisors. No warrants were issued to Directors
and Officers. The total number of warrants issued during the
fiscal year ending December 31, 2002 was 5,376,000 with an
exercise price ranging from $0.025 to $1.00 per share. The
warrants were issued relating to subscription for the purchase of
common stock and for services rendered to a total of 9 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
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.
Results of Operations
For the Year Ended December 31, 2002 compared to Year Ended
December 31, 2001.
From inception to the fiscal year ended December 31, 2002
the Company primarily operated as a development stage
Company. The Company's business is still in its development
stage. The Company has generated little revenue to date.
For the fiscal year ended December 31, 2002, and December
31, 2001, the Company earned revenues of $5,000, and
$4,000, respectively. Revenues in the year 2002 were
related to the licensing of rights for the use of our AXXUS
technology. The Company will not generate any future
revenues from these rights as per the divestiture of AXXUS
Corporation, as discussed in the Form 8-K filed with the
Commission on December 16, 2002. Revenues in 2001 were
related to a one-time contract for digital media services
and are not expected to generate future revenue. Future
revenues for the Company are associated with the realization
of its new business strategy, the planned development and
operation of a live entertainment business, as outlined
below.
For the fiscal year ended December 31, 2002, and December
31, 2001, the Company incurred operational expenses of
$1,739,325, and $1,613,460, respectively, of which $908,549
and $1,005,397 were accrued, respectively. These operating
expenses included: $76,877 and $778,258, respectively, in
software development; $423,404 and $34,950, respectively, in
consulting fees; $502,197 and $216,408, respectively in
business development costs; and $133,121 and $112,731,
respectively in Professional Fees. The overall increase in
the Company's operating expenses and changes across all above
categories
is due to the expanded business efforts to develop and
realize its business plan.
For the fiscal year ended December 31, 2002, and December
31, 2001, the Company incurred a net loss from operations of
$1,265,480 and $1,611,999, respectively.
Liquidity and Financial Condition As Of December 31, 2002
We had cash-on hand of totaling $32 as of December 31,
2002. Although the Company maintains minimal cash reserves
and continues to experience uncertainty regarding future
revenues, management strives to maintain current operations,
remain viable and develop sustainable revenue streams and
positive cash flow. Our sources of liquidity includes sales
of our common stock, and loans from management, shareholders
and other close affiliates to the Company, and intended cash
revenues from operations as developed as per the new
business strategy described below.
Due to major changes in market conditions, management
decided to re-focus the Company's business strategy from
technology oriented to live entertainment oriented to
maximize our chances of success. Additional financial and
liquidity issues relating to the new business strategy are
outlined in the RRUN Ventures Network Inc. Implementation
Plan section below.
Business Strategy for RRUN's Live Entertainment Core
Businesses
Our business strategy has been to build urban lifestyle-
based businesses based around software and on-line
communities. We believe that our vision to build lifestyle
businesses is still viable but that we need to change to an
off-line focus with the on-line focus coming later.
Accordingly we are focusing our immediate efforts on
building a network of licensed entertainment establishments
and a live events business, as the base for our urban
lifestyle businesses. The development of these new core
businesses will require a staff of approximately 15 persons
consisting of marketing, business operations, accounting,
administration and venture development and merger and
acquisition professionals. These establishments will still
utilize a branding approach so that we can sell other urban
lifestyle products and services.
RRUN intends to develop a comprehensive program to conduct
its research and development of potential locations for its
entertainment establishments. Although the program it
develops is hoped to yield competitive advantages, RRUN
expects that others may be able to compete effectively for
its locations. RRUN expects that it must devote a minimum
of approximately 5% of it revenues towards location research
and development.
Over the twelve months following December 31, 2002, RRUN
will conduct significant research and development, or R & D
for its acquiring and or development of entertainment
establishments, namely nightclubs.
The R & D anticipated to be executed by RRUN for its planned
establishments business will include but will not be limited
to:
- The Company places significant emphasis on the design and
interior decor of its planned establishments. The Company's
planned establishment's unit designs may require somewhat
higher capital costs and furniture and fixtures investment
to open a new establishment than is typical in the industry.
Landlord contributions may defray a part or a substantial
part of interior design and decor at a typical new
establishment. The Company believes that its planned design
and decor features may enhance the entertainment experience.
Certain planned establishments may offer patio seating,
which may add substantially to seasonal capacity, revenues
and profits. Table layouts are planned to be flexible,
permitting re-arrangement of seating to accommodate large
groups and effective utilization of maximum seating
capacity.
- The Company also believes that the location of an
establishment is important to its success. In general,
significant time and resources will be spent in determining
whether a prospective site is acceptable. Certain planned
establishments may be located at high-profile sites at
malls/office complexes within larger metropolitan areas. In
selecting future sites, the Company plans to analyze
demographic information for each prospective site, occupancy
capacity, property uses, and factors such as visibility,
traffic patterns, accessibility, and proximity of shopping
areas, offices, parks, tourist attractions, and competitive
establishment.
RRUN plans to continue its main operations out of its
Vancouver, British Columbia, Canada facility. RRUN currently
has suspended the use of it business development office in
Los Angeles, CA but plans to resume operations in 2003 and
hopes to open other business development offices in other
Canadian and U.S. cities.
RRUN Ventures Network Inc. Implementation Plan
RRUN requires approximately $6,000,000 in operational
capital for the 12 month period following December 31, 2002.
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 RRUN across various departments
such as Operations, Finance, Mergers and Acquisitions,
Venture Development/Product Development, and
Sales/Marketing/Business Development.
Our immediate aim is to acquire our first establishment so
that we can use it as a flagship for the network and
demonstrate our unique and proprietary entertainment
concepts for use in our other establishments. We intend that
the later establishments will be developed in new and
existing locations in major cities throughout the United
States and Canada.
In order to finance the first acquisition, and our phases of
implementation we plan to raise investment capital through
different types of securities offerings. We plan to fund new
establishment locations, including our first acquisition,
through direct investments into the individual
establishments and providing the investors with cash
dividends and some capital stock in the Company to the
investors. This is hoped to reduce the potential dilution to
our existing shareholders. We also plan to raise investment
capital by sale of stock in RAHX, our lifestyle subsidiary,
or other planned subsidiary which again is hoped to reduce
dilution to our existing shareholders. We plan to invite
direct investments into the Company to provide funds for
general corporate purposes. We believe that this plan will
enable us to achieve our development goals with acceptable
dilution to our existing shareholders.
We believe that the first acquisition of a nightclub
entertainment establishment will require approximately a
minimum of $500,000 for the acquisition, plus approximately
$100,000 in legal, accounting and administrative expenses.
In addition our first acquisition will require a minimum of
another $400,000 for working capital and general corporate
purposes. This is a minimum total of approximately
$1,000,000 that will be required in the next quarter during
which we are hoping to make the first acquisition. In the
following 3 months, we plan to make one or two additional
acquisitions. We believe that the cost of a second and third
acquisition or development project will be approximately a
minimum of $1,000,000 each and that approximately another
$500,000 minimum each will be required for the same purposes
as listed above for the first acquisition and for working
capital and general corporate purposes. Thus, we anticipate
needing a minimum of $4,000,000 of investment capital during
the next six months.
After the first two acquisitions, we intend to develop other
entertainment establishments from initial buildout rather
than from acquisitions. Our plan is to open two additional
entertainment establishments by the end of 2003 and we
anticipate that additional funding (approximately
$1,000,000) will be required to accomplish this. Management
anticipates that funding requirements for this plan will be
less than the overall cost of opening these nightclubs,
since the revenues from the first two or three nightclubs is
expected to generate enough cash flow to reduce the level of
external capital required. We have developed comprehensive
business and financial plans that result in our development
of a network of entertainment establishments that should
operate on a cash positive basis and without incurring
substantial dilution to stockholders such that the Company
can possibly increase its overall valuation substantially.
The Company believes it will require approximately
$1,000,000 to launch its live events business unit,
including the cost of acquisitions and their subsequent
integration and for the venture development of other
potential lines of business for 2003. The total additional
working capital financing described in this section is
planned to also include the development of other synergistic
business units such as, including but not limited to,
membership services, brand licensing and merchandising.
Management plans on initiating a series of securities
offerings to raise the investment capital needed to meet our
acquisition plans. Although we will make efforts to minimize
dilution to current shareholders, we may not be able to
avoid dilution due to many factors, including but not
limited to, the closing of financing at lower than the
desired market price of the Company's common stock.
RRUN hopes to secure the financing to satisfy the capital
needs for each phase of its implementation plan through the
execution of various funding methods, primarily private
placement investments or debt financing. RRUN hopes to
achieve this by securing relationships with accredited
individual investors, investment bankers, venture
capitalists, and/or finance advisors that have the
experience and relationships to aid RRUN with its capital
raising efforts. The source of the private placement or debt
financing may be comprised of a mix of principal
shareholders, private investors and venture capital
companies.
If needed capital investment for our acquisitions or
developments is not available, in whole or in part, we
intend to delay the implementation plan regarding our
acquisition or development plans until sufficient investment
capital becomes available. We cannot give any assurances
that we will raise sufficient investment capital to meet the
business plan. In addition to delays to the implementation
plan regarding our acquisition or development plans due to
insufficiency of investment capital, we may suffer other
consequences, including but not limited to the following; We
may have to suspend or discontinue operations of one or more
of our business units, such as RAHX, or we may have to
suspend or discontinue operations of the Company if we
become insolvent as a result.
RRUN's 2003 implementation plan regarding its new core
business units of entertainment establishments and live
events is:
- Phase One (Jan - March 2003): Continue development of
plan for new entertainment establishment and live events
units; continue debt reduction plan via voluntary creditor
write offs and stock based settlements; headhunt and secure
key consultants and possible staff members to execute
development of new business units; continue research of
entertainment establishment acquisition candidates and
development locations;
- Phase Two (April - June 2003): Secure first stage of
capital; finalize new business plan for new entertainment
establishment and live events units; finalize operations and
marketing plans; secure first entertainment establishment
acquisition; secure first live event acquisition or
development of live event; continue debt reduction plan via
voluntary creditor write offs and stock based settlements;
reopen business development office in Los Angeles, open
business development office in Toronto, Ontario; commence
additional staff hiring.
- Phase Three (July - September 2003): Secure next stage of
capital; secure second and third entertainment establishment
acquisition or development; secure additional live event
acquisitions or development of live events; continue debt
reduction plan via voluntary creditor write offs and stock
based settlements; continue additional staff hiring if
necessary; open business development office in Miami,
Florida.
- Phase Four (October - December 2003): Secure next stage
of capital; secure fourth and fifth entertainment
establishment acquisition or development; secure additional
live event acquisitions or development of live events; open
business development office in New York, NY.
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
There have been no changes in and disagreements with Accountants
on Accounting and Financial Disclosure as of the fiscal year end
2002.
PART III
Item 9. Directors and Executive Officers of the Registrant
Name Age Offices Held
--------------------- ---- ----------------------------------
Ray A. Hawkins (1) 33 President, Chief Executive
Officer, Director
Edwin Kwong (1) 31 Chief Operations Officer, Chief
Financial Officer, Treasurer,
Secretary and Director
Pavel Bains (2) 26 Executive Vice President - Media
& Entertainment, Director
22
(1) Directors were appointed to the Board on August 17, 2001.
(2) Mr. Bains was appointed to the Board on November 8, 2002.
Mr. Bains resigned as an officer and from the Board on January
31, 2003.
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 majority vote of the
remaining Directors. The officers serve at the will of the Board
of Directors. There are no 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. Also from 1990 - 1995 Mr. Hawkins
acted as CEO of RAH Entertainment, a concert and event
corporation. 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.
23
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.
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
Pavel Bains 1 0 0
Executive Vice President,
Media & Entertainment
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, 2002. No other compensation
was paid to any such officers or directors during this time
period.
Annual Compensation Table
Annual Compensation (1) Long Term
----------------------- ---------
Compensation
------------
Name Title Year Salary Bonus Options / SARs (#)
---- ----- ---- ------ ----- ---------
Ray A. Hawkins President,CEO 2001 $16,137 $0 100,000
and Director
2002 $17,429 $0 200,000
(2)
E TedPrince (3) Co- CEO, Director 2002 (3) $0 3,000,000
24
Edwin Kwong COO, CFO and 2001 $10,734 $0 100,000
Director
2002 $7,497 $0 180,000
(4)
Pavel Bains EVP, and Director 2001 $16,752 $0 100,000
(5)
2002 $7,424 $0 150,000
(6)
(1) Unless otherwise noted, compensation for Fiscal 2001 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, 2002, no
retirement, pension or insurance programs or other similar
programs have been adopted by RRUN for the benefit of its
employees.
(2 In the fiscal year ending December 31, 2002, Mr. Ray Hawkins
was entitled to receive an additional $252,571 of executive
compensation, and this entire amount has been accrued.
(3) Mr. E. Ted Prince served as President and Co-CEO of RRUN
Ventures Network Inc. as assigned from Perth Ventures Inc. from
June 18, 2002 to November 8, 2002.
(4) In the fiscal year ending December 31, 2002, Mr. Edwin Kwong
was entitled to receive an additional $132,507 of executive
compensation, and this entire amount has been accrued.
(5) Mr. Pavel Bains was paid approximately 56% of this total in
the six month period ending June 30, 2001.
(6) In the fiscal year ending December 31, 2002, Mr. Pavel Bains
was entitled to receive an additional $90, 575 of executive
compensation, and this entire amount has been accrued.
Effective January 1, 2002, the Company executed Management
Services Memorandums with three key directors/officers. 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 in the
upcoming four fiscal years as follows:
Year ended December 31, 2003 $ 200,000
Year ended December 31, 2004 $ 200,000
Year ended December 31, 2005 $ 200,000
Year ended December 31, 2006 $ 200,000
25
Options/SAR Grants in Last Fiscal Year
(Individual Grants)
Name Number of Percent of Exercise or Expiration date
Securities options/SARs base price
Underlying granted ($/Sh)
Options/SARs employees in
Granted (#) fiscal year
Ray A. Hawkins 200,000 2.1% $0.10 2/8/2005
E.Ted Prince 3,000,000 31.5% (1) (1)
(1)
Edwin Kwong 180,000 1.9% $0.10 2/8/2005
Pavel Bains 150,000 1.6% $0.10 2/8/2005
(1) As per Agreement with The Company and Perth Ventures Inc. on
June 18, 2002 and further amended on July 16, 2002, Mr. E. Ted
Prince was entitled to receive options for 2,000,000 shares at
$0.12 per share and 1,000,000 shares at $0.045 per share. Note
that all options have expired as per Agreement with Perth
Ventures Inc. upon Mr. Prince's resignation on November 8, 2002.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Name Shares Value Number of Value of unxercised
aquired realized unexercised options in-the-money options
on ($) /SARs at FY-end (#) /SARs at FY-end($)
exercise exercisable/ exercisable/
(#) unexercisable unexercisable
Ray A. Hawkins 0 0 262,500 / 37,500 $0/$0
E.Ted Prince 0 0 0 / 0 $0/$0
Edwin Kwong 0 0 242,500 / 37,500 $0/$0
Pavel Bains 0 0 212,500 / 37,500 $0/$0
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table lists as of March 31, 2003, 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) 4.8%
4th Floor, 62 W. 8th Avenue
Vancouver, B.C. V5Y 1M7
Ray A. Hawkins 2,579,824(2) 4.4%
71-1075 Granville Street
Vancouver, B.C. V6Z 1L4
26
Pavel Bains 917,500(2) 1.6%
#101 - 1001 Broadway
Vancouver, B.C. V6H 4E4
Edwin Kwong 842,500(2) 1.4%
#5 - 744 West 7th Avenue
Vancouver, B.C. V5Z 1B8
John Stuart 4,500,000 7.7%
#2646 1979 Marine Drive
North Vancouver, BC
Canada V7P 3G2
Robert Fidler 3,500,000 6.0%
2800 Neilson Way
Suite 601
Santa Monica, CA 90405
Lionel Gosselin 3,313,754 (3) 5.6%
64 Countryside Way
Winnipeg, Manitoba
Canada R2G 4C1
Neal E. Stauffer 3,535,000(3) 5.9%
601 South Boulder - Suite 1100
Tulsa, OK 74119
All RRUN directors and 4,339,824(4) 7.5%
officers as a group (3 persons)
(1) Ray A. Hawkins owns 74% of 550605 B.C. Ltd.
(2) Includes shares issuable upon the exercise of options within
60 days.
(3) Includes shares issuable upon the exercise of warrants within
60 days.
(4) Includes 792,500 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. Options awarded to Officers and
Directors have been disclosed in Item 10 of this filing.
27
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. 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.
In August 2002, the Company executed an amendment to the amended
Promissory Note of February 2002 with Ray Hawkins. The amendment
provides that Ray Hawkins cannot execute the conversion
provision, as per the February 2002 Promissory Note, until after
November 30, 2003.
3. 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. 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.
In August 2002, the Company executed an amendment to the
Promissory Note of September 2001 with Edwin Kwong. The
amendment provides that Edwin Kwong cannot execute the conversion
provision, as per the September 2001 Promissory Note, until after
November 30, 2003.
At December 31, 2001 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, 2002 RRUN
executed two Promissory Notes totaling $100,035. In addition,
Edwin Kwong
28
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. Subsequently in May 2002, the Company
executed an amendment to the two Promissory Notes of February
2002. The amendment provides that Edwin Kwong cannot execute such
conversion, as per the two Promissory Notes of February 2002,
till July 31, 2002. In July 2002, the Company executed an
amendment to the two February 2002 Promissory Notes, and reissued
two amended Promissory Notes. The two amended Promissory Notes
of July 2002 provide that the debt remains interest free and is
repayable within one year from the date of each promissory note.
In addition, Edwin Kwong was granted the option to convert to
common shares the outstanding balance in debt owed by the Company
at $0.05 per share; however, Edwin Kwong cannot execute such
conversion until after August 30, 2002.
In August 2002, the Company executed an amendment to the two
Promissory Notes of July 2002 with Edwin Kwong. The amendment
provides that Edwin Kwong cannot execute the conversion
provision, as per the two July 2002 Promissory Note, until after
November 30, 2003.
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.
In August 2002, the Company executed an amendment to the
Promissory Note of February 27, 2002 with Edwin Kwong. The
amendment provides that Edwin Kwong cannot execute the conversion
provision, as per the February 27, 2002 Promissory Note, until
after November 30, 2003.
4. In June 2002, RRUN entered into an Agreement with Perth
Ventures Inc. for executive management services. Perth Ventures
supplied RRUN with the services of Mr. E. Ted Prince, who would
serve as President and Co-CEO of RRUN. Pursuant to this
agreement, Mr. E. Ted Prince was entitled to receive Options in
RRUN. In November 2002, Mr. E. Ted Prince resigned from his
duties as President and Co-CEO and subsequently the Agreement was
terminated. The amount to be paid to Perth Ventures Inc. as per
the Agreement with RRUN was $100,665, of which $15,000 was paid
and any remaining amount was accrued and subsequently forgiven by
Perth Ventures Inc.
PART IV
Item 13. Exhibits, Financial Statements Schedules and Reports on
Form 8-K
Exhibits
Item 13(a) Financial Statements
29
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
30
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 (2)
10.2 Sample of Form of Promissory Note: Edwin Kwong (2)
10.3 Lease Agreement dated November 9, 1999 with RAH Media (2)
10.4 Assignment of Lease dated August 31, 2001 with RAH Media (2)
10.5 Management Services Memorandum: Ray Hawkins (2)
10.6 Management Services Memorandum: Edwin Kwong (2)
10.8 Management Services Memorandum: Pavel Bains (2)
10.9 Agreement for Consulting Services with Terrence Lall (4)
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)
99.7 Incentive Stock Option Agreement with Pavel Bains (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.
(4) Incorporated into this Form 10-KSB by reference to the
Registrant's previous filing of
its Form S-8 filed with the Commission on April 10, 2003.
Item 13(c) Reports on Form 8-K
------------------------------
On December 16, 2002, the Company filed a report on Form 8-K.
It was reported under Item 2 of the report that the Company
completed the divestment of its subsidiary
AXXUS Corporation in exchange for the cancellation of Company
debt in the amount
of $411,406. The upshot of the transaction was the disposition
by the Company of its uncompleted technology projects in exchange
for the cancellation of debt owed by the
31
Company to the contractor developing the technology. No
financial statements were filed with the report.
There were no other reports on Form 8-K filed during the last
quarter of the fiscal year ended December 31, 2002.
Item 14. Controls and Procedures.
As required by Rule 13a-14 under the Securities Exchange Act of
1934 (the "Exchange Act"), we carried out an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures within the 90 days prior to the filing
date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive
Officer, Ray Hawkins and Chief Financial Officer, Edwin Kwong.
Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting management to
material information relating to us which is required to be
included in our periodic SEC filings. There have been no
significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to
the date we carried out our evaluation.
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required
to be disclosed our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports
filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure.
32
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 15, 2003
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
Principal Executive Officer
Date: April 15, 2003
/s/ Edwin Kwong
-----------------------------------------
Edwin Kwong, Director
Principal Financial Officer
Principal Accounting Officer
Date: April 15, 2003
33
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
MORGAN & COMPANY
CHARTERED ACCOUNTANTS
AUDITORS' REPORT
To the Shareholders
RRUN Ventures Network Inc.
(A development stage company)
We have audited the consolidated balance sheets of RRUN Ventures
Network Inc. (a development stage company) as at December 31,
2002 and 2001, and the consolidated statements of operations and
deficit accumulated during the development stage, cash flows and
stockholders' deficiency for the years then ended. 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 of
America 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, 2002 and 2001, and the results of its
operations and cash flows for the years then ended in accordance
with United States of America 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. "Morgan & Company"
April 8, 2003 Chartered Accountants
Tel 604.687.5841 Member of P.O. Box 100007 Pacific Centre
Fax 604.687.0075 ACPA Suite 1488-700 West Gerogia Street
www.morgan-cas.com International Vancouver, B.C. V7Y 1A1
F-1
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)
-----------------------------------------------------------------------------
DECEMBER 31
2002 2001
-----------------------------------------------------------------------------
ASSETS
Current
Cash $ 32 $ 1,421
Goods and Services Tax recoverable 5,786 5,014
Prepaid expense 345 342
Notes receivable 13,125 -
-----------------------------
19,288 6,777
Capital Assets (Note 5) 8,230 36,929
Investment (Note 6) - 6,750
-----------------------------
$ 27,518 $ 50,456
=============================================================================
LIABILITIES
Current
Accounts payable $ 1,374,920 $ 1,113,855
Loans and advances payable (Note 8) 528,581 518,998
-----------------------------
1,903,501 1,632,853
-----------------------------
STOCKHOLDERS' DEFICIENCY
Share Capital
Authorized:
100,000,000 common shares, par value
$0.0001 per share
Issued and outstanding:
45,654,790 common shares at December
31, 2002 and 14,614,724 at
December 31, 2001 4,566 1,462
Add: Share subscriptions received:
36,250 common shares at December
31, 2002 and 50,000 at December
31, 2001 1,450 10,000
Additional paid-in capital 1,087,084 109,744
Deficit (2,969,083) (1,703,603)
-----------------------------
(1,875,983) (1,582,397)
-----------------------------
$ 27,518 $ 50,456
=============================================================================
F-2
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Stated in U.S. Dollars)
-----------------------------------------------------------------------------
INCEPTION
OCTOBER 12
YEARS ENDED 2000 TO
DECEMBER 31 DECEMBER 31
2002 2001 2002
-----------------------------------------------------------------------------
Revenue $ 5,000 $ 4,000 $ 9,000
-------------------------------------------
Expenses
Administrative services 64,687 59,719 154,570
Amortization 8,817 6,428 15,245
Business development 502,197 215,909 718,106
Consulting 423,404 34,950 470,963
Equipment leases 20,875 14,921 35,796
Investor relations 265,252 126,147 391,399
Marketing 1,028 35,361 36,389
Media design 23,752 60,123 83,875
Office, rent and sundry 156,297 98,927 265,194
Professional fees 133,121 110,691 265,593
Software development 76,877 778,258 855,135
Travel 43,076 63,687 111,707
Wages and benefits 19,942 8,339 28,281
-------------------------------------------
1,739,325 1,613,460 3,432,253
-------------------------------------------
Loss Before The Following 1,734,325 1,609,460 3,423,253
Write Down Of Investment 6,750 - 6,750
Minority Interest In Loss Of
Subsidiary - - (219)
-------------------------------------------
Loss From Continuing
Operations 1,741,075 1,609,460 3,429,784
Gain On Disposition Of
Subsidiary (419,427) - (419,427)
(Gain) Loss From Discontinued
Operations (56,168) 2,539 (53,629)
-------------------------------------------
Net Loss For The Year $ 1,265,480 $ 1,611,999 $ 2,956,728
=============================================================================
Net Loss Per Share Before
Discontinued Operations,
Basic and diluted $ 0.08 $ 0.18
==============================================================
Net Loss Per Share, Basic and
Diluted 0.06 0.18
==============================================================
Weighted Average Number Of
Common Shares Outstanding 20,526,787 8,854,553
==============================================================
F-3
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
-----------------------------------------------------------------------------
INCEPTION
OCTOBER 12
YEARS ENDED 2000 TO
DECEMBER 31 DECEMBER 31
2002 2001 2002
-----------------------------------------------------------------------------
Cash Flows From Operating
Activities
Loss for the year from
continuing operations $ (1,741,075) $ (1,609,460) $ (3,429,784)
Adjustments To Reconcile Net
Loss To Net Cash Used By
Operating Activities
Amortization 8,817 6,428 15,245
Issue of common stock for
expenses 284,990 4,000 293,190
Write down of investment 6,750 - 6,750
Minority interest in loss
of subsidiary - - (219)
Goods and Services Tax
recoverable (772) (5,014) (5,786)
Prepaid expense (3) 158 (345)
Notes receivable (13,125) - (13,125)
Accounts payable 908,549 1,005,397 1,946,600
Loans and advances payable 95,685 493,533 656,021
-------------------------------------------
(450,184) (104,958) (531,453)
-------------------------------------------
Cash Flows From Investing
Activities
Net asset deficiency of
legal parent at date of
reverse take-over
transaction - - (12,355)
Purchase of capital assets (136) (43,357) (43,493)
-------------------------------------------
(136) (43,357) (55,848)
-------------------------------------------
Cash Flows From Financing
Activities
Shares issued for cash 401,312 13,400 414,712
Share subscriptions
received (8,550) 10,000 1,450
-------------------------------------------
392,762 23,400 416,162
-------------------------------------------
Decrease In Cash (57,558) (124,915) (171,139)
Net Cash From (Used In)
Discontinued Operations 56,169 (1,999) 53,630
Cash Acquired On Acquisition
Of Subsidiary - 117,541 117,541
Cash, Beginning Of Year 1,421 10,794 -
-------------------------------------------
Cash, End Of Year $ 32 $ 1,421 $ 32
=============================================================================
F-4
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
DECEMBER 31, 2002
(Stated in U.S. Dollars)
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------------------------------------------------------
Shares issued for
cash and services 4,200,000 $ 4,200 $ - $ - $ 4,200
Adjustment to
Number of shares
issued and
outstanding as
a result of the
acquisition of
RAHX, Inc.
RAHX, Inc. (4,200,000) (4,200) - - (4,200)
RRUN Ventures
Inc. 5,708,780 5,709 (1,509) - 4,200
Adjustment to stated
value of
stockholders'
equity to reflect
minority interest
in the net assets
of RAHX, Inc. at
the acquisition
date - - (219) - (219)
Net asset deficiency
of legal parent at
date of reverse take-
over transaction - - - (12,355) (12,355)
Shares issued to
Acquire investment
in Kaph Data
Engineering Inc. 400,000 400 6,350 - 6,750
Loss for the period - - - (79,249) (79,249)
-------------------------------------------------------
Balance, December
31, 2000 6,108,780 6,109 4,622 (91,604) (80,873)
Adjustment to number
of shares issued and
outstanding as a
result of the
acquisition of RRUN
Ventures, Inc.
RRUN Ventures,
Inc. (6,108,780) (6,109) (4,622) - (10,731)
RRUN Ventures
Network Inc. 288,420 288 10,443 - 10,731
Fair value of shares
issued in connection
with the acquisition
of RRUN Ventures,
Inc. 305,439 306 28,325 - 28,631
-------------------------------------------------------
593,859 594 38,768 (91,604) (52,242)
Increase in issued
shares due to 20
for 1 stock split 11,283,321 594 (594) - -
Shares issued for
Debt 1,867,544 187 54,257 - 54,444
Shares issued for
cash 670,000 67 13,333 - 13,400
Shares issued for
Services 200,000 20 3,980 - 4,000
Loss for the year - - - (1,611,999) (1,611,999)
-------------------------------------------------------
Balance, December
31, 2001 14,614,724 1,462 109,744 (1,703,603) (1,592,397)
Shares issued for
Debt 11,163,816 1,116 268,026 - 278,142
Shares issued for
Services 13,845,000 1,384 283,606 - 275,990
Shares issued for
cash and notes
receivable 7,861,250 787 461,912 - 462,698
Shares cancelled (1,830,000) (183) (61,204) - (61,387)
Forgiveness of
shareholder debt - - 25,000 - 25,000
Loss for the year - - - (1,265,480) (1,265,480)
-------------------------------------------------------
Balance, December
31, 2002 45,654,790 $ 4,566 $1,087,084 $(2,969,083) $(1,877,434)
=======================================================
F-5
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(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 previously 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. At this time, the Company's focus is the developing
of a live entertainment business, specifically nightclubs
and live events.
c) Going Concern
Since inception, the Company has suffered recurring losses,
net cash outflows from operations and, at December 31, 2002,
has a working capital deficiency of $1,884,213. The Company
expects to continue to incur substantial losses to complete
the development of its business. 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 of America. Because a precise
determination of many assets and liabilities is dependent upon
future events, the preparation of consolidated financial
statements for a period necessarily involves the use of
estimates which have been made using careful judgement.
F-6
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(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 RVNI Management Ltd., its 67% owned subsidiary, RAHX,
Inc., and its discontinued wholly owned subsidiary, AXXUS
Corporation. On November 27, 2002, the Company disposed of
its 100% interest in AXXUS Corporation.
b) Development Stage Company
The Company is a development stage company as defined in the
Statements of Financial Accounting Standards No. 7. The
Company is devoting substantially all of its present efforts
to establish a new business and none of its planned
principal operations have commenced. All losses accumulated
since inception have been considered as part of the
Company's development stage activities.
c) Investments
Investments in companies owned less than 20% are recorded at
the lower of cost or fair market value.
d) Software Development Costs
The costs to develop new software products and enhancements
to existing software products will be expensed as incurred
until technological feasibility has been established. Once
technological feasibility has been established, any
additional costs will be capitalized.
e) Income Taxes
The Company has adopted Statement of Financial Accounting
Standards No. 109 - "Accounting for Income Taxes" (SFAS
109). This standard requires the use of an asset and
liability approach for financial accounting and reporting on
income taxes. If it is more likely than not that some
portion or all if a deferred tax asset will not be realized,
a valuation allowance is recognized.
F-7
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(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 rateably for
future services over the option vesting period.
h) Financial Instruments
The Company's financial instruments consist of cash, GST
recoverable, prepaid expenses and accounts payable.
Unless otherwise noted, it is management's opinion that this
Company is not exposed to significant interest or credit
risks arising from these financial instruments. The fair
value of these financial instruments approximate their
carrying values, unless otherwise noted.
i) Net Loss Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 -
"Earnings Per Share" ("SFAS 128"). Under SFAS 128, basic
and diluted earnings per share are to be presented. Basic
earnings per share is computed by dividing income available
to common shareholders by the weighted average number of
common shares outstanding in the period. Diluted earnings
per share takes into consideration common shares outstanding
(computed under basic earnings per share) and potentially
dilutive common shares.
F-8
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(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.
F-9
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(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. DISCONTINUED OPERATIONS
By an agreement dated November 27, 2002, the Company disposed
of its 100% interest in Axxus Corporation ("Axxus") for cash
consideration of $1. The revenue and expenses related to the
business of Axxus for the years ended December 31, 2002 and
2001, and for the period from inception to December 31, 2002,
are reflected as discontinued operations in the statements of
operations and cash flows.
5. CAPITAL ASSETS
2002 2001
---------------------------------- --------
ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
---------------------------------- --------
Computer
Equipment $ 10,239 $ 4,148 $ 6,091 $ 34,515
Computer
Software 456 456 - 223
Office furniture
And equipment 2,430 291 2,139 2,191
---------------------------------- --------
$ 13,125 $ 4,895 $ 8,230 $ 36,929
================================== ========
6. INVESTMENT
2002 2001
-------------------
Kaph Data Engineering Inc. - 159 common
shares representing 15% of the Company's
issued and outstanding common share
capital $ - $ 6,750
===================
During the year ended December 31, 2002, the Company wrote down
the carrying value of this investment.
F-10
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
7. STOCK OPTIONS AND WARRANTS OUTSTANDING
Stock Options
As at December 31, 2002, options were outstanding for the purchase of
common shares as follows:
NUMBER PRICE EXPIRY
OF SHARES PER SHARE DATE
------------- ------------ ------------------------
283,000 $ 0.25 September 5 and 6, 2004
300,000 $ 0.10 September 5, 2004
55,000 $ 0.13 February 5, 2005
530,000 $ 0.10 February 8, 2005
35,000 $ 0.25 April 4, 2005
In accordance with the vesting provisions of these agreements,
1,037,750 stock options are exercisable at December 31, 2002.
A summary of the changes in stock options for the year ended
December 31, 2002 is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------------------------
Balance, December 31, 2001 1,281,500 $ 0.22
Granted 9,475,000 0.12
Exercised (5,600,000) (0.13)
Expired (3,953,500) (0.12)
--------------------------
Balance, December 31, 2002 1,203,000 $ 0.14
==========================
F-11
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
7. STOCK OPTIONS AND WARRANTS OUTSTANDING
Share Purchase Warrants
As at December 31, 2002, share purchase warrants were outstanding
for the purchase of common shares as follows:
NUMBER PRICE
OF SHARES PER SHARE
-------------- -----------
1,882,355 $ 0.25
1,332,000 $ 0.10
2,230,000 $ 0.50
168,795 $ 3.00
567,500 $ 0.75
420,000 $ 0.20
100,000 $ 0.40
340,000 $ 0.06
100,000 $ 1.00
The warrants expire between September 4, 2004 and September 18, 2006.
A summary of the changes in share purchase warrants for the year ended
December 31, 2002 is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------------------------
Balance, December 31, 2001 1,944,650 $ 0.47
Granted 5,476,000 0.37
Exercised (180,000) (0.20)
Cancelled (100,000) (0.06)
--------------------------
Balance, December 31, 2002 7,140,650 $ 0.41
==========================
F-12
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
8. LOANS AND ADVANCES PAYABLE
Loans and advances payable 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
------------------------------------------------
$ 132,912 $ 0.05 August 30, 2002
$ 9,508 $ 0.12 August 31, 2002
$ 1,000 $ 0.02 September 14, 2002
$ 400 $ 0.02 August 31, 2003
$ 259,517 $ 0.02 November 30, 2003
$ 100,288 $ 0.05 November 30, 2003
$ 5,594 $ 0.17 November 30, 2003
9. RELATED PARTY TRANSACTIONS
a) Included in accounts payable at December 31, 2002 is
$476,177 owing to directors or a company controlled by a
director.
b) Included in loans and advances payable at December 31, 2002
is $372,011 owing to directors or a company controlled by a
director.
c) During the year ended December 31, 2002, the Company
incurred $508,000 in consulting and business development
expenses with directors, and $132,547 in business and
technology development expenses with former directors.
d) During the year ended December 31, 2002, the Company
incurred $43,818 in administration, office, and equipment
rental expenses with a company controlled by a director.
F-13
RRUN VENTURES NETWORK INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Stated in U.S. Dollars)
10. COMMITMENT
During the year ended December 31, 2002, the Company executed
Management Services Memorandums with three key
directors/officers which were 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, 2003 $ 260,000
Year ended December 31, 2004 $ 260,000
Year ended December 31, 2005 $ 260,000
Year ended December 31, 2006 $ 260,000
11. SUBSEQUENT EVENT
Subsequent to December 31, 2002, the Company issued 10,500,000
common shares as consideration for services under an attorney
client fee agreement.
F-14
CERTIFICATION
In connection with the Annual Report of RRUN Ventures Network, Inc.
(the "Company") on Form 10-KSB for the year ending December 31, 2002
as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), we, Ray Hawkins, Chief Executive
Officer and Edwin Kwong, Principal Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of their knowledge:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects the financial condition and results of
the Company.
Date: April 15, 2003
By: /s/ Ray Hawkins
-------------------------------------
Ray Hawkins, Chief Executive Officer
By: /s/ Edwin Kwong
-------------------------------------
Edwin Kwong, Principal Financial
Officer
CERTIFICATIONS
I, Ray Hawkins, certify that;
(1) I have reviewed this annual report on Form10-KSB of RRUN
Ventures Network, Inc.;
(2) Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as
of, and for, the periods presented in this annual report;
(4) The Registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the Registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) The Registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the Registrant's ability to record, process,
summarize and report financial data and have
identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal controls; and
(6) The Registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other facts
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Ray Hawkins
Date: April 15, 2003 -----------------------------
Ray Hawkins
Principal Executive Officer
CERTIFICATIONS
I, Edwin Kwong, certify that;
(1) I have reviewed this annual report on Form10-KSB of RRUN
Ventures Network, Inc.;
(2) Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the Registrant as
of, and for, the periods presented in this annual report;
(4) The Registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the Registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) The Registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the Registrant's ability to record, process,
summarize and report financial data and have
identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal controls; and
(6) The Registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls or in other facts
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
/s/ Edwin Kwong
Date: April 15, 2003 -------------------------------
Edwin Kwong
Principal Financial Officer