<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ____________ TO ___________.
Commission file no. 0-25359
CMERUN CORP.
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(Name of Small Business Issuer in its Charter)
Delaware 65-0877745
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
One Cabot Road, Hudson, MA 01749
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (978) 567 6800
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes: No: X
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As of March 31, 2000, there were 3,001,000 shares of Common Stock of
the registrant issued and outstanding.
<PAGE>
PART I -- Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
C Me Run Corp.
(A Development Stage Company)
Consolidated Balance Sheet
(unaudited)
At March 31, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,462,008
Restricted cash 1,775,000
Employee advances 83,333
Related party prepaid expenses 450,000
Prepaid expenses and other current assets 370,344
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6,140,685
Property and Equipment:
Leasehold improvements 108,811
Office furniture and equipment 33,506
Computer equipment 715,433
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857,750
Less: Accumulated depreciation and amortization 75,660
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782,090
Other Assets:
Employee advances 170,199
Security deposits 181,370
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351,569
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Total assets $ 7,274,344
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------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 608,987
Due to related party 281,160
Accrued issuance costs 150,000
Accrued leasehold improvements 90,000
Accrued marketing costs 75,000
Accrued payroll and related costs 46,965
Other accrued expenses 35,000
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1,287,112
Commitments and contingencies: (Note 7)
Redeemable series A convertible preferred stock
(Aggregate liquidation preference of $1,000,000) 1,019,594
Redeemable series B convertible preferred stock
(Aggregate liquidation preference of $6,999,999) 6,602,895
Redeemable series B convertible preferred stock
subscribed and fully paid (Aggregate 1,378,027
liquidation preference of $1,500,000)
Stockholders' equity (deficit):
Common stock; $.001 par value; 50,000,000 shares
authorized, 3,001,000 issued and outstanding 3,001
Additional paid-in capital 2,715,761
Unearned compensation (2,410,937)
Deficit accumulated during the development stage (3,321,109)
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Total stockholders' equity (3,013,284)
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Total liabilities and stockholders' equity $ 7,274,344
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------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
C Me Run Corp.
(A Development Stage Company)
Consolidated Statement of Operations
(unaudited)
For the three months ended March 31, 2000 and cumulative from November 8,1999
(date of inception) to March 31, 2000
<TABLE>
<CAPTION>
Cumulative
from
November 8,1999
Three months (date of inception)
Ended to
March 31, 2000 March 31, 2000
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<S> <C> <C>
Revenues $ -- $ --
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Operating expenses
Development costs 155,583 168,611
General and administrative 1,973,726 2,232,752
Marketing and promotion 856,339 932,612
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2,985,648 3,333,975
Interest income 15,847 15,866
Income tax expense (benefit) -- --
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Net loss (2,969,801) (3,318,109)
Beneficial conversion feature on
convertible preferred stock and warrants
Series A convertible preferred stock and warrants (976,425) (976,425)
Series B convertible preferred stock and warrants (1,934,857) (1,934,857)
Accretion of convertible preferred stock to
redemption value
Series A convertible preferred stock (14,795) (14,795)
Series B convertible preferred stock (112,055) (112,055)
Accretion of convertible preferred stock
issuance costs
Series A convertible preferred stock (1,744) (1,744)
Series B convertible preferred stock (5,732,362) (5,732,362)
Accretion of convertible preferred stock
dividends
Series A convertible preferred stock (26,630) (26,630)
Series B convertible preferred stock (201,699) (201,699)
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Net loss attributable to common
stockholders $(11,970,368) $(12,318,676)
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-------------- ---------------
Basic and diluted net loss per common share
Loss per common share - basic and diluted (3.99) (4.10)
Basic and diluted weighted-average 3,001,000 3,001,000
shares outstanding
</TABLE>
See notes to consolidated financial statements.
<PAGE>
C Me Run Corp.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity
(unaudited)
For the three months ended March 31, 2000 and cumulative
from November 8,1999 (date of inception) to March 31, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Unearned Development
No. of Shares Par Value Capital Compensation Stage
------------- --------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Issuance of founder's stock 1,000 $ 1 $ 999
Net loss $ (348,308)
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Balance at December 31, 1999 1,000 1 999 (348,308)
Merger of Fundae Acquisition Corp and
C Me Run Corp and cancellation
of 4,000,000 outstanding shares 3,000,000 3,000 (3,000)
Beneficial conversion feature related to
Series A convertible preferred stock
and warrants 976,425
Accretion of beneficial conversion feature
related to Series A convertible preferred stock
and warrants (976,425)
Beneficial conversion feature related to
Series B convertible preferred stock
and warrants 584,857
Accretion of beneficial conversion feature
related to Series B convertible preferred stock
and warrants (584,857)
Beneficial conversion feature related to Series B
convertible preferred stock subscribed and fully paid 1,350,000
Accretion of beneficial conversion feature related to
Series B convertible preferred stock subscribed and
fully paid (1,350,000)
Accretion of Series A convertible preferred stock
to redemption value (14,795)
Accretion of Series B convertible preferred stock
to redemption value (103,562)
Accretion of Series B convertible preferred stock
subscribed and fully paid
to redemption value (8,493)
Accretion of Series A convertible preferred stock
issuance costs (1,744)
Accretion of Series B convertible preferred stock
issuance costs (40,943)
Issuance of warrants to purchase common stock
to placement agent in connection with sale
of Series B convertible preferred stock 5,686,121
Accretion of Series B convertible preferred stock
issuance costs - warrants issued to
placement agent (5,686,121)
Accretion of Series B convertible preferred stock
subscribed and fully paid issuance costs (4,247)
Dividends accrued on Series A convertible
preferred stock (26,630)
Dividends accrued on Series B convertible
preferred stock (186,411)
Dividends accrued on Series B convertible
preferred stock subscribed and fully paid (15,288)
Issuance of common stock subscriptions
in connection with advertising services 800,000 $ (800,000)
Issuance of warrants to purchase common
stock in connection with financial advisory services 1,265,000 (1,265,000)
Amortization of unearned compensation 705,938
Change in market value of common stock subscriptions
and warrants issued in connection with
advertising and financial advisory services 1,051,875 (1,051,875)
Net Loss (2,969,801)
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Balance at March 31, 2000 3,001,000 $3,001 $ 2,715,761 $(2,410,937) $(3,321,109)
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</TABLE>
See notes to consolidated financial statements.
<PAGE>
C Me Run Corp.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(unaudited)
For the three months ended March 31, 2000 and cumulative
from November 8,1999 (date of inception) to
March 31, 2000
<TABLE>
<CAPTION>
Cumulative
from
November 8, 1999
Three months (date of inception)
Ended to
March 31, 2000 March 31, 2000
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,969,801) $(3,318,109)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 60,202 75,660
Amortization of unearned compensation 705,938 705,938
Changes in operating assets and liabilities:
Employee Advances (83,333) (83,333)
Related party prepaid expenses 180,000 (450,000)
Prepaid expenses and other current assets (114,260) (370,344)
Accounts payable 364,689 608,987
Accrued building costs 90,000 90,000
Accrued marketing costs 75,000 75,000
Accrued payroll and related costs 45,643 46,965
Accrued expenses (11,385) 35,000
Additions to other assets (151,569) (351,569)
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Net cash used in operating activities (1,808,876) (2,935,805)
Cash flows used in investing activities:
Additions to property and equipment (313,086) (857,750)
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Net cash used for investing activities (313,086) (857,750)
Cash flows from financing activities:
Restricted cash (1,775,000) (1,775,000)
Advances from related party 673,679 2,374,311
Repayment of advances from related party (2,092,151) (2,093,151)
Proceeds from issuance of common stock - 1,000
Proceeds from issuance of series A preferred stock, net 976,425 976,425
of issuance costs
Proceeds from issuance of series B preferred stock, net 6,271,978 6,271,978
of issuance costs
Proceeds from preferred stock subscription 1,500,000 1,500,000
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Net cash provided by financing activities 5,554,931 7,255,563
Increase in cash and cash equivalents 3,432,969 3,462,008
Cash and cash equivalents at beginning of period 29,039 0
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Cash and cash equivalents at end of period $3,462,008 $3,462,008
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Summary of noncash financing and investing activities:
Issuance of common stock subscriptions in connection
with advertising services $800,000 $800,000
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-------------- --------------
Issuance of common stock warrants in connection
with financial advisory services $1,265,000 $1,265,000
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-------------- --------------
Issuance of common stock warrants in connection
with fee for Series B convertible preferred stock $5,686,121 $5,686,121
-------------- --------------
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</TABLE>
See notes to consolidated financial statements.
<PAGE>
C Me Run Corp.
(A Development Stage Company)
Notes to Consolidated Financial Statements for the three months ended March 31,
2000 and for the period November 8, 1999 (date of inception) to March 31, 2000
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
C Me Run Corp. (the "Company") is an application service provider whose strategy
is to operate internet computing whereby consumers will be able to access
brand-name software and store files via a secure web browser through their
favorite Internet Service Provider (ISP) or using almost any internet-ready
device. The Company currently has not commenced its principal operations and in
accordance with Statement of Financial Accounting Standards (SFAS) No. 7
"Accounting and Reporting by Development Stage Enterprises," is considered a
development stage company for financial reporting purposes.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, C Me Run Acquisition Corp. All intercompany
accounts and transactions have been eliminated in consolidation.
The Company was incorporated under the name "Fundae Corp." on March 16, 1995
under the laws of the State of Florida. From inception to December 1999, the
Company conducted minimal business operations except for organizational and
capital raising activities.
On December 2, 1999, Fundae Corp. changed its name to "cmerun, inc." in
anticipation of a potential transaction with a privately-held applications
service provider, C Me Run Corp. On December 29, 1999, the Company
reincorporated in the State of Delaware through the merger of the Company
with and into its wholly-owned subsidiary, Fundae Acquisition Corporation.
On January 31, 2000, Fundae Merger Sub, Inc. merged with and into C Me Run
Corp., an applications service provider. The merger was a stock-for-stock
transaction accounted for as a reverse merger in which the shareholders of C
Me Run Corp. received a like number of shares of common stock and/or
preferred stock of the Company as they held in C Me Run Corp. Prior to the
merger, the Company had 7,000,000 shares of common stock outstanding. In
connection with the merger the Company exercised a right to purchase for
cancellation 4,000,000 shares of its common stock for a total consideration
of $1.00 with a resulting 3,000,000 shares of common shares issued and
outstanding.
On February 2, 2000, C Me Run Corp. merged with and into the Company. In
connection with the merger of the Company with C Me Run Corp., the Company
became obligated to acquire C Me Run (Alberta) Ltd. In connection with that
pending acquisition, the Company will become obligated to issue to the
holders of certain exchangeable shares of C Me Run (Alberta) Ltd., upon
presentation for exchange, an aggregate of 2,650,000 shares of common stock
and to certain employees and other parties options to purchase an aggregate
of 350,000 shares of common stock with an exercise price of $1.00 per share,
and options to purchase an aggregate of 2,483,000 shares of common stock with
an exercise price of $5.00 per share. On February 2, 2000, the Company also
changed its name to C Me Run Corp.
<PAGE>
During the second quarter of fiscal 2000, the Company had limited operations
and incurred a net loss of $(2,969,801) and a cumulative net loss of
$(3,318,109) from November 8, 1999 to March 31, 2000. Funding of these losses
was provided principally by the proceeds from the sale of the Series A and
Series B Convertible Preferred Stock.
Since inception, the Company has focused its efforts on building an
infrastructure, marketing efforts, and service development. The Company is
refining its service offering and building an infrastructure to prepare for
the anticipated rapid growth to meet its expected customer needs. In
addition, with the Company's unique approach of offering its programs,
significant expenditures were incurred relating to promoting its services and
its potential benefits.
At March 31, 2000, the Company had available cash of approximately $3,500,000
and restricted cash of $1,775,000. Management anticipates that pending
resolution of certain documentation matters, that $1,500,000 of the
restricted cash will be available for its capital needs. Based upon the
current level of expenditures, management expects to be able to finance
operations into the fourth quarter of the current fiscal year.
In order to meet its cash requirements through the end of the fiscal year and
for the next twelve months, management intends to seek financing from a
number of sources. With the expected registration of additional shares of its
common stock, a significant number of warrants currently outstanding could be
exercised for the purchase of common stock. Depending upon the number of
warrants exercised, this could provide up to an additional $5,500,000 of cash
to the Company. In conjunction with its equipment requirements, management is
in discussion with certain vendors to provide an equity investment in the
Company. Although specific terms have not been discussed, management believes
that this investment could be in the range of $5,000,000 to $10,000,000.
In addition to these sources, management is considering alternative sources
including additional private debt or equity capital or a potential sale of
public equity.
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has yet to generate
revenues, and accordingly, is subject to a number of risks. Principal among
these risks are the successful development and marketing of its service,
competition from other companies, and the ability to raise additional financing
as required. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of C Me Run Corp. have been
prepared in accordance with accounting principles generally accepted in the
United States of America. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a
fair presentation of the interim financial statements have been included.
Fiscal Year
The Company's fiscal year ends September 30.
Use of Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less at the date of purchase to be cash equivalents. The Company
invests its
<PAGE>
excess cash in money market funds, which invest in U.S. Government securities
and are subject to minimal credit and market risk.
Prepaid Expenses
Prepaid expenses are carried at cost and consist principally of advance
payments for trade shows and license agreements which benefit more than one
period. The amounts are charged to expense when the trade show takes place
and for the license agreements over the term of the agreement.
Property and Equipment
Property and equipment is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets. The
estimated useful life for leasehold improvements is five years or the remaining
useful life of the lease, whichever is shorter and the estimated useful life for
furniture and equipment and computer equipment is three years. Maintenance and
repair costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax liabilities and
assets are recognized for the estimated tax effects of temporary differences
between the financial reporting and taxable income and for loss carryforwards
based on enacted tax law and rates.
Net Loss Per Common Share
Basic loss per share is computed using the weighted-average number of common
shares outstanding. Shares issued in the reverse acquisition have been
treated as outstanding since inception. Diluted loss per common share
reflects the potential dilution if common equivalent shares outstanding
(preferred shares and warrants) were exercised or converted into common stock
unless the effects are antidilutive. All common stock equivalents (warrants
and preferred stock) that were outstanding for the periods presented were not
included in the computation of loss per common share due to a net loss on all
periods presented, and, therefore, their effect would be antidilutive.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant
concentration of credit risk, consist of cash and cash equivalents. The Company
places its investments in highly rated financial institutions.
<PAGE>
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income," which requires companies to report the
changes in their net assets during the period from nonowner sources by major
components and as a single total. The Company had no material reportable
comprehensive income items to report, other than net loss, for the three
months ended March 31, 2000 and for the period November 8, 1999 (date of
inception) to March 31, 2000. Adoption of this statement did not impact the
Company's financial position, results of operations, or cash flows.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which defines
derivatives, requires that all derivatives be carried at fair value, and
provides for hedge accounting when certain conditions are met. The Company is
required to adopt this statement effective January 1, 2001. Management does not
expect the implementation to have a significant impact on the financial
statements of the Company.
3. RESTRICTED CASH
During the period, the Company received $1,500,000 in connection with the
sale of 500,000 shares of Series B Convertible Preferred Stock (the "Series B
Stock"). At March 31, 2000 the issuance had not been completed, pending
certain actions to be completed by the Company. Accordingly, the funds
received have been classified in restricted cash. In addition, at March 31,
2000, the landlord of a facility held $200,000 in a bank in the name of the
Company and accordingly this amount has been classified as restricted cash.
Restricted cash also includes $75,000 to secure a leasing line of credit with
a bank. No amounts were outstanding under this line at March 31, 2000.
4. EMPLOYEE ADVANCES
In connection with their employment agreements, the Company granted three
officers non-interest bearing loans. Two of the loans which aggregate $17,420
are payable on demand. The third loan of $250,000 will be forgiven in equal
amounts over a three-year period on the condition that employment continues.
5. STOCKHOLDERS' EQUITY
Common Stock
On November 9, 1999, the Company issued 1,000 shares of $.001 par value
common stock to the Founder for $1,000. On January 31, 2000, the Company
merged with Fundae Merger Sub, Inc. The merger was a stock-for-stock
transaction accounted for as a reverse merger. As such, the Company's balance
sheet reflects the 3,000,000 common shares of Fundae Merger Sub, Inc. which
were outstanding prior to the merger. Of the total of 3,001,000 shares of
common stock issued and outstanding at March 31, 2000, 1,501,000 are
considered to be "restricted securities" as that term is defined under Rule
144 promulgated under the Securities Act of 1933.
<PAGE>
On January 28, 2000, the Company entered into an advertising agency agreement
to promote public awareness of the Company. As consideration for such
services, the Company will grant the agency 50,000 restricted shares of
common stock of which 25,000 will have piggyback registration rights. The
term of the agreement is six months with an option to renew by the Company.
In connection with this agreement, the Company recorded a noncash charge of
$800,000 to unearned compensation to be expensed over the term of the
agreement. The Company has not yet issued the common stock and as such has
remeasured the value of the common stock as of March 31, 2000 and has
adjusted compensation expense for the period ended March 31, 2000. For the
period ended March 31, 2000, $372,917 was amortized and recorded in selling
expenses.
Common Stock Warrants
In connection with the issuance of 2,000,000 shares of Series A convertible
Preferred Stock (the "Series A Stock"), the Company issued warrants to
purchase 1,000,000 shares of the Company's common stock at a price of $1.00
per share.
In connection with the issuance of 2,333,333 shares of Series B Convertible
Preferred stock (the "Series B Stock"), the Company issued warrants to
purchase 1,400,000 shares of the Company's common stock at a price of $2.50
per share.
On February 1, 2000, the Company entered into an agreement with a firm to
provide general corporate financial advisory and investor and media relations
needs. As consideration for these services, the Company will grant the firm
warrants to purchase 115,000 shares of common stock at $5.00 per share with
registration for 50% of the warrants by June 30, 2000 and the remaining 50%
by December 31, 2000. The agreement also provides for a retainer of $9,000
per month and a percentage fee of up to 5% of the value level of certain
transactions involving business development and technology licensing, and
mergers and acquisitions completed by the Company and a success fee of 7%
(plus warrant coverage, at sale price of the common stock, of 10%) for
advising the Company with respect to financing strategy, including public and
private equity and debt. The term of the agreement is one year with an option
to renew by the Company. In connection with this agreement, the Company
recorded a noncash charge of $1,265,000 to unearned compensation to be
expensed over the term of the agreement. The Company has not yet issued the
warrants and as such has remeasured the value of the warrants as of March 31,
2000 and has adjusted compensation expense for the period ended March 31,
2000. For the period ended March 31, 2000 $333,021 was amortized and recorded
in general and administrative expenses.
In connection with the sale of the Series B Stock, the selling agent received
warrants to purchase 400,000 shares of the Company's common stock at $2.50
per share which expire in January, 2004. The estimated fair market value of
the warrant of $5,686,121 has been recorded as a reduction of the proceeds
from the sale of the Series B Stock. The warrants are exercisable immediately
and, accordingly, the Company also recorded accretion of the entire amount to
the carrying value of the Series B stock.
6. REDEEMABLE PREFERRED STOCKS
Series A Convertible Preferred Stock
On January 12, 2000, the Company issued 2,000,000 shares of Series A stock,
par value $.001 per share, for $1,000,000. Issuance costs of $23,575 are
being accreted to the carrying value of the Series A Stock over the period to
the stock's scheduled redemption date of January 11, 2003.
<PAGE>
Series B Convertible Preferred Stock
On January 28, 2000, the Company issued 2,333,333 shares of Series B Stock,
par value $.001 per share, for $6,999,999. Issuance costs of $6,415,142
include $5,686,121 related to warrants to purchase 400,000 shares of common
stock which are exercisable immediately and, accordingly, have been accreted
to the carrying value of the Series B stock. Other issuance costs of $729,021
are being accreted to the carrying value of the Series B Stock over the
period to the stock's scheduled redemption date of January 11, 2003.
The rights and preferences of each of the classes of preferred stock are as
follows:
Liquidation - In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, before any
distributions are made to the holders of any classes of stock ranking junior to
the Series A and Series B Stock, the Series A shareholders will be entitled to
be paid an amount equal to the preference value of $.50 per share and the Series
B shareholders will be entitled to be paid an amount equal to the preference
value of $3.00 per share. After such distribution, any remaining assets
available for distribution shall be distributed to the holders of shares of
Series A Stock and Series B Stock and holders of Common Stock pro rata based on
the total number of shares held by each holder on a fully-converted basis. If
the assets are not sufficient to generate cash sufficient to pay in full the
Series A and Series B preference values, then the Series A and Series B
shareholders will be entitled to share ratably in any distribution of cash
generated by assets in accordance with the respective amounts that would have
been payable in such distribution if the amounts to which the holders of the
Series A and Series B Stock are paid in full.
Conversion - The Series A Stock has a preference value of $.50 per
share and is convertible at the option of the holder at any time prior to the
redemption date into the number of shares of common stock of the Company as
determined by dividing the preference value by the conversion price then in
effect. The Series B Stock has a preference value of $3.00 per share and is
convertible at the option of the holder at any time prior to the redemption
date into the number of shares of common stock of the Company as is
determined by dividing the preference value by the conversion price then in
effect.
Dividends - The holders of the Series A and Series B Stock are
entitled to receive cumulative dividends at the rate of 12% of the
preference value per share payable in quarterly installments in cash or
shares of common stock.
Voting Rights - The holders of the Series A and Series B Stock and the
holders of the Common Stock shall be entitled to vote as a single class. Each
holder of Series A or Series B Stock shall have one vote for each full share of
Common Stock into which the Series A and Series B Stock would be convertible on
the record date for the vote.
<PAGE>
Redemption - If not converted to Common Stock by the holders prior
to the redemption date of January 11, 2003, the Series A and Series B Stock
shall be redeemed by the Company at a redemption price of 120% of the
preference value, plus all accumulated and unpaid dividends accrued as of the
redemption date.
Beneficial Conversion Feature - The entire value of the Series A
Stock was allocated to the beneficial conversion feature based on the
difference between the conversion price of $.50 per share and the estimated
fair value of the common stock at the date that the preferred stock was
issued. This amount, however, was limited to the value of the proceeds
received from issuing the beneficial convertible security. As the Series A
Stock is immediately convertible, the Company also recorded accretion of the
entire amount to additional paid-in capital. Similarly, the entire value of
the Series B Stock was allocated to the beneficial conversion feature based
on the difference between the conversion price of $3.00 per share and the
estimated fair value of the common stock at the date that the preferred stock
was issued. This amount, however, was limited to the value of the proceeds
received from issuing the beneficial convertible security. As the Series B
Stock is immediately convertible, the Company also recorded accretion of the
entire amount to additional paid-in capital.
The Company allocated $976,425 and $584,857, to the beneficial conversion
feature of the Series A Stock and warrants and Series B Stock and warrants,
respectively, net of issuance costs.
Preferred Stock Subscribed
During the period, the Company received $1,500,000 in connection with the
issuance of an additional 500,000 shares of the Series B Stock. At March 31,
2000, the shares have not been issued, pending certain actions to be
completed by the Company. Accordingly, the funds received have been
classified in restricted cash and the shares have been recorded as fully paid
and subscribed in the accompanying financial statements. Issuance costs of
$150,000 have been recorded as a reduction of the proceeds from the sale.
Registration Rights Agreements
The Registration Rights Agreements between the Company and the Series A and
Series B shareholders require the Company to register common stock underlying
the warrants and the convertible preferred stock prior to May 19, 2000 (the
"Registration Date") in the form of a registration statement and to keep the
registration statement continuously effective for a period of the earlier of
two years or until there are no additional securities required to be
registered. In the event that the Company does not file a registration
statement prior to the 30th day following the Registration Date, or if any
registration statement has not been declared effective on or prior to the
120th day following the Registration Date, the Company will be required to
pay liquidated damages in the amount of 2% per month of the proceeds from the
sale of the preferred stock, or approximately $190,000 per month.
<PAGE>
7. COMMITMENTS
The Company leases certain property and equipment under operating leases
expiring at various dates through 2005. At March 31, 2000, future minimum
payments under non-cancellable operating leases are as follows:
<TABLE>
<S> <C>
March 31 - September 30, 2000 $ 354,740
2002 $ 363,499
2003 $ 372,258
2004 $ 372,258
2005 and after $ 186,129
----------
$1,648,884
</TABLE>
Rent expense was $54,063 for the three months ended March 31, 2000 and
$78,063 for the period from November 8, 1999 to March 31, 2000. The lease for
the Company's facility in Hudson, MA expires on March 31, 2005. The Company
has the option to extend the term for an additional five years at a fair
market value rate.
In connection with a proposed settlement agreement and release relating to a
lawsuit in which the Company was named, the Company does not expect to make
any payments. Therefore, management believes that the settlement will not
have any material impact on the Company's financial position, results of
operations, or cash flows.
8. RELATED PARTY TRANSACTIONS
From the date of incorporation through the sale of its convertible preferred
stock, the working capital requirements of the Company were financed
principally by Chell.com Inc., a Calgary, Alberta based incubator of internet
related companies. The Chairman of Chell.com is also the Chairman of the
Company. During this period, Chell.com advanced approximately $1,654,000 to
the Company of which approximately $282,000 is still outstanding at March 31,
2000
On November 15, 1999, Chell.com Inc. and the Company entered into a
consulting agreement whereby Chell.com Inc. would supply certain services in
the areas of corporate strategy, human resources, corporate finance,
communications and hiring outside consultants to the Company for a one-year
period. The fee for this service was $720,000 per annum payable in advance of
which $180,000 was expensed for the three months ended March 31, 2000 and
$270,000 for the period from November 8, 1999 to March 31, 2000. At March 31,
2000, a balance of $450,000 is included in prepaid expenses related to the
remaining contract term.
The Series B Stock was sold to an organization in which the Chairman, a
principal shareholder of the Company, has an interest.
9. INCOME TAXES
The income tax benefit differs from the amount computed by applying the U. S.
federal statutory tax rate and effective state tax rate (39%) to the loss before
income taxes for the following reasons:
<TABLE>
<CAPTION>
Cumulative From
Three Months November 8, 1999
Ended (date of inception) to
March 31, 2000 March 31, 2000
-------------- -----------------------
<S> <C> <C>
Income tax benefit at U. S. statutory rate $1,109,735 $1,221,129
Change in deferred tax valuation allowance 1,109,735 1,221,129
---------- ----------
Income tax benefit $ 0 0
</TABLE>
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The components of the
Company's deferred tax assets are as follows:
Deferred tax assets:
<TABLE>
<CAPTION>
Cumulative From
Three Months November 8, 1999
Ended (date of inception) to
March 31, 2000 March 31, 2000
-------------- -----------------------
<S> <C> <C>
Start-up costs 27,975 52,421
Net operating loss carryforwards 1,109,735 1,221,129
---------- ----------
Net deferred tax assets 1,137,710 1,273,550
Valuation allowance (1,137,710) (1,273,550)
---------- ----------
Net deferred tax assets 0 0
</TABLE>
The Company has provided a valuation allowance for the full amount of the
deferred tax assets as it is not more likely than not that this asset will be
realized.
The Company has a net operating loss carryforward of $3,131,000 which expires
in 2020.
10. PROPOSED TRANSACTION
On December 2, 1999, the Company and its wholly-owned subsidiary, C Me Run
Acquisition Corp. and C Me Run (Alberta) Ltd. entered into an Acquisition
Agreement whereby the Company, either directly or through its wholly owned
subsidiary C Me Run Acquisition Corp, would acquire all of the outstanding
common shares of C Me Run (Alberta) Ltd. and any outstanding options at the
time of conversion. The transaction has not yet been consumated, pending the
filing of the appropriate regulatory documents and approvals of the
transaction.
Item 2. Management's Discussion and Analysis or Plan of Operation,
Financial Condition and Results of Operation
Overview
The Company was incorporated under the name "Fundae Corp." on March 16, 1995
under the laws of the State of Florida. From inception to December 1999, the
Company conducted minimal business operations except for organizational and
capital raising activities.
On December 2, 1999, Fundae Corp. changed its name to "cmerun, inc." in
anticipation of a potential transaction with a privately-held applications
service provider, C Me Run Corp. (the "Company"). On December 29, 1999, the
Company reincorporated in the State of Delaware through the merger of the
Company with and into its wholly-owned subsidiary, Fundae Acquisition
Corporation.
On January 31, 2000, Fundae Merger Sub, Inc. merged with and into C Me Run
Corp., an applications service provider. The merger was a stock-for-stock
transaction accounted for as a reverse merger in which the shareholders of C
Me Run Corp. received a like number of shares of common stock and/or
preferred stock of the Company as they held in C Me Run Corp. Prior to the
merger, the Company had 7,000,000 shares of common stock outstanding. In
connection with the merger the Company exercised a right to purchase for
cancellation 4,000,000 shares of its common stock for a total consideration
of $1.00 with a resulting 3,000,000 shares of common shares issued and
outstanding.
On February 2, 2000, C Me Run Corp. merged with and into the Company. In
connection with the merger of the Company with C Me Run Corp., the Company
became obligated to acquire C Me Run (Alberta) Ltd. In connection with that
pending acquisition, the Company will become obligated to issue to the
holders of certain exchangeable shares of C Me Run (Alberta) Ltd., upon
presentation for exchange, an aggregate of 2,650,000 shares of common stock
and to certain employees and other parties options to purchase an aggregate
of 350,000 shares of common stock with an exercise price of $1.00 per share,
and options to purchase an aggregate of 2,483,000 shares of common stock with
an exercise price of $5.00 per share. On February 2, 2000, the Company also
changed its name to C Me Run Corp. (the "Company").
The Company has very little recent operating history and no representation is
made, nor is any intended, that the Company will be able to carry on future
business activities successfully. There can be no assurance that the business
will develop into a going concern or that it will continue to operate
successfully. Many of the potential business opportunities available to the
Company involve new and untested products, processes and market strategies
which may not ultimately prove to be successful.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future are
forward-looking statements. Such forward-looking statements are subject to
risks and uncertainties, including, without limitation:
- limited or delayed client acquisition or increases in client
acquisition costs;
<PAGE>
- the Company's ability to retain clients, sellers and suppliers and
attract new clients, sellers and suppliers cost-effectively;
- changes in the Company's pricing policies or those of its
competitors or suppliers;
- the Company's ability to obtain adequate capital to affect its
marketing and acquisition strategies;
- the Company's ability to introduce new services;
- delays in developing and introducing new products or enhanced
capabilities for existing products;
- introduction of new services by the Company's competitors;
- the Company's ability to adequately supply services to its
clients; and
- changes in accounting standards, including standards relating to
revenue recognition, business combinations and stock-based
compensation.
Consequently, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequence to or
effects on the Company or its business or operations. The Company assumes no
obligations to update any forward-looking statements made herein.
Plan of Operation
The Company's plans for the next 12 months include the establishment of a
fully operational pilot program which will enable it to test certain critical
assumptions. This program includes offering its services to at least two
service providers for either no cost or minimal cost who will then make the
services available to their subscribers. This testing will allow the Company
to corroborate such matters as concurrency rates among subscribers, software
preferences, speed and ease of use, and software scaling capabilities. The
Company anticipates that this testing will begin at the end of June 2000 and
continue through July 2000. Building on the results, the Company expects to
roll out a full-scale revenue-generating program in the August and September
2000 time period and will continue to expand its customer base. Management
expects that the Company will continue to incur losses until late in fiscal
year 2002 while it continues to increase its subscriber base to cover the
significant fixed costs involved in its operations. The Company currently has
not commenced its principal operations and in accordance with Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises," is considered a development stage company for
financial reporting purposes.
As the Company's customer base grows, significant expansion will be required
both in terms of its equipment and workforce. The Company's current workforce of
17 (including its officers) is expected to increase to more than 90 during the
next 12 months. As the number of subscribers increases, the Company expects
significant additions to its hardware requirements, primarily in the form of
various servers that would provide user applications and service the data
storage requirements of the subscribers. The Company anticipates that servers
will be obtained through equipment leasing
<PAGE>
arrangements. In addition, data storage needs will be met through a combination
of equipment leasing arrangements and third party solutions.
Results of Operation
For the period ended March 31, 2000, the Company had no revenues and incurred
a net loss of ($2,969,801). During this time the Company focused its efforts
on building an infrastructure, marketing efforts, and service development.
The Company is refining its service offering and building an infrastructure
to prepare for the anticipated rapid growth to meet its expected customer
needs. In addition, with the Company's unique approach of offering its
programs, significant expenditures were incurred relating to promoting its
services and its potential benefits.
Liquidity and Capital Resources
At March 31, 2000, the Company had available cash of approximately $3,500,000
and restricted cash of $1,775,000. Management anticipates that pending
resolution of certain documentation matters, that $1,500,000 of the
restricted cash will be available for its capital needs. Based upon the
current level of expenditures, management expects to be able to finance
operations into the fourth quarter of the current fiscal year.
In order to meet its cash requirements through the end of the fiscal year and
for the next twelve months, management intends to seek financing from a
number of sources. With the expected registration of additional shares of its
common stock, a significant number of warrants currently outstanding could be
exercised for the purchase of common stock. Depending upon the number of
warrants exercised, this could provide up to an additional $5,500,000 of cash
to the Company. In conjunction with its equipment requirements, management is
in discussion with certain vendors to provide an equity investment in the
Company. Although specific terms have not been discussed, management believes
that this investment could be in the range of $5,000,000 to $10,000,000.
In addition to these sources, management is considering alternative sources
including additional private debt or equity capital or a potential sale of
public equity.
Merger with C Me Run Corp.
On January 31, 2000, Fundae Merger Sub, Inc. merged with and into C Me Run
Corp., an applications service provider. The merger was a stock-for-stock
transaction accounted for as a reverse merger in which the shareholders of C
Me Run Corp. received a like number of shares of common stock and/or
Preferred Stock of the Company as they held in C Me Run Corp. Prior to the
merger, the Company had 7,000,000 shares of common stock outstanding. In
connection with the merger the Company exercised a right to purchase for
cancellation 4,000,000 shares of its common stock for total consideration of
$1.00 with a resulting 3,000,000 shares of common shares issued and
outstanding.
In addition, the Company assumed the obligation to issue common stock upon
the exercise of warrants to purchase 1,000,000 shares of common stock with an
exercise price of $1.00 per share, and warrants to purchase 1,800,000 shares
of common stock with an exercise price of $2.50.
<PAGE>
On February 2, 2000, C Me Run Corp. merged with and into the Company. In
connection with the merger of the Company with C Me Run Corp., the Company
became obligated to issue to the holders of certain exchangeable shares of C
Me Run (Alberta) Ltd., upon presentation for exchange, an aggregate of
2,650,000 shares of common stock and to certain employees and other parties
options to purchase an aggregate of 350,000 shares of common stock with an
exercise price of $1.00 per share, and options to purchase an aggregate of
2,483,000 shares of common stock with an exercise price of $5.00 per share.
PART II - Other Information
Item 1. Legal Proceedings
The Company was served with a lawsuit by FutureLink Corp., FutureLink
Distribution Corp. and FutureLink Micro Visions Corp. (collectively,
"FutureLink"). The FutureLink lawsuit, which was filed on January 20, 2000 in
the Court of Queen's Bench Alberta, Judicial District of Calgary, Action
#0001-01111, alleged that certain employees of C Me Run Corp. (prior to its
acquisition by the Company) had conspired to appropriate a corporate
opportunity from FutureLink and use it to their own advantage. FutureLink
alleged that C Me Run Corp. was the same business concept, which was
developed by the individuals named in the lawsuit while they were at
FutureLink, using its facilities. The Plaintiff was seeking a permanent
injunction restraining C Me Run Corp. and its subsidiaries from carrying on
business related to the project. As well, the Plaintiff was seeking a
judgment in the amount of CDN $80,000,000 and the ownership of all shares of
C Me Run held by the Defendants. The Company defended FutureLink's lawsuit
and had filed a counterclaim against FutureLink, for CDN $126M (approximately
US $88M).
In connection with a proposed settlement agreement and release relating to a
lawsuit in which the Company was named, the Company does not expect to make
any payments. Therefore, management believes that the settlement will not
have any material impact on the Company's financial position, results of
operations, or cash flows.
Item 2. Change in Securities and Use of Proceeds
On January 31, 2000, a subsidiary of the Company was merged with and into C
Me Run Corp. Pursuant to the merger, in exchange for their interests in C Me
Run Corp., the Company issued 1,000 shares of common stock to Cameron Chell,
2,000,000 shares of Series A Stock to Hammock Group Ltd. ("Hammock") and
2,333,333 shares of Series B Stock to VC Advantage Limited Partnership
("VCALP"). The terms of the Series A Stock and The Series B Stock are set
forth in exhibits 4.1 and 4.2 to this Form 10-QSB.
In addition, in exchange for outstanding options and warrants of C Me Run
Corp., the Company issued (i) to Hammock a warrant to purchase 1,000,000
shares of common stock with an exercise price of $1.00 per share, (ii) to
VCALP a warrant to purchase 1,400,000 shares of common
<PAGE>
stock with an exercise price of $2.50, and (iii) to Thomson Kernaghan & Co.
Limited a warrant to purchase 400,000 shares with an exercise price of $2.50.
In connection with the merger of the Company with C Me Run Corp., the Company
became obligated to acquire C Me Run (Alberta) Ltd. In connection with that
pending acquisition, the Company will become obligated to issue to the
holders of certain exchangeable shares of C Me Run (Alberta) Ltd., upon
presentation for exchange, an aggregate of 2,650,000 shares of common stock
and to certain employees and other parties options to purchase an aggregate
of 325,000 shares of common stock with an exercise price of $1.00 per share,
and options to purchase an aggregate of 2,483,000 shares of common stock with
an exercise price of $5.00 per share.
The Company's issuance of common stock, Series A Stock, Series B Stock, and
warrants and options to purchase common stock was exempt from registration
under the Securities Act of 1933 by virtue of Regulation D promulgated
thereunder or Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the attached exhibit list following the Company's signature for a
list of exhibits filed herewith.
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
Date Filed Items Reported
---------- --------------
<S> <C>
January 19, 2000 Item 5: Reincorporation in Delaware
January 27, 2000 Item 5: Press release concerning Futurelink litigation
March 15, 2000 Item 5: Increase in size of Board and election of directors
</TABLE>
<PAGE>
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.
C Me Run Corp.
Date: June __, 2000 By: /s/ James Lovie
-------------------------------
Its: Chief Executive Officer
Date: June __, 2000 By: /s/ Gerald J. McGovern
-------------------------------
Its: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exh. No. Description
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of January 31, 2000 among
Fundae Acquisition Corporation, Fundae Merger Sub, Inc. and C Me
Run Corp. (incorporated by reference from the Company's Quarterly
Report on Form 10-QSB for the Quarter Ended December 31, 1999).
4.1 Corrected Certificate of Designation for Series A Convertible
Preferred Stock
4.2 Corrected Certificate of Designation for Series B Convertible
Preferred Stock
10.1 Warrant Agreement with Hammock
10.2 Warrant Agreement with VCALP
10.3 Warrant Agreement with Thomson Kernaghan & Co. Limited ("TKCL")
10.4 Form of Registration Rights Agreement executed by Hammock, VCALP
and TKCL
10.5 Letter Agreement dated January 28, 2000 with VCALP
10.6 Consulting Agreement with Chell.com Inc.
10.7 Office lease with One Cabot Road Investors, LLC
10.8 Advertising Agency Agreement with Interactive Business Channel
10.9 Amendment to Advertising Agency Agreement
10.10 Letter Consulting Agreement with SmallCaps Online Group LLC
27.1 Financial Data Schedule
</TABLE>
