As filed with the Securities and Exchange Commission
on July 15 , 1999
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
ROANOKE TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
FLORIDA 22-3558993
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1433 GEORGIA AVENUE, ROANOKE RAPIDS, NORTH CAROLINA 27870
(Address of principal executive offices)
Registrant's telephone number, including area code
(252)537-9222
Securities to be registered pursuant to Section 12(b) of the
Act: None
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.0001 per share
(Title of class)
ITEM 1. BUSINESS.
INTRODUCTION
Headquartered in Roanoke Rapids, North Carolina, we are
a developer and marketer of software solutions and services
engineered to maximize and promote Internet web site
presence. To put it simply, our primary business function
is to make our customers' Internet web sites easy to find.
Most persons searching the Web for a product or service use
a search engine. Web sites are increasingly using
television and print media advertising in an attempt to
direct traffic to their web sites, but we utilize our own
proprietary software products to alter our customer's web
sites in ways which make the sites more appealing to the
top search engines. If our customers wish to generate
business from the Internet it is important that their
Web sites appear in the top 10 or 20 positions of targeted
search engine indexes. Simply put, that is what we do.
Unlike most promotional firms that utilize expensive
advertising, we utilize a suite of proprietary technology
products which allow our users to analyze and market their
Web Sites in a superior, cost effective manner.
Our proprietary software analyzes high ranked sites on the
targeted search engines to determine the most important key
words, phrases, and other design characteristics of those
sites. Our customer's web sites are then changed to reflect
the preferences of those search engines and thus increase
the probability that their web site will appear in the top
10 or 20 sites listed by the search engine when those
search characteristics are used. Since most Web surfers
ignore search results beyond the first hundred listed
sites, a higher ranking almost always translates to higher
visitor hits for our customers. This results in greater
exposure for our customers, improved results for their web
presence, and increased customer reliance on our services.
The sweeping transition of the Internet from being primarily
an information and entertainment platform to becoming a
medium for e-commerce is well under way. Web sites are no
longer perceived just for informational content or to
simply establish Internet presence. In order to fully
capitalize on the opportunity that the Internet represents,
today's companies require implementation of a proven
Internet promotional strategy to maintain traffic and
develop sales. In order for companies to fully realize the
potential of the Internet, companies must effectively
market their web sites beyond standard print and media
advertising.
We expect to be in a positive cash flow position in
operations within the next six month period if we continue
to meet our sales objectives. We expect to incur
significant costs if we obtain funding for the introduction
of our new Web site, PC Beacon. These costs could
negatively impact earnings and cash flows. We plan to fund
this additional Web site in an equity offering.
FORMATION
We were formed as a C corporation in Florida on
December 11, 1997 under the name Suffield Technologies
Corp. On July 11, 1998, we filed an amendment to our
incorporation document to change our name to Roanoke
Technology Corp. On July 20, 1998, we filed an application
to do business in North Carolina. On July 22, 1998, the
State of Virginia issued a Certificate of Merger whereby
Top-10 Promotions, Inc. merged into us. On September 4,
1998, we filed a Certificate of Assumed Name in Halifax
County, North Carolina to do business under the name Top 10
Promotions. Top 10 Promotions, Inc. was formed in North
Carolina on October 28, 1997.
SERVICES
Our services are designed to improve the visibility of our
customer's web sites in the Internet. The first level of
service, the "Starter Plan" consists of getting the
customer's web sites registered on about 800 of the most
significant search engines. This service sells for $99, is
not actively promoted by us, and does not carry any
visibility guarantee. It has accounted for 1.6% of our
revenues during the first nine months of fiscal 1999.
Sales of the "Premium Plan" accounted for 95.9% of the our
revenues during the first nine months of fiscal 1999. This
plan is sold for $1,295. It differs from the Starter Plan
in that its goal is not to get the web site listed by the
search engines, but to assure that the site will be one of
the first 20 sites listed by the search engine when
appropriate key words are used. Since many key word
searches can return hundreds, if not thousands, of matches,
it is important that those attempting to do business based
on the Internet assure that their site is listed in the
first one or two pages returned by the search engine. If
the customer has more than one web site we will work on
those sites for half price of $647.50 each.
We commence service with the following steps:
(1) Identify appropriate key words or terms for the
customer's web site. The Premium Plan allows for 6 terms
and up to 6 additional terms may be purchased for $100
each. Sale of additional terms to customers purchasing the
Premium Plan accounted for 2.5% of revenues during the 9
months ended July 31, 1999.
(2) Identify the unique algorithms associated with each
of the search engine's robot and indexing practices.
(3) Create a customer web page for each term for each
search engine (usually 4 or 5 pages are needed for each
term). Each contract will require a creation of
approximately 200 web pages. The pages actually consist of
sets of about 20 pages per search engine.
(4) The created web pages are then moved to the
customer's web site or server.
(5) We verify the placement of the web pages.
We submit them to each search engine. Due to search
engines' different operating procedures, this process
can take up to 10 working days.
(6) Approximately 4 weeks after we have completed
the submissions, preliminary results will be noticed.
After a period of 45 to 60 days, a customer can check
its results at the customer section of our web site.
The customer's results will usually peak after 90 days
(post submission).
As part of the Premium Plan, we will continue to
monitor and furnish "Visibility Reports" for each
customer for up to 6 months. The reports are compiled
every 7 to 10 working days and are electronically
mailed to each customer. The results are also
available on our web site.
We guarantee the following for our Premium Plan:
- - We will secure for our customer no less
than 10 placements somewhere within the top 20
positions somewhere across the top search engines. We
target the thirteen most used engines consisting of
the following: Yahoo, Excite, Infoseek, Planet Search,
HotBot, Lycos, Snap, AOL Netfind, LookSmart,
AltaVista, Netscape, Web Crawler and MSN.
- - The listings may appear on any single search engine,
all the search engines or spread across any number of the
search engines listed above.
- - Over the last 12 months our customers have averaged
more than 50 placements in the top 20 positions across the
top search engines. However, we do not guarantee this to
our customers.
- - We guarantee placement of our customers URL(s) in the
search engine index. We do not guarantee traffic to a
customer's web site.
- - If we fail to meet the above guarantee within 90 days
of a customer's pages being submitted to its server, we
will refund 100% of the customer's payment or repeat the
service, at the customer's choice.
Since our inception we have sold approximately 660
Premium Plans. We have refunded all or a portion of
the customer's money in 10 instances. Total refunds
have been approximately $9,438, or slightly less than
1% of revenues. We have kept no accurate records on
the number of sites that we have had to rework in
order to meet our guarantees. Rework costs consist
primarily of clerical work and are estimated to be
less than 1% of total operating costs.
Our sales efforts rely primarily upon our proprietary
software programs to generate sales leads which are
then followed up with e-mail and telemarketing
efforts. Due to the increasing number of web sites
indexed by the key search engines and changes in the
way these sites are indexed by the search engines, the
visibility of the web sites which we have enhanced
tends to decline over time. We resolicit prior
customers periodically and offer them the opportunity
to renew their web site visibility. The renewal
process is the same as described above and with the
same guarantee. The renewal price is $647.50 and an
additional $100 for each key work or phrase over six.
Renewals accounted for 1.4% of our revenues in the
first nine months of fiscal 1999, but for 1.8% of
revenues in the quarter ended July 1999. We expect
renewals to become a somewhat larger percentage of
total revenues as our installed base grows.
TRADEMARKS
- -----------
We have recently filed trademark applications with the
United States Patent and Trademark Office for the
names "Top 10 and Design," "Cherry Picker Elite" and
"PC Beacon" under which portions of our business are
operated.
PERSONNEL
- ---------
We currently employ 24 full time employees. They fall
into 3 different categories: 3 management, 11 sales,
and 10 support personnel. In the 18 months that we
have been in business, only one employee has left us. Sales
personnel are compensated on a base pay plus commission
basis. During the three months ending in July, the average
salesperson that had worked for us at least two months at
the beginning of the period earned an average of $6,600 per
month.
We expect to continue to add salespersons and hope to add
two more by the end of the fiscal year.
COMPETITION
- ------------
There are numerous Internet promotion companies that
promote web sites. They all use one of three
distinctly different methodologies for promoting their
customer's web sites. The vast majority simply submit
the URL of the customer's "Home Page" to hundreds of
search engines. This is the least effective way
because this method has the following built-in
problems: (a) most of the search engines are search
engines in name only, and are really directories. The
user must know the name of the company to have any
degree of success; (b) over 82% of the search engine
traffic is driven by the most popular search engines.
This renders the vast majority of the others very
ineffective; (c) this method can not work successfully
because it is almost impossible to make a web page
appeal to more than 1 or 2 search engines. Each
search engine employs different indexing practices.
To date, the only successful method of obtaining
consistent rankings in the search engines is to make
pages for each "keyword phrase" for each engine.
The second method of promoting a site in the search
engines is to purchase positions within the indexes or
to purchase advertising space on the site in the form
of banner advertisements. The cost of this method is
extremely expensive and not practical for most small
business owners.
The third way is to prepare pages for each "keyword
phrase" for each search engine. We utilize this
method. We have no knowledge of any other company
that has the ability to effectively track what
characteristics appeal to the major search engines and
to make pages based on those characteristics.
The market for a worldwide on-line commerce web site is
relatively new, quickly evolving and subject to rapid
change. There are few substantial barriers to entry,
and we expect to have additional competition from
existing competitors and new entrants in the future.
It is our belief, however, that we represent the
leading edge of the industry. While competition exists
in the form of smaller and less advanced services, we
believe our proprietary technology allows us to
deliver to our customers a more effective website
promotion service than any of our competitors. In
addition, we are not aware of any competitor which
matches our visibility guarantee.
GENERAL BUSINESS CONDITIONS
- ----------------------------
There is no apparent seasonality in the company's
business, but weekly or monthly sales volume can be impacted
by holidays and popular vacation periods which impair the
ability of our telemarketers to reach potential customers.
Our business is not dependent upon any single customer or
type of business. Since we have no subcontractors, we are
not dependent upon an outside sales force. All work is
performed in house. This includes the creation and
development of our software.
CUSTOMERS
- -----------
Our potential market or customer base consists of every
business-oriented web site in the world. As of June 1998
there were approximately 3.9 million ".com" and ".net" web
sites registered by Network Solutions which, until March
1999 was the exclusive registrar in the United States for
first level domain names. We believe that at least half of
these sites, or nearly 2 million, were business oriented.
Network Solutions has reported that cumulative net
registrations as of June 30, 1999 increased 133% to
5,322,000. New registrations in the three months ended June
30, 1999 were 1,180,000 as compared to 443,000 in the same
quarter of the prior year, a gain of 166%.
According to Matrix Information and Directory Services there
were 102 million accessing the Internet worldwide as of
January 1998 and this number was expected to grow to 707
million by 2001. If the relationship between the number of
business oriented web sites and the number of users is
maintained, there will be approximately 14 million web sites
in operation by 2001.
Our largest single customer accounts for less than two
percent of our total revenues and no particular
industry accounts for more than two percent of our
revenues.
The following is a partial list of what types of businesses
a few of our customers are involved with:
- - Florists
- - Real Estate
- - Insurance
- - Telephone Equipment
- - Auto Supplies
- - Plastic Surgeon
- - Print Media
- - Financial Advisory
- - Pet Supplies
- - Police Supplies
- - e-commerce
- - Pump Sprayers
- - Farm Equipment
- - Printing Supplies
- - Recycling
- - Y2K Supplies
- - Clothing
- - Autoclave Equipment
- - Industrial Equipment Supplier
- - Material Manufacturers
- - Material Brokers
- - Business Consultants
- - Time Management Consultants
- - Advertising Agency
- - Personnel Placement Agency
- - Pilot Supplies
- - Medical Supplies
- - Pool Supplies
- - Golf Equipment
- - Travel Agency
- - Recreation Equipment
MATERIAL PROGRAMMING COSTS
- --------------------------
Material programming costs are:
<TABLE>
<S> <C> <C> <C>
Year Ending 6 Months Ending 9 Months Ending
October 31, 1998 April 30,1999 July 31, 1999
$35,612 $35,386 $48,188
</TABLE>
RESEARCH AND DEVELOPMENT EXPENSES
- ----------------------------------
Research and development expenses consist primarily of
compensation expenses to support the creation,
development, and enhancement of our services. We
estimate these costs, consisting primarily of in-house
salaries, to be less than $20,000 during the remainder
of the October 1999 fiscal year. All such costs are
being expensed. We continue to purchase small
quantities of personal computers and office furniture.
Such expenditures are expected to be less than $5,000 during
the remainder of the October 1999 fiscal year.
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following selected financial data has been extracted
from our financial statements for the six months that
ended April 30, 1999, and for the period from inception,
December 11, 1997 through October 31, 1998. The results
of our operations for any interim period are not necessarily
indicative of the results attained for a full fiscal year.
This selected financial data should be read in conjunction
with our financial statements and the Notes thereto and
"Management's Discussion and Analysis of Financial
conditions and Results of Operations" included elsewhere
herein.
SUMMARY OPERATIONS DATA
<TABLE>
<S> <C> <C> <C>
Nine Six December 11,1997
Months Ended Months Ended (Inception)through
July 31, 1999 April 30, 1999 October 31, 1998
-------------- -------------- -----------------
Revenue $873,772 $452,450 $109,809
Net Gain (Loss) (224,520) (177,955) (126,376)
Net loss per share $0.03 $0.027 $0.04
Weighted Average Shares
Used in Computation 8,121,084 6,412,500 3,159,400
SUMMARY BALANCE SHEET DATA
Nine Six December 11,1997
Months Ended Months Ended (Inception)through
July 31, 1999 April 30, 1999 October 31, 1998
-------------- -------------- -----------------
Total Assets $1,010,770 $961,893 $97,799
Current Assets 223,235 169,402 35,615
Total Liabilities 70,088 44,096 75,199
Current Liabilities 55,003 36,946 8,554
Long-term notes payable 26,377 7,150 66,645
Shareholders' Equity
(Surplus) 940,682 917,797 22,600
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Statements in this Form 10 concerning the Company's business
outlook or future economic performance; anticipated
profitability, gross billings, commissions and fees,
expenses or other financial items; and statements concerning
assumptions made or exceptions as to any future events,
conditions, performance or other matter are "forward-looking
statements" as that term is defined under the Federal
Securities Laws. Forward-looking statements are subject to
risks, uncertainties and other factors which would cause
actual results to differ materially from those stated in
such statements. Such risks, uncertainties and factors
include, but are not limited to, (i) the uncertain
acceptance of the Internet and the Company's Internet
content, (ii) that the Company has grown rapidly and there
can be no assurance that the Company will continue to be
able to grow profitably or manage its growth, (iii) risks
associated with acquisitions, (iv) competition, (v) the
Company's quarterly operating results have fluctuated in the
past and are expected to fluctuate in the future, (vi) the
loss of services of certain key individuals could have a
material adverse effect on the Company's business, financial
condition or operating results, (vii) litigation
involving a former employee, (viii) the Company has entered
into certain transactions with affiliated parties and (ix)
the control of the Company by David Smith.
Overview
- --------
A substantial part of the company's growth has been achieved
through acquisitions. For the period December 11, 1997
through May 31, 1999, the Company completed two
acquisitions. Given the acquisition of Top-10 Promotions,
Inc., the results from operations from period to period are
not necessarily comparable.
Gross revenues refer to fees earned in the design,
development, production, and marketing of technology to
provide enhanced Internet marketing capabilities. The
Company earns revenue when it provides Internet services
that improve an Internet site's ranking when searched on the
leading Internet search engines.
The Company guarantees that the customer will receive at
least ten placements within the top twenty positions,
somewhere across the targeted search engines. Generally,
the payment terms require payment to the Company at, or
prior to, the time that the services are performed.
Historically, the Company has not experienced substantial
problems with unpaid accounts or had to refund significant
monies for failure to meet the guarantee. Our Premium
Service and renewals of the same account for 97.5% of our
business. Our internal accounting system does not provide a
way to separately account for the costs attributable to the
Premium and the Starter service.
The Company has technological expertise in preparing and
submitting web site pages with "key search words" to the
targeted search engines. The web site page is configured so
that when these key search words are entered into a search
engine, the search will most likely hit on this web page.
On May 28, 1998, the Company undertook a Stock Purchase
Agreement and Share Exchange with Top-10 Promotions Inc., a
Virginia Corporation. The sole shareholder of Top-10
Promotions, Inc. received 500,000 shares of "restricted"
stock in exchange for all his shares. The purchase was
valued at a total of $262,000, $242,386 accounted for as
contributions of capital and $19,614 attributed to goodwill.
Primarily as a result of the acquisition of Top-10
Promotions, Inc. on May 28, 1998, the Company's revenue has
been generated from the sale of services of Top-10
Promotions, Inc. as of the date of acquisition. The
acquisition was accounted for using the purchase method of
accounting and the results of operations of Top-10
Promotions, Inc. from the date of purchase are included in
the financial statements. In the first year of business
activity, the Company was building a sales team and
experienced gross revenue of $109,809. During the first
three quarters of the following year, the Company had
$873,772 in gross revenue. The Company is continuously
monitoring the Internet marketplace for opportunities to
expand its presence and intends to continue its acquisition
strategy to supplement its internal growth. The Company's
internal growth stems from ideas of selected individuals.
The Company continues to recruit individuals of this same
level of expertise.
The Company's operating expenses have increased
significantly since inception primarily due to headcount
increases as a result of hiring staff to support increased
sales and the purchase of new technology. Primarily as a
result of the acquisition of Offshore Software Development
Ltd. on March 30, 1999, the Company has realized
efficiencies in its data base operations that has resulted
in increased sales. The Company has continued to count
as a cost of sales the cost of continually updating its
program code. The Company currently employs the programmers
that, in the past, it had used to out source its program
code updates. The cost of sales category primarily includes
cost of Internet lines, programmer fees, sales salaries and
other miscellaneous charges. The cost of sales for the two
quarters ended April 30, 1999 was $292,221 and $56,083 for
the period ended October 31, 1998. The software we acquired
in the Offshore Software transaction enables us to access
our internal databases more efficiently. A large portion of
our daily work requires our employees to access information
in several internal databases. Our old software caused
delays in almost every database inquiry. Thirty second
delays for information were not unusual. The software we
acquired in the Offshore Software transaction retrieves the
requested information in 2 to 3 seconds.
Office and general expenses for the period ended October 31,
1998 was $61,236 and $110,107 for the two quarters ended
April 30, 1999, excluding officer compensation. Officer
compensation for the period ended October 31, 1998 was
$134,389 and $230,967 for the two quarters ended April 30,
1999. Officer compensation for both periods described was
primarily stock based compensation as described in the
footnotes to the financial statements. The impact on future
stock based compensation is uncertain as the Company
continues to use stock based compensation as a
recruitment tool.
Results of Operations
- -----------------------
The following table sets forth the periods indicated
gross revenue, detailed cost of sales, general and
administrative costs, officer compensation and EBITDA for
the Company.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months Six From
(Unaudited) Percent of Months Percent of Inception Percent of
Ended Gross Ended Gross To Gross
07/31/99 Revenue 04/30/99 Revenue 10/31/98 Revenue
----------- ---------- --------- ---------- --------- -----------
Gross Revenue $873,772 100.00% 452,450 100.00% $109,809 100.00%
Cost of Sales:
T1 lines & costs 92,927 10.6% 47,156 10.4% 24,810 22.6%
Programmers 71,165 8.1% 51,816 11.5% 26,215 23.9%
Sales salaries &
taxes 365,369 41.8% 166,810 36.9% 4,696 4.3%
Other consulting 23,500 2.7% 23,500 5.2% 0 0%
Other 4,475 .5% 2,939 .6% 362 .3%
Total 557,436 63.8% 292,221 64.6% 56,083 (51.1%)
General &
Administrative 519,971 59.5% 341,074 75.4% 195,625 (178.2%)
EBITDA (1) (203,635) (23.8%) (180,845) (40.0%) (141,899) (129.2%)
</TABLE>
(1) Earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented to provide additional
information about the Company's ability to meet its
future debt service, capital expenditures and working
capital requirements and is one of the measures which
determines a company's ability to borrow under its credit
facility. EBITDA should not be considered in isolation or
as a substitute for operating income, cash flows from
operating activities and other income or cash flow statement
data prepared in accordance with generally accepted
accounting principles or as a measure of the Company's
profitability or liquidity. EBITDA for the indicated
periods is calculated as follows:
<TABLE>
<S> <C> <C> <C>
Cash flows: Nine Months Ended Six Months Ended From Inception To
07/31/99 04/30/99 10/31/98
- ---------------- ----------------- ----------------- -----------------
Operating (15,128) (12,763) (136,212)
Investing (154,392) (122,525) (66,784)
Financing 316,042 241,304 216,791
</TABLE>
- -------------
<TABLE>
<S> <C> <C> <C>
EBITDA Calculation Nine Six From
Months Ended Months Ended Inception To
07/31/99 04/30/99 10/31/98
- -------------------- ------------- ------------- ------------
Net income (loss) $(224,520) $(177,955) $(126,376)
Interest, net 2,270 1,609 697
Income tax expense (benefit) (41,598) (27,971) (20,820)
Depreciation and amortization 60,2413 23,472 4,600
EBITDA $(203,635) $(180,845) $ (41,899)
</TABLE>
The six months ended May 30, 1999 compared to the period
ended October 31, 1998 audited statements and the unaudited
July 31, 1999 statements.
A direct period by period comparison can not be made without
annualized figures as the second period is not complete.
This type of analysis is speculative and will not be
discussed. This section will describe relevant issues that
effect each of the periods shown.
The Company is experiencing rapid growth as seen in the
above results of operations. The primary cost associated
with this growth is the addition of more sales staff. The
Company has determined that adding additional sales staff as
sales increase is an important strategy. The
additional cost of other consulting in the cost of sales
section is not expected to continue. The costs of Internet
line access are continually negotiated by the Company's
management. As can be seen, these negotiations leave these
costs stable as business activity increases. In addition
the Company's management has stabilized the programming
costs associated with its continual technology improvement
program.
The Company has suffered losses from inception to date.
Sales have increased as the number of sales persons has
increased. We believe that the cost of sales persons is one
of the few costs which will rise proportionately as sales
increase. The Company expects its current sales trend will
result in reaching a break-even point in revenue and
expense during its next fiscal year ending October 31, 2000.
Liquidity and Capital Resources
- -------------------------------
The Company's principal capital requirements have been to
fund (i) acquisitions, (ii) working capital, (iii) capital
expenditures and (iv) advertising and development of its
internet business. Continued development in its Internet
business has included the acquisition of assets which
improve the efficiency of the program technology that the
Company operates with. The Company's working capital ratio
has been maintained from 4.16 to 4.59 during the reported
periods. This is due to sales, as Company policy, being
paid for in advance or at the time services are performed.
In addition to this, the Company was extended the right to
convert loans from Arthur Harrison & Associates in the
amount of $35,000 into 350,000 shares of common stock. The
Company has structured itself to rely on investments by
shareholders to expand its business rather than seek
material short-term and long-term financing.
As can be seen in the cash flows from operations in the
Statement of Cash Flows, the Company experienced a loss from
cash used in operations of $12,763. This amount should be
compared to the prior year-end statements cash used in
operations in the amount of $136,212. The Company's
management anticipates this figure to be positive, given
current sales trends, within a six month period. In the
short and long term the Company has the working capital and
lack of debt responsibility to survive this current
negative cash flow from operations.
The Company does not provide software to its customers and
therefore does not have Year 2000 compliance issues with the
services it provides. The Company has taken precautions for
its home office which include power generation, Year 2000
compliance with its current software and offsite duplication
of business activities, if needed. The Company cannot;
however, provide for every contingency that may exist
external to the Company.
The Company's financial statements have been presented on
the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has suffered
recurring losses from operations in prior periods, and
may require additional capital to continue its planned
development. Management believes the Company will continue
as a going concern and is actively marketing its services
and web site which should enable the Company to meet its
current obligations and provide additional funds for
continued growth and new product development.
YEAR 2000 ISSUE
- ----------------
Many of the current installed computer systems and software
products are coded to accept only two-digit entries in the
date code field and cannot reliably distinguish dates
beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need
to be upgraded or replaced in order to correctly process
dates beginning in 2000 and to comply with the "Year 2000"
requirements. We have reviewed our internal programs and
have determined that all products and information/non-information
technologies systems are year 2000 compliant,
due in large part to our limited operating history and
the emphasis on compliance during our planning and
development stages. To date, we have not incurred material
cost, and furthermore we believe that any future actions
taken will not have a material effect on our operating
results of financial condition. However, we work with third
parties that use equipment and software that may not be Year
2000 compliant. Failure of such third parties' equipment or
software to properly process dates for the year 2000 and
thereafter could require us to incur unanticipated expenses
to remedy any problems, which could have a material adverse
effect on our business, results of operations and financial
condition.
We have no material third party contracts with suppliers
other than utilities and telecommunications companies. So
long as telecommunication and utility services remain
available, we do not expect any Year 2000 consequences. We
are also dependant on the continued operation of the
Internet. Since most of the Internet has been created
within the last five years and since the operations of the
Internet are widely distributed, we do not expect any
significant Year 2000 problems so long as telephone
and utility services continue to be available to the bulk of
the Internet users. We have gasoline powered back up
generating capabilities which can provide power in the event
of temporary outages, but have no alternatives to the use of
the telephone for sales solicitations.
ITEM 3. PROPERTIES
- ----------------------
We presently occupy two facilities. The first is
approximately 1,000 square feet and is located at 1039 East
10th Street, Roanoke Rapids, North Carolina. Until May 1,
1999 this was our only location. We rent this space on a
month to month basis at the monthly rental of $500.00. We
use the space as a repair and storage facility. Our second
facility is approximately 3,500 square feet and is located
at 1433 Georgia Avenue, Roanoke Rapids, North Carolina. This
facility was built to order for us and was occupied on May
1, 1999. The monthly rental is $2,500.00. The lease
extends to November 1, 2006. We use the space for
administrative offices and our corporate headquarters. We
believe that such a facility will provide us with adequate
space for at least the next twelve months. At the end of
the lease term (specifically, November 1, 2006), if we have
not defaulted under the lease, we can renew the lease for an
additional 5 years at a renegotiated rental price provided
we give the landlord 30 days notice before the end of the
initial term.
We also lease a house at Littleton, North Carolina for
$1,200 per month. The house is used to provide temporary
housing for our new employees and a satellite office for
our computer system continuation in the event our main
office encounters problems with its computer system. The
lease term is 18 months commencing March 1, 1999 and ending
August 31, 2001.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -----------------------------------------------------------
The following table sets forth, as of June 30, 1999, certain
information with respect to (i) those persons or groups
known to us to be the beneficial owners of more than five
percent of our common stock, (ii) each of our directors,
(iii) each of our executive officers and (iv) all of our
directors and executive officers as a group. The
stockholders listed in the table have sole voting and
investment power with respect to our common stock owned by
each of them. As of June 30, 1999, there were 11,228,684
shares of Common Stock issued and outstanding.
<TABLE>
<S> <C> <C>
Percent of
Number of Shares Common Stock
Name of Beneficial Owner Beneficially Owned Outstanding
- ------------------------- ------------------ ------------
David L. Smith, Jr. 5,885,000 52.41%
Glenn Canady 15,000 *%
Edwin Foster -0- -0-
All executive officers and directors 5,900,000 52.54%
as a group (3 persons)
*Less than 1%.
</TABLE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------
Our executive officers and directors and their ages as of
June 30, 1999 are as follows:
Name Age Position
- ------------------- ----- -----------------------
David L. Smith, Jr. 43 Chief Executive Officer,
President and Director
Glenn L. Canady 35 Vice President - Operations
and Director
Edwin E. Foster, Jr. 50 Secretary and Director
Each of our directors will hold office until the next annual
meeting of our stockholders and until his or her successor
is elected and qualified or until his or her earlier
resignation or removal. Each officer serves at the
discretion of our Board of Directors.
David L. Smith, Jr. was born and raised in Durham, North
Carolina. He attended East Carolina University from 1973 to
1976 where he majored in business with a minor in physical
education. He received an athletic scholarship in wrestling
to East Carolina University and left school prior to
obtaining his college degree to train for the 1976 Summer
Olympics. From 1992 through 1995, David was the sole owner
of a company called DJ Distributors, a sole proprietorship
based in Roanoke Rapids, North Carolina. This company was a
direct sales organization involved in reselling vacuum
cleaners. In 1995, DJ Distributors was no longer involved
in direct sales. David used this company to start an
Internet business developing web sites for companies. In
October of 1997, David formed Top 10 Promotions, Inc., a
Virginia corporation to continue the business of DJ
Distributors. Effective May 28, 1998, we acquired all the
shares of Top 10 Promotions, Inc. (which became our wholly
owned subsidiary) and appointed David our President and one
of our directors.
Glenn L. Canady began working for us as Vice President on
March 1, 1999. In 1986, he received his Bachelor of Science
Degree in Mechanical Engineering from Louisiana Tech
University. In 1987, he received a Masters in Mechanical
Engineering from Georgia Tech University. He started his
professional career in 1988 as an Engineer with General
Dynamics in Fort Worth, Texas. His responsibilities
included system integration and design support for several
secret military aircraft using sophisticated CAD/CAM
systems. He was promoted to Senior Engineer in 1989 during
his work on the computerized mock-up of the A-12 prototype
bomber for the United States Navy. In 1992, Glenn formed
and was the owner of a company called Ultragrafix Unlimited
Inc. based in Arlington, Texas. Ultragrafix developed,
manufactured and marketed a series of prints, software, and
books using computer designed random dot stereograms. In
1996, Ultragrafix was acquired by a company, Global Tech
2000, based in Arlington, Texas. Global Tech 2000 marketed
products and services on the Internet. In 1998, Global Tech
2000 started selling web site promotions for us and quickly
became our number one reseller. Glenn resigned his position
as President of Global Tech 2000 in February 1999.
Edwin E. Foster, Jr. began working for us as Secretary in
July 1999. In 1970, he received a Bachelor of Science
Degree in Biology from Syracuse University. In 1971, he
attended the Simmons School of Funeral Service in Syracuse,
New York. For the next 10 years, he worked in the funeral
services industry. In 1980, he started working in a
placement service firm in the Wall Street area of New York
City. Thereafter, he formed a financial services company
with 3 other shareholders under the name FMD&J, Inc. He
worked for this company for approximately 10 years. In
1990, he took a position in a pharmaceutical research
consulting firm called NJC Enterprises, Ltd. In 1993, such
company moved to Research triangle Park in North Carolina.
He was in charge of the entire company relocation including,
but not limited to, office site selection, equipment
purchasing, move and set up, staffing and computer network
establishment. In 1995, he became the Vice President of
Administration and Finance. Ed retired from such company in
1997 and continued his retirement until he started working
for us recently.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
- --------------------------
<TABLE>
Annual Compensation
<S> <C> <C> <C> <C> <C>
Name and
Principal Other Annual Long Term
Position Year Salary Bonus Compensation Compensation
- -------------- ----- ------- ------- ------------ ------------
David L.Smith, Jr.(1) 1999 $120,000 30% of net income None None
Chief Executive before income tax
Officer, Director 1998 $ 75,888.67 None None None
Glenn Canady 1999 $ 60,000(2) (3) None None
Vice President 1998 None None None None
Edwin Foster 1999 $ 50,000 None None None
Vice President 1998 None None None None
</TABLE>
(1) David received 750,000 of our restricted shares
due to the fact that we exceeded $200,000 in revenues for
the first 3 month period of 1999. David had an agreement
with us regarding this transaction. Such shares received by
him would normally be valued at the trading price at the
time he received the shares (approximately $8.00) in
accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees." However, this standard considers the
discounting of stock when such stock is restricted, the
company's stock is thinly traded and the number of shares to
be traded on the market (750,000) would greatly devalue the
stock. Therefore, the method used was as follows: Initial
price of $2.00; discounted 90% in lieu of the 2 year
restriction. Based on this, the value is $150,000 (750,000
shares multiplied by $.20.).
(2) Adjusted to $80,000 per year as of June 4, 1999.
Glenn also receives sales commissions. In addition, if our
gross revenues exceed $5,000,000 in any fiscal year, Glenn's
salary increases to $120,000 per year.
(3) Glenn's employment agreement provides for the
option of purchasing stock at $1.00 per share as follows:
5,000 of our shares for each year he is employed by us
during the first 3 years of employment; 50,000 shares if our
gross revenues exceed $2,000,000 during the term of Glenn's
employment agreement; 50,000 shares if gross revenues exceed
$5,000,000 during the term of Glenn's employment agreement.
The maximum amount of shares that Glenn can receive under
his employment agreement with us is 115,000 common shares.
All shares are restricted for a 2 year period from when we
issue the shares to Glenn.
(4) In 1998, our original officers received stock
issuance with a cash value of $58,500 for services rendered.
Compensation of Directors
The Directors of the Company do not receive compensation for
their services as directors but may be reimbursed for their
reasonable expenses for attending Board meetings.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------------------
On May 28, 1998, we undertook a Stock Purchase Agreement and
Share Exchange ("Stock Agreement") with Top 10 Promotions,
Inc. ("Top 10"), a Virginia Corporation. The sole
shareholder of Top 10 was David L. Smith, Jr., our Chief
Executive officer and Director. Pursuant to the terms of
the Stock Agreement, Top 10 became our wholly owned
subsidiary. In exchange for David tendering his Top 10
shares to us, he received 500,000 of "restricted" stock.
Additionally, Top 10, as our wholly owned subsidiary
received funding from us of $50,000 at closing and $17,500
per month for an eleven month period commencing ninety (90)
days after the closing date of May 28, 1998.
ITEM 8. LEGAL PROCEEDINGS
- --------------------------
We are not presently a party to any litigation of any kind
or nature whatsoever, nor to our knowledge and belief is any
litigation threatened or contemplated.
ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- --------------------------------------------------------
Our Common Stock, par value $0.0001, has been traded on the
OTC Electronic Bulletin Board under the symbol "RAKE" since
October, 1998.
The following table sets forth the high and low sale prices
of our common stock as reported on the OTC Electronic
Bulletin Board. These price quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and
may not represent actual transactions.
December 31, 1998 5.125 5.125
March 31, 1999 8.00 7.125
June 30, 1999 9.9375 9.75
Number of Registered Holders
The number of registered holders of our common stock as of
June 30, 1999 was 25, and we believe that there are a
greater number of beneficial owners of our shares of common
stock.
Dividends
- ---------
To date, we have not declared or paid any cash dividends on
our Common Stock. We currently anticipate that we will
retain all available funds for use in the operation and
expansion of our business, and we do not intend to pay cash
dividends on our common stock in the foreseeable future.
Further, there can be no assurance that the operations of
our business will generate the revenue and cash flow needed
to declare cash dividends in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
- ----------------------------------------------------
During the period between February and April, 1998, we
completed 2 Regulation D, Rule 504 Offerings in which we
issued a total of 1,800,000 shares of our common stock for
an aggregate offering price of $70,000. The first offering
was for 800,000 shares at $0.025 per share. The second
offering was for 1,000,000 shares at $0.05 per share.
A list of the investors in the first and second offering is
listed below:
FIRST OFFERING
- --------------
<TABLE>
<S> <C> <C> <C>
Common
Investors Date of Issuance Stock Sold Consideration
- ---------- ---------------- ----------- -------------
Kate E. Boyle.............2/23/1998 20,000 $ 500
Drew Seldin...............2/23/1998 12,000 $ 300
Amanda Eisenberg..........2/23/1998 28,000 $ 700
Scott J. Caruso...........2/23/1998 40,000 $1,000
Todd M. Novitz............2/23/1998 24,000 $ 600
Marc Paul Cervoni.........2/23/1998 36,000 $ 900
Haim Perlstein............2/8/1998 60,000 $1,500
Eran Rothschild...........2/11/1998 44,000 $1,100
Joseph Cain...............2/14/1998 20,000 $ 500
Peter Levant..............2/14/1998 60,000 $1,500
Sandi Rollo...............2/14/1998 20,000 $ 500
Barry Codell..............2/14/1998 40,000 $1,000
Daniel E. McMullin........2/14/1998 40,000 $1,000
Alex Berger...............2/14/1998 40,000 $1,000
Kristin Foster............2/14/1998 20,000 $ 500
Eagle Research Group/ Inc.3/25/1998 96,000 $2,400
Nicole A. Levine .........3/27/1998 36,000 $ 900
Steven H. Katz............4/1/1998 100,000 $2,500
David Ziegelman...........4/7/1998 64,000 $1,600
-------- ---------
800,000 $20,000
-------- ---------
-------- ---------
SECOND OFFERING
Common
Investors Date of Issuance Stock Sold Consideration
- -------------- ----------------- ----------- --------------
Fanny Kim..................5/19/1998 47,000 $2,350
Eagle Research Group, Inc..5/19/1998 80,000 $4,000
Debbie Boxerman............5/19/1998 38,000 $1,900
Howard Eisenberg...........5/19/1998 61,000 $3,050
Church & Crawford Ltd, Inc.5/18/1998 160,000 $8,000
Jeannie Joshi..............5/15/1998 80,000 $4,000
Atsmaout Perlstein.........5/18/1998 80,000 $4,000
Kathryn Wall...............5/22/1998 36,000 $1,800
Eran Rothschild............5/18/1998 80,000 $4,000
Alan Bachman...............5/21/1998 100,000 $5,000
Ivan Kahana................5/24/1998 70,000 $3,500
Angelo Pesce...............5/27/1998 70,000 $3,500
Michelle Fountain..........5/20/1998 98,000 $4,900
--------- ------
1,000,000 $50,000
--------- -------
--------- -------
</TABLE>
Commencing October, 1998, we undertook another Regulation D,
Rule 504 Offering in which we issued a total of 2,000,000
shares of our common stock at $.10 per share for an
aggregate offering price of $200,000. This offering
included options to the subscribers of the 2,000,000 shares
to purchase an additional 250,000 shares of our common stock
for $1.00 per share by October 15, 1999 and an additional
225,000 shares of our common stock for $2.00 per share
by April 15, 2000. To date, 226,376 options at $1.00 per
share have been exercised; and 3,197 options at $2.00 per
share have been exercised. Therefore, to date we have
raised $232,770 based on the exercise of the options.
A list of the investors in the above offering is listed
below:
THIRD OFFERING
<TABLE>
<S> <C> <C> <C>
Common
Investors Date of Issuance Stock Sold Consideration
- ---------- ---------------- ----------- -------------
Arthur Harrison & Associates ..10/15/1998 350,000 $35,000
Arthur Harrison & Associates ...6/16/1999 43,750 $43,750
Mango Financial & Con. Ltd.....10/15/1998 290,000 $29,000
Mango Financial Ltd.............6/16/1999 36,250 $36,250
Cazo Ltd.......................10/15/ 1998 240,000 $24,000
Cazo Ltd........................6/16/1999 20,000 $20,000
Cazo Ltd........................5/7/1999 10,000 $20,000
Sandusky Holdings Corporation...2/19/1999 375,000 $37,500
Sandusky Holdings Corporation...3/25/1999 46,875 $46,875
Sandusky Holdings Corporation...3/25/1999 3,197 $6,395
Honeywell Management Corp.......2/19/1999 175,000 $17,500
Offshore Projects Limited.......2/19/1999 250,000 $25,000
Offshore Projects Ltd...........5/7/1999 10,000 $10,000
Offshore Projects Ltd...........6/2/1999 19,500 $19,500
Vamp............................2/19/1999 320,000 $32,000
Vamp Ltd........................2/19/1999 15,000 $15,000
Vamp Ltd........................6/16/1999 25,000 $25,000
</TABLE>
We believe that our common stock issued in the above
Regulation D, Rule 504 Offerings were issued in transactions
not involving a public offering in reliance upon an
exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended and Rule 504 of
Regulation D.
In December 1997, we issued 25,000 shares of our common
stock to Richard I. Anslow, our attorney, in exchange for
legal services rendered. No underwriter was involved in
this transaction. We believe the shares issued in this
transaction did not involve a public offering and were made
in reliance upon an exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
On May 28, 1998, we undertook a Stock Purchase Agreement and
Share Exchange ("Stock Agreement") with Top 10 Promotions,
Inc. ("Top 10"), a Virginia Corporation. The sole
shareholder of Top 10 was David L. Smith, Jr., our Chief
Executive officer and Director. Pursuant to the terms of
the Stock Agreement, Top 10 became our wholly owned
subsidiary. In exchange for David tendering his Top
10 shares to us, he received 500,000 of our "restricted"
shares plus Top 10, as our wholly owned subsidiary, received
$50,000 at closing and $17,500 per month for an 11 month
period commencing 30 days after closing (an aggregate of
$242,500)." On May 11, 1999, David L. Smith, Jr. purchased
2,650,000 of our "restricted" shares from James Lee for par
value.
On March 30, 1999, we completed an Asset Purchase Agreement
and Share Exchange ("Asset Agreement") with Offshore
Software Development Ltd. ("Offshore"), a Cayman Islands
Corporation. Pursuant to the Asset Agreement, we purchased
all of the assets of Offshore, specifically four personal
computers and two subject software products with computer
codes, in exchange for the issuance of 9/10ths of one of our
common shares for each share of Offshore held by an Offshore
shareholder at the time of the Closing. This resulted in
the issuance of 999,111 of our shares.
We believe the shares issued in the Stock Agreement and
Asset Agreement did not involve a public offering and were
made in reliance upon an exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as
amended.
In May, 1999 we issued Eagle Research Group, Inc. 250,000 of
our shares for consulting services rendered by Eagle
Research for us. The shares are restricted in accordance
with Rule 144 of the 1933 Securities Act, as amended. For
this share issuance, we relied upon an exemption from
registration provided by Section 4(2) of the Securities Act
of 1933, as amended.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED
- --------------------------------------------------------
Our authorized capital stock is 50,000,000 shares of Common
Stock, par value $0.0001 per share and 10,000,000 shares of
preferred Stock, par value $.0001 per share. As of June 30,
1999, we had issued 11,228,684 of our shares of Common Stock
and none of our Preferred Stock.
The following brief description of our common stock does not
purport to be complete and is subject in all respects to
Florida law and to the provisions of our Articles of
Incorporation, as amended (the "Articles") and our Bylaws,
copies of which have been filed as exhibits to this
registration statement.
Each share of our common stock entitles the holder to one
(1) vote on all matters submitted to a vote of the
stockholders. Our common stock does not have cumulative
voting rights, which means that the holders of a majority of
the outstanding shares of our common stock voting for the
election of directors can elect all members of the Board of
Directors. A majority vote is also sufficient for other
actions that require the vote or concurrence of stockholders
except in cases in which more than a simple majority is
required by law. Holders of our common stock are entitled
to receive dividends, when, as and if declared by the Board
of Directors, in its discretion, from funds legally
available therefore. Holders of shares of our common stock
are entitled to share, on a ratable basis, such dividends as
may be declared by the Board of Directors out of funds,
legally available therefor. Upon our liquidation,
dissolution or winding up, after payment to creditors, the
holders of our common stock are entitled to share ratably in
the assets of the Company, if any, legally available of
distribution to our common stockholders. Our Bylaws require
that only a majority of the issued and outstanding shares of
our common stock need be represented to constitute a quorum
and to transact business at a stockholders' meeting.
Our common stock has no preemptive rights or no
subscription, redemption or conversion privileges. All of
the outstanding shares of our common stock are fully paid
and non assessable.
Our Board of Directors has total discretion as to the
issuance and the determination of the rights and privileges
of any shares of our common stock which may be issued in the
future, which rights and privileges may be detrimental to
the rights and privileges of the holders of our existing
shares of our common stock now issued and outstanding.
The transfer agent and registrar for our common stock is
Interwest Transfer Co., Inc., Salt Lake City, Utah.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- ----------------------------------------------------
Under Florida law, a director is not personally liable for
monetary damages to the corporation or any other person for
any statement, vote, decision, or failure to act unless (i)
the director breached or failed to perform his duties as a
director, and (ii) a director's breach of, or failure to
perform, those duties constitutes (1) a violation of the
criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful; (2) a transaction from
which the director derived an improper personal benefit,
either directly or indirectly; (3) a circumstance under
which an unlawful distribution is made; (4) in a proceeding
by or in the right of the corporation or in a proceeding in
which the corporation procures a judgment in its favor or by
or in the right of a shareholder, conscious disregard
for the best interest of the corporation or willful
misconduct; or (5) in a proceeding by or in the right of
someone other than the corporation or a shareholder,
recklessness or an act or omission which was committed in
bad faith or with malicious purpose or in a manner
exhibiting wanton and willful disregard of human rights,
safety, or property. A corporation may purchase and
maintain insurance on behalf of any director or officer
against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such,
whether or not the corporation would have the power to
indemnify under Florida law.
Our Bylaws limit, to the maximum extent permitted by Florida
law, the personal liability of our directors and officers
for monetary damages for breach of their fiduciary duties as
directors and officers. Our Bylaws provide further we shall
indemnify to the fullest extent permitted by Florida law any
person made a party to any action or proceeding by reason of
the fact that such person was our director, officer,
employee or agent. Our Bylaws also provide that our
directors and officers who are entitled to indemnification
shall be paid their expenses incurred in connection with any
action, suit or proceeding in which such director or officer
is made a party by virtue of his being our officer or
director to the maximum extent permitted by Florida
law.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------------------------------------------------------
For the information required by this Item, refer to the
Index to Financial Statements appearing on page F-1 of the
registration statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
- ----------------------------------------------------------
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
- ---------------------------------------------
FINANCIAL STATEMENTS
- --------------------
For the information required by this Item, refer to the
Index to Financial Statements appearing on page F-1 of the
registration statement.
SIGNATURES
- -------------
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this
registration statement to be signed on its behalf by the
undersigned, there unto duly authorized.
ROANOKE TECHNOLOGY CORP.
By: /s/ David L. Smith, Jr.
----------------------------
David L. Smith, Jr.
Chief Executive Officer and President
Dated: September 22, 1999
EXHIBITS
- ------------
<TABLE>
<S> <C>
Exhibit No. Description
3.1 Articles of Incorporation of Roanoke Technology Corp. (formerly
known as Suffield Technologies Corp.) and Articles of Amendment
3.2 By-laws of Roanoke Technology Corp.
10.1 March 30, 1999 Asset Purchase Agreement and Share Exchange with
Offshore Software Development Ltd.
10.2 May 28, 1998 Stock Purchase Agreement and Share Exchange with Top
10 Promotions, Inc.
10.3 Articles of Merger and Plan of Merger of Top 10 Promotions, Inc.
and Roanoke Technology Corp.
27.1 Financial Data Schedule
</TABLE>
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
TOGETHER WITH
INDEPENDENT AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
Financial Statements Table of Contents
For the Nine Months Ended July 31, 1999
FINANCIAL STATEMENTS Page #
- --------------------- --------
Balance Sheet 1-2
Statement of Operations 3
Statement of Capital Surplus 4
Cash Flow Statement 5
Notes to the Financial Statements 6-15
ROANOKE TECHNOLOGY CORPORATION
BALANCE SHEET
As of July 31, 1999
ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
- ---------------
Cash $ 160,317
Employee advances 500
Deferred tax asset 62,418
----------
Total Current Assets 223,235 $ 223,235
PROPERTY AND EQUIPMENT
- ----------------------
Equipment and leasehold improvements 137,751
Less: accumulated depreciation 12,494
----------
Total Property and Equipment 125,257 125,257
OTHER ASSETS
- ---------------
Organization costs 1,000
Goodwill 19,614
Capitalized software costs 622,000
Less: accumulated amortization 44,160
-------
Net tangibles 598,454
Deposits 1,500
Stockholder loan 62,324
--------
Total Other Assets 662,278 662,278
--------
TOTAL ASSETS $ 1,010,770
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 43,711
Current maturity of long-term debt 11,292
Credit cards payable 0
-----------
Total current liabilities 55,003 55,003
LONG TERM LIABILITIES
- ---------------------
Long term debt 26,377
Less: current portion 11,292
-----------
Total long term liabilities 15,085 15,085
----------
TOTAL LIABILITIES 70,088
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock - $.0001 par value; 50,000,000
shares authorized; 9,069,450 issued
and outstanding 900
Additional paid-in capital 1,290,671
Retained earnings <350,896>
----------
Total stockholders' equity 940,682 940,682
TOTAL LIABILITIES AND EQUITY $1,010,770
----------
----------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
For the Nine Months Ended July 31, 1999
<TABLE>
<S> <C> <C>
REVENUE
- --------
Sales $ 873,772
Cost of sales 557,436
-----------
GROSS PROFIT 316,336 $ 316,336
- -------------
GENERAL AND ADMINISTRATIVE EXPENSES
- ------------------------------------
Advertising 10,463
Auto and truck 2,574
Bank charges 264
Depreciation and amortization expense 60,213
Dues and subscriptions 1,777
Legal and accounting 79,603
Meals and entertainment 4,154
Office salaries and expense 69,571
Rent 27,400
Salaries - officers 301,167
Repairs and maintenance 7,794
Training and relocation 8,699
Travel 6,505
Utilities 6,816
----------
Total general and administrative expenses 580,184 580,184
---------
INCOME (LOSS) FROM OPERATION (263,848)
- ----------------------------
OTHER INCOME AND (EXPENSE)
Interest expense (1,609)
---------
Total other income and expense (2,270) (2,270)
--------
INCOME (LOSS) BEFORE TAX BENEFIT (266,118)
- --------------------------------- ----------
Tax benefit 41,598
----------
NET INCOME (LOSS) $(224,520)
- ------------------ -----------
-----------
NET EARNINGS PER SHARES
Basic and Diluted
Net earnings per share $ (0.03)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 8,121,084
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CAPITAL SURPLUS
As of July 31,1999
<TABLE>
<S> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL
PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------- ------
Issuance for services 1,525,000 $ 153 $ 59,323 $ 59,476
Acquisition 500,000 50 19,450 19,500
First offering 800,000 80 19,920 20,000
Second offering 1,000,000 100 49,900 50,000
Net loss for the year (126,376) (126,376)
-------------------------------------------------------
Balance at October 31, 1998 3,825,000 $ 383 $148,593 $(126,376) $ 22,600
Officer Compensation 750,000 75 149,925 150,000
Asset acquisition 999,111 99 629,901 630,000
Issuance of common stock 3,495,339 343 362,252 362,602
Net loss for the year (224,520) (224,520)
-------------------------------------------------------
Balance at July 31, 1999 9,069,450 $907 $1,290,671 $ (350,896) $ 940,682
------------------------------------------------------
------------------------------------------------------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
For the Nine Months Ending July 31, 1999
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $(224,520)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 60,213
Stock based compensation 150,000
(Increase) decrease in deferred tax asset (41,598)
(Increase) decrease in employee advance 500
Increase (decrease) in deposits (1,500)
Increase (decrease) in payables for expense 41,777
------------ ----------
Total adjustments to net income 209,392 209,392
Net cash provided by (used in) operating activities (15,128)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Loan to Stockholder (62,324)
Capital expenditures on equipment (92,068)
-----------
Net cash flows provided by (used in) invest (154,392) (154,392)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from issuance of common stock 301,950
Increase in long term debt created 14,092
-----------
Net cash provided by (used in) financing activities 316,042 316,042
CASH RECONCILIATION
- -------------------
Net increase (decrease) in cash 146,522
Cash at beginning of year 13,795
--------
CASH BALANCE AT END OF YEAR $ 160,317
---------
---------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
- -----------------------------------------------
Industry Roanoke Technology Corporation (The Company) was
incorporated December 11, 1997 as Suffield Technologies
Corp., its original name, under the laws of the State of
Florida. The Company is headquartered in Roanoke Rapids,
North Carolina and does business as Top-10 Promotions, Inc.
The Company is engaged in the design, development,
production, and marketing of technology to provide enhanced
internet marketing capabilities.
Revenue Recognition and Service Warranty Revenues
- ----------------------------------------
resulting from technology consulting services is recognized
as such services are performed and paid. Services are paid
for in advance of the service being performed. The services
performed are completed by a software program leaving the
time when a service is paid for and the time the service is
performed immaterial. The Company has no extended
maintenance contracts and warrants its consulting services
to meet the consulting service contract guarantee. No
provision for estimated future costs relating warranties
have been made as these costs have been historically
immaterial.
Cash and Cash Equivalents The Company considers cash on
- -------------------------
hand and amounts on deposit with financial institutions
which have original maturities of three months or less to be
cash and cash equivalents.
Short-Term Investments Short-term investments ordinarily
- -----------------------
consist of short-term debt securities acquired with cash not
immediately needed in operations. Such amounts have
maturities of less than one year.
Basis of Accounting- The Company's financial statements are
- -------------------
prepared in accordance with generally accepted accounting
principles. Specific to computer software costs, The
Company capitalizes and amortizes these costs as guided by
Financial Accounting Standard 86. All costs associated with
software development are expensed as Research and
Development costs until such time as technological
feasibility has been established, after which material
software development costs are capitalized and amortized
over the estimated time of benefit.
Property and Equipment Property and equipment are recorded
- ----------------------
at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the various
classes of assets as follows:
Machinery and equipment 2 to 10 years
Furniture and fixtures 5 to 10 years
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies continued:
Leasehold improvements are amortized on the straight-line
basis over the lessor of the life of the asset or the term
of the lease. Maintenance and repairs, as incurred, are
charged to expenses; betterments and renewals are
capitalized in plant and equipment accounts. Cost and
accumulated depreciation applicable to items replaced or
retired are eliminated from the related accounts; gain or
loss on the disposition thereof is included as income.
Intangibles Goodwill represents the excess of purchase
- ------------
price over the fair value of business acquired and is
amortized on a straight-line basis over 15 years.
Other acquired intangibles principally include core
technology in the form of software programs and are
amortized over their estimated lives of primarily 3 to 5
years., existing Organization costs are being amortized by
the straight-line method over 5 years. Goodwill is being
amortized by the straight-line method.
Software development costs incurred in the development of
products after technological feasibility is attained are
capitalized and amortized using the straight-line method
over the estimated economic lives of the related products,
not to exceed 3 years. The Company considers technological
feasibility to be established when the Company has completed
all planning, designing, coding and testing activities as
are necessary to establish design specifications including
function, features and technological performance
requirements. Capitalization of product design costs ceases
and amortization of such costs begins when a product or
technology is available for general release to customers for
use by The Company.
Research and Development Research and development costs
- ------------------------
incurred in the discovery of new knowledge and the resulting
translation of this new knowledge into plans and designs for
new products, prior to the attainment of the related
products' technological feasibility, are recorded as
expenses in the period incurred.
Income Taxes The Company utilizes the asset and liability
- -------------
method to measure and record deferred income tax assets and
liabilities. Deferred tax assets and liabilities reflect
the future income tax effects of temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
are measured using enacted tax rates that apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies continued:
- ----------------------------------------------------------
Fair Value of Financial Instruments The Company's
- -----------------------------------
financial instruments include cash and cash equivalents,
short-term investments, accounts receivable, accounts
payable and liabilities to banks and shareholders. The
carrying amount of long-term debt to banks approximates fair
value based on interest rates that are currently available
to The Company for issuance of debt with similar terms and
remaining maturities. The carrying amounts of other
financial instruments approximate their fair value because
of short-term maturities.
Earnings Per Share Basic earnings per share ("EPS") is
- ------------------
computed by dividing earnings available to common
shareholders by the weighted-average number of common shares
outstanding for the period as required by the Financial
Accounting Standards Board (FASB) under Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per
Shares". Diluted EPS reflects the potential dilution of
securities that could share in the earnings.
Concentrations of Credit Risk Financial instruments which
- ------------------------------
potentially expose The Company to concentrations of credit
risk consist principally of operating demand deposit
accounts. The Company's policy is to place its operating
demand deposit accounts with high credit quality financial
institutions.
No customer represented 10 % or more of The Company's total
sales as of the current reporting period.
Stock-Based Compensation In accordance with the
- ------------------------
recommendations in SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123"), The Company's management
has considered adopting this optional standard, along with
APB 25. At this time The Company does not have an employee
stock option plan and therefore retains the right to choose
which method of accounting at the time that it is relevant.
The Company accounted for the stock bonus of 750,000 shares
of restricted stock given to the President of the company as
compensation. The bonus was accounted for in the current
period in order to match the compensation expense with the
time in which it was earned. In accordance with the tax
accounting, the compensation will not be deductible until
the President sells those shares. The shares are restricted
from sale for a period of two years from the date of
issuance.
Recently Adopted Accounting Standards In June 1997, the
- -------------------------------------
FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130") effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as
components of comprehensive income be reported in a
statement that is displayed with the same prominence as
other financial statements.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
1. Summary of significant accounting policies continued:
- ----------------------------------------------------------
SFAS No. 130 does not require a specific format for that
financial statement but requires that an entity display an
amount representing total comprehensive income for the
period in that statement. SFAS No. 130 requires that an
entity classify items of other comprehensive income by their
nature in a financial statement. For example, other
comprehensive income may include foreign currency and
unrealized gains and losses on certain investments in debt
and equity securities. In addition, the accumulated balance
of other comprehensive income must be displayed separately
from retained earnings and additional paid in capital in the
equity section of a statement of financial position. The
Company adopted this accounting standard at inception as
required.
In October 1997 the American Institute of Certified Public
Accountants issued Statement of position 97-2, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides guidance
on applying generally accepted accounting principles in
recognizing revenue on software transactions and is
effective for transactions entered into in fiscal years
beginning after December 15, 1997. The Company adopted SOP
97-2 at inception as required. Adoption of this SOP 97-2
did not have a material effect on the financial statements.
In February 1997, the FASB issued SFAS No. 132, "Employer's
Disclosure about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), effective for fiscal years beginning after
December 15, 1997. SFAS 132 revises employer disclosures
about pension and other postretirment benefit plans. It
does not change the measurement or recognition of those
plans. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits
to the extent practicable, requires additional information
on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and
eliminates certain disclosures. Adoption of SFAS 132 did
not have a material impact on the financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective
for fiscal years beginning after June 15, 1999. SFAS 133
requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value.
Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge
accounting. The Company's management believes that adoption
of SFAS 133 will not have a material impact on the financial
statements.
2. Related Party Transactions and Going Concern:
- -------------------------------------------------
The Company's financial statements have been presented on
the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
2. Related Party Transactions and Going Concern continued:
- -----------------------------------------------------------
The Company has suffered losses from operations and may
require additional capital to continue as a going concern as
the Company develops its market. Management believes the
Company will continue as a going concern and is actively
marketing its products and services which would enable The
Company to meet its obligations and provide additional
funds for continued new product development. In addition,
management is currently negotiating several additional
contracts for its services and products. Management is also
embarking on other strategic initiatives to expand its
business opportunities. However, there can be no assurance
these activities will be successful.
The President of The Company draws from a stockholder's loan
account. The account has been set up to monitor draws in
coordination with the employment contract and incentive
commitment as defined in footnote number 11. There is no
interest charged on the account. The Company's management
plans to clear the account by this fiscal year end.
3. Accounts Receivable and Customer Deposits:
- ----------------------------------------------
Accounts receivable historically has been immaterial as The
Company's policy is to have the software that it sells paid
for in advance. As of the balance sheet date there were no
deposits paid in advance.
4. Use of Estimates:
- -------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
5. Revenue and Cost Recognition:
- --------------------------------
The Company uses the accrual basis of accounting for
financial statement reporting. Revenues are recognized when
products are shipped and expenses realized when obligations
are incurred.
6. Accounts Payable and accrued expenses:
- -----------------------------------------
Accounts payable and accrued expenses consist of trade
payables and accrued payroll and payroll taxes created from
normal operations of the business.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
7. Long - Term Debt continued:
- --------------------------------
Long term debt consists of:
Note payable to a finance company which bears interest at
16.53%. The note is collateralized by equipment and
requires that monthly payments of $197 be made through the
maturity date of June, 2003.
Capital Lease with a finance company which bears an interest
rate of 13.61%. The lease is collateralized by equipment
and requires that monthly payments of $534 be made through
the maturity date of April, 2002.
Aggregate maturities of long term debt over the next five
years are as follows:
YEAR AMOUNT
------- ------
2000 $ 8,571
2001 5,215
2002 5,951
8. Operating Lease Agreements:
- ------------------------------
The Company rents office space with monthly payments of
$2,500. The lease term for this space is ninety months
beginning on May 1, 1999 and ending on November 1, 2006.
The Company also rents a house for the convenience of
Company employees that are relocating to the area and out of
town business guests. The house also serves as a satellite
office as added security for computer system continuation in
the event that the main office should encounter problems
with their system. The house has monthly payments of
$1,200. The lease term is eighteen months beginning March
1, 1999 and ending on August 31, 2001.
The Company also leases its phone systems, internet lines
and various equipment . The lease terms range from month to
month leases to leases with a term of sixty months. All
long - term leases include an upgrade clause of which
management intends to upgrade technology when available.
For this reason, The Company considers all of these types of
lease arrangements as operating. Currently the lease costs
are at $33,800 per year and shown as part of cost of sales.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
9. Stockholders' Equity:
- -----------------------
Preferred Stock
- ----------------
The Company has been authorized 10,000,000 shares of
preferred stock at $.0001 par value. As of January 31,
1999, none of these shares had been issued and the
limitations, rights, and preferences were yet to be
determined by the Board of Directors.
Common Stock
- ------------
During the period ending October 1998, the Board of
Directors issued 1,525,000 shares of restricted common stock
to The Company's officer's, and legal counsel in exchange
for services, and issued 500,000 shares of restricted common
stock in the acquisition of Top-10 Promotions, Inc.
In addition to the restricted shares issued, The Company
sold common stock through two separate private offerings
during the period. In the initial offering 800,000 shares
were sold each at a price of $0.025. In the second offering
1,000,000 shares were sold each at a price of $0.05.
On October 15, 1998, the majority shareholders of The
Company undertook a Regulation D, Rule 504, offering
whereby it sold 2,000,000 shares of common stock, $.0001 par
value per share or an aggregate of $200,000. In addition,
each investor in the offering received an option to
purchase, for a twelve month period commencing on the date
of this offering, an additional one share of The Company at
$1.00 per share for each eight (8) shares purchased in the
original offering (or $250,000). In addition, each investor
received an option to purchase for an eighteen month period
commencing on the date of this offering an additional one
(1) share of The Company for each 8.88 shares previously
purchased at $2.00 per share or an aggregate of 225,000
shares (or $450,000).
The Company also approved of the investment by Arthur
Harrison & Associates in the offering provided that such
investment in The Company was in lieu of monies owed to
Arthur Harrison & Associates by The Company for two (2)
promissory notes dated September 22, 1998 and October 10,
1998. Further more, Arthur Harrison & Associates agreed to
waive its rights to any interest on promissory notes.
10. Acquisitions:
- -----------------
On March 30, 1999 The Company acquired the assets of
Offshore Software Development Ltd. ("Offshore") in an
exchange of assets for 999,111 shares of The Company issued
to offshore shareholders. The Company's management has
valued the transaction at $630,000.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
10. Acquisitions - continued:
- -----------------------------
As of the balance sheet date and the date of the audit the
assets of Offshore were in transport to the North Carolina
office of The Company. The assets consist of four computers
and the rights to the program code for two software products
that are intended to enhance The Company's ability to market
and increase the speed of computer operations. The value of
these items was based on the estimate of fair value by The
Company, if The Company had taken the time to develop the
software and purchase the computers.
Effective May 29, 1998, The Company acquired all the
outstanding common stock of Top-10 Promotions, Inc.,
consisting of 100 shares, effective. These shares were
redeemed and canceled. The shares of Top-10 Promotions,
Inc. were acquired in exchange for 500,000 "restricted"
shares of The Company's common stock issued to David Smith,
the sole shareholder of Top-10 Promotions, Inc. This
transaction has been accounted for using the purchase method
of accounting.
Simultaneous with the acquisition, The Company purchased all
of the remaining authorized shares of Top-10 Promotions,
Inc. for $50,000 payable at closing and $17,500 per month
payable over an eleven month period. The amounts were
included as contributed capital as they were received.
Also, the former owner of Top-10 Promotions, Inc. was given
the right to borrow up to 25% of retained earnings of
Roanoke Technologies Corporation in fiscal year 1998 or the
first two quarters of fiscal 1999. Such borrowing's shall
be secured by his restricted stock received in the
acquisition at a 75% discount value to market. Repayment
shall be for a two-year period at a 5% annual interest rate.
The Company also entered into an employment contract with
the former owner of Top-10 Promotions.
11. Employment Contract and Incentive Commitments:
- ---------------------------------------------------
The Company has entered into a two year employment contract
with the former owner of Top-10 Promotions. The contract
provides for: salary not to exceed $10,000 per month (with
not more than a 3% salary increase provided The Company is
profitable by at least twice the amount of the salary
increase); quarterly bonus of 30% of the net income before
income tax of The Company; standard non-competition clause;
an option to renew the employment agreement for an
additional two year term (provided he is not in default
under the employment agreement); and the following
management incentives: for fiscal year ending September 30,
1999 (a) 100,000 "restricted" shares if the surviving
corporation has $2 million in gross revenues; (b) 100,000
"restricted" shares if The Company has $400,000 in after tax
earnings.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
11. Employment Contract and Incentive Commitments
continued:
- -----------------------------------------------------------
At November 1, 1998 The Company's management approved the
issuance of 750,000 shares of restricted common shares of
The Company to the former owner of Top-10 Promotions for
attaining gross revenues in excess $200,000.00 or more in
sales for the first three month period of 1999. The shares
have been issued and management values the compensation at
$150,000 in agreement with the same fair value computation
as attributed to the purchase of assets from the acquisition
of Offshore Software Development Ltd. noted in footnote ten.
The Company has entered into an employment agreement with
The Company's Director of Operations on March 1, 1999. The
agreement calls for a contract period of four years upon
which The Director will be paid an annual salary of $60,000
with standard company commissions and bonuses. The salary
will adjust to $80,000 at June 4th 1999. In addition the
director's salary shall increase to $100,000 at the time The
Company's gross revenues exceed $1,000,000 during any twelve
month period and $120,000 once The Company's gross revenues
exceed $2,000,000 during any twelve month period. Upon the
director's salary increasing to $80,000 or above, the
director shall no longer be entitled to commissions and
bonuses.
In addition to the above mentioned, the director will be
granted stock options in The Company at an exercise price of
$1.00 per share of common stock in the amount of 50,000
shares per year for a four year period. Such shares will be
restricted for a two year period from the date of issuance.
Other conditions are included in this employment agreement,
but remain immaterial to the financial statements.
12. Payroll Taxes Payable and Deferred Tax Assets and
Liabilities:
- ------------------------------------------------------
The Company accrues payroll and income taxes. The Company,
currently a C-Corporation, accounts for income taxes in
accordance with Statements on Financial Accounting Standards
109. Management is reasonably assured of The Company's
ability to use its tax benefits in the future. As of July
31, 1999, The Company had a deferred tax assets in the
amount of $62,418 that is derived from a net operating tax
loss carryforward and officer's stock compensation. The
deferred tax assets will expire during the years ending
October 31, 2018 and 2019 in the amounts of $18,956 and
$17,418 respectively. The Company also has a deferred tax
asset related to officer compensation in the amount of
$22,500. It is uncertain as to when this compensation will
be deductible as it can only be deducted for tax purposes
when the officer sells those shares.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
13. Required Cash Flow Disclosure for Interest and Taxes
Paid:
- ---------------------------------------------------------
The Company paid interest in the amount of $2,270 during the
nine months ending July 31, 1999. The Company at July 31,
1999 has no income tax payments due and did not pay any
income tax amounts during the period ending July 31, 1999.
Non-cash transactions included $150,000 in stock based
employee compensation, the $630,000 acquisition of the
assets of Offshore Software Development Ltd. For stock in
The Company and the retirement of $146,480 of note payables.
14. Contingent Liabilities:
- ----------------------------
The Company has invested significant resources in the latest
information technologies regarding the effect of Year 2000
issues. The Company's management feels it has minimized the
effects of these issues; however, there can be no assurance
that the systems of other companies on which The Company
relies will be timely corrected, or that any failure by
another company to correct such systems would not have a
material adverse effect on The Company. Contingency plans
are currently being developed to be implemented in the event
any information technology system, non-information
technology system, third party or supplier is not Year 2000
compliant in a timely manner.
ROANOKE TECHNOLOGY CORPORATION
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
TOGETHER WITH
INDEPENDENT AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
Financial Statements Table of Contents
For the Six Months Ended April 30, 1999
FINANCIAL STATEMENTS Page #
- --------------------- --------
Independent Auditor's Report 1
Balance Sheet 2-3
Statement of Operations 4
Statement of Capital Surplus 5
Cash Flow Statement 6
Notes tot he Financial Statements 7-16
INDEPENDENT AUDITOR'S REPORT ON
FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
Roanoke Technology Corporation
Roanoke Rapids, North Carolina
We have audited the accompanying balance sheet of Roanoke
Technology Corporation, as of April 30, 1999, and the
related statements of operations, retained earnings and cash
flows for the six months then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
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 audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Roanoke Technology Corporation, as of April 30,
1999 and the results of its operations and its cash flows
for the six months then ended in conformity with generally
accepted accounting
principles.
/s/Varma and Associates
-----------------------
Varma and Associates
Certified Public Accountants
Longwood, Florida
May 19, 1999
ROANOKE TECHNOLOGY CORPORATION
BALANCE SHEET
As of April 30, 1999
ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
- ---------------
Cash $ 119,811
Employee advances 800
Deferred tax asset 48,791
----------
Total Current Assets 169,402 $ 169,402
PROPERTY AND EQUIPMENT
- ----------------------
Equipment and leasehold improvements 105,966
Less: accumulated depreciation 8,639
----------
Total Property and Equipment 97,327 97,327
OTHER ASSETS
- ---------------
Organization costs 1,000
Goodwill 19,614
Capitalized software costs 622,000
Less: accumulated amortization 11,274
-------
Net tangibles 631,340
Deposits 1,500
Stockholder loan 62,324
--------
Total Other Assets 695,164 695,164
--------
TOTAL ASSETS $ 961,893
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 25,091
Current maturity of long-term debt 8,571
Credit cards payable 3,284
-----------
Total current liabilities 36,946 36,946
LONG TERM LIABILITIES
- ---------------------
Long term debt 15,721
Less: current portion 8,571
-----------
Total long term liabilities 7,150 7,150
----------
TOTAL LIABILITIES 44,096
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock - $.0001 par value; 50,000
shares authorized; 9,000,000 issued
and outstanding 900
Additional paid-in capital 1,221,228
Retained earnings <304,331>
----------
Total stockholders' equity 917,797 917,797
TOTAL LIABILITIES AND EQUITY $ 961,893
----------
----------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
For the Six Months Ended April 30, 1999
<TABLE>
<S> <C> <C>
REVENUE
- --------
Sales $ 452,450
Cost of sales 292,221
-----------
GROSS PROFIT 160,229 $ 160,229
- -------------
GENERAL AND ADMINISTRATIVE EXPENSES
- ------------------------------------
Advertising 4,078
Bank charges 196
Depreciation and amortization expense 23,472
Dues and subscriptions 1,357
Legal and accounting 38,492
Meals and entertainment 4,036
Office salaries and expense 34,361
Rent 13,750
Salaries - officers 230,967
Repairs and maintenance 1,436
Travel 7,363
----------
Total general and administrative expenses 364,546 364,546
---------
INCOME (LOSS) FROM OPERATION (204,317)
- ----------------------------
OTHER INCOME AND (EXPENSE)
Interest expense (1,609)
---------
INCOME (LOSS) BEFORE TAX BENEFIT (205,926)
- --------------------------------- ----------
Tax benefit 27,971
----------
NET INCOME (LOSS) $(177,955
- ------------------ -----------
-----------
NET EARNINGS PER SHARES
Basic and Diluted
Net earnings per share $ (0.027)
Basic and Diluted Weighted Average
Number of Common Shares Outstanding 8,103,721
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CAPITAL SURPLUS
As of April 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL
PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------- ------
Issuance for services 1,525,000 $ 153 $ 59,323 $ 59,476
Acquisition 500,000 50 19,450 19,500
First offering 800,000 80 19,920 20,000
Second offering 1,000,000 100 49,900 50,000
Net loss for the year (126,376) (126,376)
-------------------------------------------------------
Balance at October 31, 1998 3,825,000 $ 383 $148,593 $(126,376) $ 22,600
Officer Compensation 750,000 75 149,925 150,000
Asset acquisition 999,111 99 629,901 630,000
Issuance of common stock 3,425,889 343 292,809 293,152
Net loss for the year (177,955) (177,955)
-------------------------------------------------------
Balance at April 30, 1999 9,000,000 $900 $1,309,420 $ (304,331) $ 917,797
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
For the Six Months Ending April 30, 1999
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $(177,955)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 23,472
Stock based compensation 150,000
(Increase) decrease in deferred tax asset (27,971)
(Increase) decrease in employee advance (200)
Increase (decrease) in deposits (1,500)
Increase (decrease) in payables for expense 20,991
------------ ----------
Total adjustments to net income 165,192 165,192
Net cash provided by (used in) operating activities (12,763)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital expenditures on equipment (60,201)
Loan to Stockholder (62,324)
-----------
Net cash flows provided by (used in) invest (122,525) (122,525)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from issuance of common stock 232,500
Increase in long term debt created 8,804
-----------
Net cash provided by (used in) financing activities 241,304 241,304
CASH RECONCILIATION
- -------------------
Net increase (decrease) in cash 106,016
Cash at beginning of year 13,795
--------
CASH BALANCE AT END OF YEAR $ 119,811
---------
---------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
1. Summary of significant accounting policies:
- ----------------------------------------------
Industry Roanoke Technology Corporation (The Company) was
- --------
incorporated December 11, 1997 as Suffield Technologies
Corp., its original name, under the laws of the State of
Florida. The Company is headquartered in Roanoke Rapids,
North Carolina and does business as Top-10 Promotions, Inc.
The Company is engaged in the design, development,
production, and marketing of technology to provide enhanced
internet marketing capabilities.
Revenue Recognition and Service Warranty Revenues
- ----------------------------------------
resulting from technology consulting services are recognized
as such services are performed and paid. Services are paid
for in advance of the service being performed. The services
performed are completed by a software program leaving the
time when a service is paid for and the time the service is
performed immaterial. The Company has no extended
maintenance contracts and warrants its consulting services
to meet the consulting service contract guarantee. No
provision for estimated future costs relating to warranties
have been made as these costs have been historically
immaterial.
Cash and Cash Equivalents The Company considers cash on
- -------------------------
hand and amounts on deposit with financial institutions
which have original maturities of three months or less to be
cash and cash equivalents.
Short-Term Investments Short-term investments ordinarily
- ----------------------
consist of short-term debt securities acquired with cash not
immediately needed in operations. Such amounts have
maturities of less than one year.
Basis of Accounting- The Company's financial statements are
- -------------------
prepared in accordance with generally accepted accounting
principles. Specific to computer software costs, the
Company capitalizes and amortizes these costs as guided by
Financial Accounting Standard 86. All costs associated with
software development are expensed as Research and
Development costs until such time as technological
feasibility has been established, after which material
software development costs are capitalized and amortized
over the estimated time of benefit.
Property and Equipment Property and equipment are recorded
- ----------------------
at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the various
classes of assets as follows:
Machinery and equipment 2 to 10 years
Furniture and fixtures 5 to 10 years
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
1. Summary of significant accounting policies continued:
- ----------------------------------------------------------
Leasehold improvements are amortized on the straight-line
basis over the lesser of the life of the asset or the term
of the lease. Maintenance and repairs, as incurred, are
charged to expenses; betterments and renewals are
capitalized in plant and equipment accounts. Cost and
accumulated depreciation applicable to items replaced or
retired are eliminated from the related accounts; gain or
loss on the disposition thereof is included as income.
Intangibles Goodwill represents the excess of purchase
- ------------
price over the fair value of business acquired and is
amortized on a straight-line basis over 20 years.
Other acquired intangibles principally include core
technology in the form of software programs and are
amortized over their estimated lives of primarily 3 to 5
years, existing organization costs are being amortized by
the straight-line method over 5 years. Goodwill is being
amortized by the straight-line method.
Software development costs incurred in the development of
products after technological feasibility is attained are
capitalized and amortized using the straight-line method
over the estimated economic lives of the related products,
not to exceed 3 years. The Company considers technological
feasibility to be established when the Company has completed
all planning, designing, coding and testing activities as
are necessary to establish design specifications including
function, features and technological performance
requirements. Capitalization of product design costs ceases
and amortization of such costs begins when a product or
technology is available for general release to customers for
use by the Company.
Research and Development Research and development costs
- ------------------------
incurred in the discovery of new knowledge and the resulting
translation of this new knowledge into plans and designs for
new products, prior to the attainment of the related
products' technological feasibility, are recorded as
expenses in the period incurred.
Income Taxes The Company utilizes the asset and liability
- ------------
method to measure and record deferred income tax assets and
liabilities. Deferred tax assets and liabilities reflect
the future income tax effects of temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
are measured using enacted tax rates that apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
1. Summary of significant accounting policies continued:
- ----------------------------------------------------------
Fair Value of Financial Instruments The Company's
- -----------------------------------
financial instruments include cash and cash equivalents,
short-term investments, accounts receivable, accounts
payable and liabilities to banks and shareholders. The
carrying amount of long-term debt to banks approximates fair
value based on interest rates that are currently available
to the Company for issuance of debt with similar terms and
remaining maturities. The carrying amounts of other
financial instruments approximate their fair value because
of short-term maturities.
Earnings Per Share Basic earnings per share ("EPS") is
- ------------------
computed by dividing earnings available to common
shareholders by the weighted-average number of common shares
outstanding for the period as required by the Financial
Accounting Standards Board (FASB) under Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per
Shares". Diluted EPS reflects the potential dilution of
securities that could share in the earnings. Basic Earnings
per Share for the period was a loss of $.027 per share.
Concentrations of Credit Risk Financial instruments which
- -----------------------------
potentially expose the Company to concentrations of credit
risk consist principally of operating demand deposit
accounts. The Company's policy is to place its operating
demand deposit accounts with high credit quality financial
institutions.
No customer represented 10 % or more of the Company's total
sales as of the current reporting period.
Stock-Based Compensation In accordance with the
- ------------------------
recommendations in SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123"), the Company's management
has accounted for the stock bonus of 750,000 shares of
restricted stock given to the President of the Company as
compensation. The bonus was accounted for in the current
period in order to match the compensation expense with the
time in which it was earned. In accordance with the tax
accounting, the compensation will not be deductible until
the President sells those shares. The shares are restricted
from sale for a period of two years from the date of
issuance.
Recently Adopted Accounting Standards In June 1997, the
- -------------------------------------
FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130") effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as
components of comprehensive income be reported in a
statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 does not require a
specific format for that financial statement but requires
that an entity display an amount representing total
comprehensive income for the period in that statement.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(See Audit Report)
1. Summary of significant accounting policies continued:
- ---------------------------------------------
SFAS No. 130 requires that an entity classify items of other
comprehensive income by their nature in a financial
statement. For example, other comprehensive income may
include foreign currency and unrealized gains and losses on
certain investments in debt and equity securities. In
addition, the accumulated balance of other comprehensive
income must be displayed separately from retained earnings
and additional paid in capital in the equity section of a
statement of financial position. The Company adopted this
accounting standard at inception as required.
In October 1997 the American Institute of Certified Public
Accountants issued Statement of Position 97-2, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides guidance
on applying generally accepted accounting principles in
recognizing revenue on software transactions and is
effective for transactions entered into in fiscal years
beginning after December 15, 1997. The Company adopted SOP
97-2 at inception as required. Adoption of this SOP 97-2
did not have a material effect on the financial statements.
In February 1997, the FASB issued SFAS No. 132, "Employer's
Disclosure about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), effective for fiscal years beginning after
December 15, 1997. SFAS 132 revises employer disclosures
about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those
plans. This statement standardizes the disclosure
requirements for pensions and other post-retirement benefits
to the extent practicable, requires additional information
on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and
eliminates certain disclosures. Adoption of SFAS 132 did
not have a material impact on the financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective
for fiscal years beginning after June 15, 1999. SFAS 133
requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value.
Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge
accounting. The Company's management believes that adoption
of SFAS 133 will not have a material impact on the financial
statements.
2. Related Party Transactions and Going Concern:
- --------------------------------------------------
The Company's financial statements have been presented on
the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
2. Related Party Transactions and Going Concern
continued:
- --------------------------------------------------
The Company has suffered losses from operations and may
require additional capital to continue as a going concern as
the Company develops its market. Management believes the
Company will continue as a going concern and is actively
marketing its products and services which would enable the
Company to meet its obligations and provide additional
funds for continued new product development. In addition,
management is currently negotiating several additional
contracts for its services and products. Management is also
embarking on other strategic initiatives to expand its
business opportunities. However, there can be no assurance
these activities will be successful.
The President of the Company draws from a stockholders loan
account. The account has been set up to monitor draws in
coordination with the employment contract and incentive
commitment as defined in footnote number 11. There is no
interest charged on the account. The Company's management
plans to clear the account by this fiscal year end.
3. Accounts Receivable and Customer Deposits:
- -----------------------------------------------
Accounts receivable historically has been immaterial as the
Company's policy is to have the software that it sells paid
for in advance. As of the balance sheet date there were no
deposits paid in advance.
4. Use of Estimates:
- ----------------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
5. Revenue and Cost Recognition:
- ----------------------------------
The Company uses the accrual basis of accounting for
financial statement reporting. Revenues are recognized when
products are shipped and expenses realized when obligations
are incurred.
6. Accounts Payable and Accrued Expenses:
- -------------------------------------------
Accounts payable and accrued expenses consist of trade
payables and accrued payroll and payroll taxes created from
normal operations of the business.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
------------------------------------
(See Audit Report)
7. Long - Term Debt continued:
- ----------------------------------
Long term debt consists of:
Note payable to a finance company which bears interest at
16.53%. The note is collateralized by equipment and
requires that monthly payments of $197 be made through the
maturity date of June, 2003.
Capital Lease with a finance company which bears an interest
rate of 13.61%. The lease is collateralized by equipment
and requires that monthly payments of $534 be made through
the maturity date of April, 2002.
Aggregate maturities of long term debt over the next five
years are as follows:
YEAR AMOUNT
---- -------
2000 $ 8,571
2001 5,215
2002 5,951
8. Operating Lease Agreements:
- --------------------------------
The Company rents office space with monthly payments of
$2,500. The lease term for this space is ninety months
beginning on May 1, 1999 and ending on November 1, 2006.
The Company also rents a house for the convenience of
Company employees that are relocating to the area and out of
town business guests. The house also serves as a satellite
office as added security for computer system continuation in
the event that the main office should encounter problems
with their system. The house has monthly payments of
$1,200. The lease term is eighteen months beginning March
1, 1999 and ending on August 31, 2001.
The Company also leases its phone systems, internet lines
and various equipment. The lease terms range from month to
month leases to leases with a term of sixty months. All
long - term leases include an upgrade clause of which
management intends to upgrade technology when available.
For this reason, the Company considers all of these types of
lease arrangements as operating. Currently the lease costs
are at $33,800 per year and shown as part of cost of sales.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
9. Stockholders' Equity:
- --------------------------
Preferred Stock
- ----------------
The Company has been authorized 10,000,000 shares of
preferred stock at $.0001 par value. As of April 30, 1999,
none of these shares had been issued and the limitations,
rights, and preferences were yet to be determined by the
Board of Directors.
Common Stock
- -------------
During the period ending October 1998, the Board of
Directors issued 1,525,000 shares of restricted common stock
to the Company's officer's and legal counsel in exchange for
services, and issued 500,000 shares of restricted common
stock in the acquisition of Top-10 Promotions, Inc.
In addition to the restricted shares issued, the Company
sold common stock through two separate private offerings
during the period. In the initial offering 800,000 shares
were sold each at a price of $0.025. In the second offering
1,000,000 shares were sold each at a price of $0.05.
On October 15, 1998, the majority shareholders of the
Company undertook a Regulation D, Rule 504, offering
whereby it sold 2,000,000 shares of common stock, $.0001 par
value per share or an aggregate of $200,000. In addition,
each investor in the offering received an option to
purchase, for a twelve month period commencing on the date
of this offering, an additional one share of the Company at
$1.00 per share for each eight (8) shares purchased in the
original offering (or $250,000). In addition, each investor
received an option to purchase for an eighteen month period
commencing on the date of this offering an additional one
(1) share of The Company for each 8.88 shares previously
purchased at $2.00 per share or an aggregate of 225,000
shares (or $450,000).
The Company also approved of the investment by Arthur
Harrison & Associates in the offering provided that such
investment in the Company was in lieu of monies owed to
Arthur Harrison & Associates by the Company for two (2)
promissory notes dated September 22, 1998 and October 10,
1998. Further more, Arthur Harrison & Associates agreed to
waive its rights to any interest on promissory notes.
10. Acquisitions:
- -------------------
On March 30, 1999, the Company acquired the assets of
Offshore Software Development Ltd. ("Offshore") in an
exchange of assets for 999,111 shares of the Company issued
to Offshore shareholders. The Company's management has
valued the transaction at $630,000.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
------------------------------------
(See Audit Report)
10. Acquisitions - continued:
- -------------------------------
As of the balance sheet date and the date of the audit the
assets of Offshore were in transport to the North Carolina
office of the Company. The assets consist of four computers
and the rights to the program code for two software products
that are intended to enhance the Company's ability to market
and increase the speed of computer operations. The value of
these items was based on the estimate of fair value by the
Company, if the Company had taken the time to develop the
software and purchase the computers.
Effective May 29, 1998, the Company acquired all the
outstanding common stock of Top-10 Promotions, Inc.,
consisting of 100 shares. These shares were redeemed and
canceled. The shares of Top-10 Promotions, Inc. were
acquired in exchange for 500,000 "restricted" shares of The
Company's common stock issued to David Smith, the sole
shareholder of Top-10 Promotions, Inc. This transaction has
been accounted for using the purchase method of accounting.
Simultaneous with the acquisition, the Company purchased all
of the remaining authorized shares of Top-10 Promotions,
Inc. for $50,000 payable at closing and $17,500 per month
payable over an eleven month period. The amounts were
included as contributed capital as they were received.
Also, the former owner of Top-10 Promotions, Inc. was given
the right to borrow up to 25% of retained earnings of the
Company in fiscal year 1998 or the first two quarters of
fiscal year 1999. Such borrowing's shall be secured by his
restricted stock received in the acquisition at a 75%
discount value to market. Repayment shall be for a two-year
period at a 5% annual interest rate. The Company also
entered into an employment contract with the former owner of
Top-10 Promotions.
11. Employment Contract and Incentive Commitments:
- -----------------------------------------------------
The Company has entered into a two year employment
contract with the former owner of Top-10 Promotions. The
contract provides for: salary not to exceed $10,000 per
month (with not more than a 3% salary increase provided The
Company is profitable by at least twice the amount of the
salary increase); quarterly bonus of 30% of the net income
before income tax of the Company; standard non-competition
clause; an option to renew the employment agreement for an
additional two year term (provided he is not in default
under the employment agreement); and the following
management incentives: for fiscal year ending September 30,
1999 (a) 100,000 "restricted" shares if the Company has $2
million in gross revenues; (b) 100,000 "restricted" shares
if the Company has $400,000 in after tax earnings.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
11. Employment Contract and Incentive Commitments
continued:
- -----------------------------------------------------
At November 1, 1998 the Company's management approved the
issuance of 750,000 shares of restricted common shares of
the Company to the former owner of Top-10 Promotions for
attaining gross revenues in excess of $200,000.00 or more
in sales for the first three month period of 1999. The
shares have been issued and management values the
compensation at $150,000 in accordance with FAS No. 123.
The Company's management has elected the treatment of stock
compensation under FAS No. 123 rather than disclosing pro-forma
results of this transaction and accounting for the
transaction under APB-25 as required by public companies.
The Company entered into an employment agreement with the
Company's Director of Operations on March 1, 1999. The
agreement calls for a contract period of four years upon
which the Director will be paid an annual salary of $60,000
with standard company commissions and bonuses. The salary
will adjust to $80,000 at June 4, 1999. In addition, the
director's salary shall increase to $100,000 at the time the
Company's gross revenues exceed $1,000,000 during any twelve
month period and $120,000 once the Company's gross revenues
exceed $2,000,000 during any twelve month period. Upon the
director's salary increasing to $80,000 or above, the
director shall no longer be entitled to commissions and
bonuses.
In addition to the above mentioned, the director will be
granted stock options in the Company at an exercise price of
$1.00 per share of common stock in the amount of 50,000
shares per year for a four year period. Such shares will be
restricted for a two year period from the date of issuance.
Other conditions are included in this employment agreement,
but remain immaterial to the financial statements.
12. Payroll Taxes Payable and Deferred Tax Assets and
Liabilities:
- ---------------------------------------------------------
The Company accrues payroll and income taxes. The Company,
currently a C-Corporation, accounts for income taxes in
accordance with Statements on Financial Accounting Standards
109. Management is reasonably assured of the Company's
ability to use its tax benefits in the future. As of April
30, 1999, the Company had deferred tax assets in the amount
of $48,791 that is derived from a net operating tax loss
carry forward. The deferred tax assets will expire during
the years ending October 31, 2018 and 2019 in the amounts of
$20,820 and $15,471 respectively. The Company also has a
deferred tax asset related to officer compensation in the
amount of $22,500. It is uncertain as to when this
compensation will be deductible as it can only be deducted
for tax purposes when the officer sells those shares.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
13. Required Cash Flow Disclosure for Interest and Taxes
Paid:
- -----------------------------------------------------------
The Company paid interest in the amount of $1,609
during the six months ending April 30, 1999. The Company at
April 30, 1999 has no income tax payments due and did not
pay any income tax amounts during the period ending April
30, 1999.
Non-cash transactions included $150,000 in stock based
employee compensation, the $630,000 acquisition of the
assets of Offshore Software Development Ltd. for stock in
The Company and the retirement of $146,480 of note payables.
14. Contingent Liabilities:
- -----------------------------
The Company has invested significant resources in the latest
information technologies regarding the effect of Year 2000
issues. The Company's management feels it has minimized the
effects of these issues; however, there can be no assurance
that the systems of other companies on which the Company
relies will be timely corrected, or that any failure by
another company to correct such systems would not have a
material adverse effect on the Company. Contingency plans
are currently being developed to be implemented in the event
any information technology system, non-information
technology system, third party or supplier is not Year 2000
compliant in a timely manner.
ROANOKE TECHNOLOGY CORPORATION
FINANCIAL STATEMENTS
FROM DECEMBER 11, 1997 (INCEPTION)
THROUGH OCTOBER 31, 1998
TOGETHER WITH
INDEPENDENT AUDITOR'S REPORT
INDEPENDENT AUDITOR'S REPORT ON
FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
Roanoke Technologies Corporation
New York, New York
We have audited the accompanying balance sheet of Roanoke
Technologies Corporation, as of October 31, 1998, and the
related statements of income, retained earnings and cash
flows from December 11, 1997 (inception) through October 31,
1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
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 audit provides
a reasonable basis for our opinion. In our opinion, the
financial statements referred to above present fairly, in
all material respects, the financial position of Roanoke
Technologies Corporation, at October 31, 1998, and the
results of its operations and its cash flows from December
11, 1997 (inception) through October 31, 1998 in conformity
with generally accepted accounting principles.
Varma and Associates
Certified Public Accountants
March 3, 1999
ROANOKE TECHNOLOGIES CORPORATION
Financial Statements Table of Contents
From December 11, 1997 (inception) through October 31, 1998
FINANCIAL STATEMENTS Page #
- --------------------------- -------
Independent Auditor's Report 1
Balance Sheet 2 - 3
Statement of Income 4
Statement of Capital Surplus 5
Cash Flow Statement 6
Notes to the Financial Statements 7-14
ROANOKE TECHNOLOGY CORPORATION
BALANCE SHEET
As of October 31, 1998
ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
- ---------------
Cash $ 13,795
Employee advances 1,000
Deferred tax asset 20,820
----------
Total Current Assets 35,615 $ 35,615
PROPERTY AND EQUIPMENT
- ----------------------
Equipment and leasehold improvements 37,765
Less: accumulated depreciation 2,954
----------
Total Property and Equipment 34,811 34,811
OTHER ASSETS
- ---------------
Intangible assets 29,019
Less: accumulated amortization 1,646
-------
Total Other Assets 27,373 27,373
--------
TOTAL ASSETS $ 97,799
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 1,934
Current maturity of long-term debt 1,170
Credit cards payable 5,450
-----------
Total current liabilities 8,554 8,554
LONG TERM LIABILITIES
- ---------------------
Long term debt 67,815
Less: current portion 1,170
-----------
Total long term liabilities 66,645 66,645
----------
TOTAL LIABILITIES 75,199
STOCKHOLDERS' EQUITY
--------------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock - $.0001 par value; 50,000,000
shares authorized; 3,825,000 issued
and outstanding 383
Additional paid-in capital 148,593
Retained earnings <126,376>
----------
Total stockholders' equity 22,600 22,600
TOTAL LIABILITIES AND EQUITY $ 97,799
----------
----------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF INCOME
From December 11, 1997 (inception)
Through October 31, 1998
<TABLE>
<S> <C> <C>
REVENUE
- --------
Sales $ 109,809
Cost of sales 56,083
-----------
GROSS PROFIT 53,726 $ 53,726
- -------------
GENERAL AND ADMINISTRATIVE EXPENSES
- ------------------------------------
Advertising 1,322
Bank charges 971
Dues and subscriptions 1,275
Legal and accounting 25,889
Meals and entertainment 1,278
Office expense 7,526
Postage 1,024
Rent 9,350
Salaries - officers 134,389
Telephone 8,330
Travel 161
Utilities 4,110
----------
Total general and administrative expenses 195,625 195,625
---------
INCOME (LOSS) FROM OPERATION (141,899)
- ----------------------------
OTHER INCOME AND (EXPENSE)
Depreciation and amortization expense (4,600)
Interest expense (697)
---------
Total other income and expense ( 5,297) ( 5,297)
---------
INCOME (LOSS) BEFORE TAX BENEFIT (147,196)
- --------------------------------- ----------
Tax benefit 20,820
----------
NET INCOME (LOSS) $(126,376)
- ------------------ -----------
-----------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CAPITAL SURPLUS
As of October 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
COMMON STOCK ADDITIONAL
PAID
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------- ------
Issuance of common stock 3,825,000 $ 383 $148,593 $ - $ 148,976
Net loss for the year (126,376) (126,376)
-------------------------------------------------------
Balance at October 31, 1998 3,825,000 $ 383 $148,593 $(126,376) $ 22,600
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS
From December 11, 1997 (inception)
Through October 31, 1998
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $(126,376)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization $ 4,600
(Increase) decrease in deferred tax asset (20,820)
(Increase) decrease in employee advance (1,000)
Increase (decrease) in accrued expenses 1,934
Increase (decrease) in payables for expense 5,450
------------ ----------
Total adjustments to net income (9,836) (9,836)
----------
Net cash provided by (used in) operating activities (136,212)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital expenditures on purchase of
subsidiary and improvements (66,784)
-----------
Net cash flows provided by (used in) invest ( 66,784) ( 66,784)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from issuance of common stock 148,976
Increase in long term debt created
from expenses 67,815
-----------
Net cash provided by (used in) financing activities 216,791 216,791
CASH RECONCILIATION
- -------------------
Net increase (decrease) in cash 13,795
Cash at beginning of year -
--------
CASH BALANCE AT END OF YEAR $ 13,795
---------
---------
</TABLE>
PLEASE READ AUDITOR'S REPORT
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
1. Summary of significant accounting policies:
- ----------------------------------------------
Industry Roanoke Technology Corporation (The Company) was
- --------
incorporated December 11, 1997 as Suffield Technologies
Corp., its original name, under the laws of the State of
Florida. The Company is headquartered in Roanoke Rapids,
North Carolina and does business as Top-10 Promotions, Inc.
The Company is engaged in the design, development,
production, and marketing of technology to provide enhanced
internet marketing capabilities.
Revenue Recognition and Service Warranty Revenues
- ----------------------------------------
resulting from technology consulting services is recognized
as such services are performed and paid. Services are paid
for in advance of the service being performed. The services
performed are completed by a software program leaving the
time when a service is paid for and the time the service is
performed immaterial. The Company has no extended
maintenance contracts and warrants its consulting services
to meet the consulting service contract guarantee. No
provision for estimated future costs relating to warranties
have been made as these costs have been historically
immaterial.
Cash and Cash Equivalents The Company considers cash on
- -------------------------
hand and amounts on deposit with financial institutions
which have original maturities of three months or less to be
cash and cash equivalents.
Short-Term Investments Short-term investments ordinarily
- ----------------------
consist of short-term debt securities acquired with cash not
immediately needed in operations. Such amounts have
maturities of less than one year.
Basis of Accounting- The Company's financial statements are
- -------------------
prepared in accordance with generally accepted accounting
principles. Specific to computer software costs, The
Company capitalizes and amortizes these costs as guided by
Financial Accounting Standard 86. All costs associated with
software development are expensed as Research and
Development costs until such time as technological
feasibility has been established, after which material
software development costs are capitalized and amortized
over the estimated time of benefit.
Property and Equipment Property and equipment are recorded
- ----------------------
at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the various
classes of assets as follows:
Machinery and equipment 2 to 10 years
Furniture and fixtures 5 to 10 years
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
1. Summary of significant accounting policies continued:
- ----------------------------------------------------------
Leasehold improvements are amortized on the straight-line
basis over the lessor of the life of the asset or the term
of the lease. Maintenance and repairs, as incurred, are
charged to expenses; betterments and renewals are
capitalized in plant and equipment accounts. Cost and
accumulated depreciation applicable to items replaced or
retired are eliminated from the related accounts; gain or
loss on the disposition thereof is included as income.
Intangibles Goodwill represents the excess of purchase
- ------------
price over the fair value of business acquired and is
amortized on a straight-line basis over 20 years.
Other acquired intangibles principally include core
technology in the form of software programs and are
amortized over their estimated lives of primarily 3 to 5
years., existing Organization costs are being amortized by
the straight-line method over 5 years. Goodwill is being
amortized by the straight-line method.
Software development costs incurred in the development of
products after technological feasibility is attained are
capitalized and amortized using the straight-line method
over the estimated economic lives of the related products,
not to exceed 3 years. The Company considers technological
feasibility to be established when the Company has completed
all planning, designing, coding and testing activities as
are necessary to establish design specifications including
function, features and technological performance
requirements. Capitalization of product design costs ceases
and amortization of such costs begins when a product or
technology is available for general release to customers for
use by The Company.
Research and Development Research and development costs
- ------------------------
incurred in the discovery of new knowledge and the resulting
translation of this new knowledge into plans and designs for
new products, prior to the attainment of the related
products' technological feasibility, are recorded as
expenses in the period incurred.
Income Taxes The Company utilizes the asset and liability
- ------------
method to measure and record deferred income tax assets and
liabilities. Deferred tax assets and liabilities reflect
the future income tax effects of temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
are measured using enacted tax rates that apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(See Audit Report)
1. Summary of significant accounting policies continued:
- ----------------------------------------------------------
Fair Value of Financial Instruments The Company's
- -----------------------------------
financial instruments include cash and cash equivalents,
short-term investments, accounts receivable, accounts
payable and liabilities to banks and shareholders. The
carrying amount of long-term debt to banks approximates fair
value based on interest rates that are currently available
to The Company for issuance of debt with similar terms and
remaining maturities. The carrying amounts of other
financial instruments approximate their fair value because
of short-term maturities.
Concentrations of Credit Risk Financial instruments which
- -----------------------------
potentially expose The Company to concentrations of credit
risk consist principally of operating demand deposit
accounts. The Company's policy is to place its operating
demand deposit accounts with high credit quality financial
institutions.
No customer represented 10 % or more of The Company's total
sales as of the current reporting period.
Stock-Based Compensation In accordance with the
- ------------------------
recommendations in SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123"), The Company's management
has accounts for stock-based compensation to match the
compensation expense with the time in witch it was earned.
In accordance with the tax accounting, restricted stock
compensation will not be deductible until the sale of those
shares.
Recently Adopted Accounting Standards In June 1997, the
- -------------------------------------
FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130") effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as
components of comprehensive income be reported in a
statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 does not require a
specific format for that financial statement but requires
that an entity display an amount representing total
comprehensive income for the period in that statement.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
(See Audit Report)
1. Summary of significant accounting policies continued:
- ---------------------------------------------
SFAS No. 130 requires that an entity classify items of other
comprehensive income by their nature in a financial
statement. For example, other comprehensive income may
include foreign currency and unrealized gains and losses on
certain investments in debt and equity securities. In
addition, the accumulated balance of other comprehensive
income must be displayed separately from retained earnings
and additional paid in capital in the equity section of a
statement of financial position. The Company adopted this
accounting standard at inception as required.
In October 1997 the American Institute of Certified Public
Accountants issued Statement of position 97-2, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides guidance
on applying generally accepted accounting principles in
recognizing revenue on software transactions and is
effective for transactions entered into in fiscal years
beginning after December 15, 1997. The Company adopted SOP
97-2 at inception as required. Adoption of this SOP 97-2
did not have a material effect on the financial statements.
In February 1997, the FASB issued SFAS No. 132, "Employer's
Disclosure about Pensions and Other Post-retirement
Benefits"("SFAS No. 132"), effective for fiscal years
beginning after December 15, 1997. SFAS 132 revises
employer disclosures about pension and other post-retirement
benefit plans. It does not change the measurement or
recognition of those plans. This statement standardizes the
disclosure requirements for pensions and other post-retirement
benefits to the extent practicable, requires
additional information on changes in the benefit obligations
and fair values of plan assets that will facilitate
financial analysis and eliminates certain disclosures.
Adoption of SFAS 132 did not have a material impact on the
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective
for fiscal years beginning after June 15, 1999. SFAS 133
requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value.
Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge
accounting. The Company's management believes that adoption
of SFAS 133 will not have a material impact on the financial
statements.
2. Related Party Transactions and Going Concern:
- --------------------------------------------------
The Company's financial statements have been presented on
the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
2. Related Party Transactions and Going Concern
continued:
- --------------------------------------------------
The Company has suffered losses from operations and may
require additional capital to continue as a going concern as
The Company develops its market. Management believes The
Company will continue as a going concern and is actively
marketing its products and services which would enable The
Company to meet its obligations and provide additional
funds for continued new product development. In addition,
management is currently negotiating several additional
contracts for its services and products. Management is also
embarking on other strategic initiatives to expand its
business opportunities. However, there can be no assurance
these activities will be successful.
3. Accounts Receivable and Customer Deposits:
- -----------------------------------------------
Accounts receivable historically has been immaterial, as The
Company's policy is to have the software that it sells paid
for in advance. As of the balance sheet date there were no
deposits paid in advance.
4. Use of Estimates:
- ----------------------
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principals. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the
reported revenue and expenses.
5. Revenue and Cost Recognition:
- ----------------------------------
The Company uses the accrual basis of accounting for
financial statement reporting. Revenues are recognized when
products are shipped and expenses realized when obligations
are incurred.
6. Accounts Payable and accrued expenses:
- -------------------------------------------
Accounts payable and accrued expenses consist of trade
payables and accrued payroll and payroll taxes created from
normal operations of the business.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
------------------------------------
(See Audit Report)
7. Long - Term Debt continued:
- ----------------------------------
Long term debt consists of a note payable to a finance
company, which bears interest at 16.53%. The note is
collateralized by equipment and requires that monthly
payments of $197 be made through the maturity date of June,
2003. Principal payments of $1,170 are due during the year
ending October 31, 1999, $1,379 in 2000, $1,625 in 2001,
$1,915 in 2002 and $1,658 in 2003.
8. Operating Lease Agreements:
- --------------------------------
The Company rents office space with month to month operating
lease agreement and a twelve-month operating lease agreement
in the amounts of $900 and $450, respectively. All long-term
lease include an upgrade clause of which management
intends to upgrade technology when available. For this
reason, the Company considers all of these types of lease
arrangements as operating. The lease terms range from month
to month to leases with a term of sixty months. Currently
the lease costs are at $46,900 per year and shown as part of
cost of sales.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
9. Stockholders' Equity:
- --------------------------
Preferred Stock
- ----------------
The Company has been authorized 10,000,000 shares of
preferred stock at $.0001 par value. As of October 31,
1998, none of these shares had been issued and the
limitations, rights, and preferences were yet to be
determined by the Board of Directors.
Common Stock
- -------------
During the period ending October 31, 1998, the Board of
Directors issued 1,525,000 shares of restricted common stock
to The Company's officer's, and legal counsel in exchange
for services, and issued 500,000 shares of restricted common
stock in the acquisition of Top-10 Promotions, Inc.
In addition to the restricted shares issued, The Company
sold common stock through two separate private offerings
during the period. In the initial offering 800,000 shares
were sold each at a price of $0.025. In the second offering
1,000,000 shares were sold each at a price of $0.05.
Summary of shares issued
- -------------------------
<TABLE>
<S> <C> <C> <C> <C>
Additional
Par Paid-in
Purpose Shares Value Capital Total
- --------- --------- ------ ---------- -------
Services 1,525,000 $ 153 $59,323 $59,476
Acquisition 500,000 50 19,450 19,500
First Offering 800,000 80 19,920 20,000
Second Offering 1,000,000 100 49,900 50,000
--------- ------ -------
Total 3,825,000 383 148,593 148,976
</TABLE>
10. Acquisitions:
- -------------------
Effective May 29, 1998, the Company acquired all the
outstanding common stock of Top-10 Promotions, Inc.,
consisting of 100 shares, effective. These shares were
redeemed and canceled. The shares of Top-10 Promotions,
Inc. were acquired in exchange for 500,000 "restricted"
shares of the Company's stock issued to David Smith, the
sole shareholder of Top-10 Promotions, Inc. This
transaction has been accounted for using the purchase method
of accounting. The operations of Top-10 Promotions, Inc.,
as of the prior fiscal year have been included as the
Company's.
Simultaneous with the acquisition, the Company purchased all
of the remaining authorized shares of Top-10 Promotions,
Inc. for $50,000 payable at closing and $17,500 per month
payable over an eleven month period. Also, the former owner
of Top-10 Promotions, Inc. was given the right to borrow up
to 25% of retained earnings of Roanoke Technologies
Corporation in fiscal year 1998 or the first two quarters of
fiscal 1999. Such borrowings shall be secured by his
restricted stock received in the acquisition at a 75%
discount value to market. Repayment shall be for a tw0-year
period at a 5% annual interest rate. The Company also
entered into an employment contract with the former owner of
Top-10 Promotions.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
------------------------------------
(See Audit Report)
11. Employment Contract and Incentive Commitments:
- -----------------------------------------------------
The Company has entered into a two year employment
contract with the former owner of Top-10 Promotions. The
contract provides for: salary not to exceed $10,000 per
month (with not more than a 3% salary increase provided The
Company is profitable by at least twice the amount of the
salary increase); quarterly bonus of 30% of the net income
before income tax of The Company; standard non-competition
clause; an option to renew the employment agreement for an
additional two year term (provided he is not in default
under the employment agreement); and the following
management incentives: for fiscal year ending September 30,
1999 (a) 100,000 "restricted" shares if the surviving
corporation has $2 million in gross revenues; (b) 100,000
"restricted" shares if The Company has $400,000 in after tax
earnings.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
12. Payroll Taxes Payable and Deferred Tax Assets and
Liabilities:
- ---------------------------------------------------------
The Company accrues payroll and income taxes. The Company,
currently a C-Corporation, accounts for income taxes in
accordance with Statements on Financial Accounting Standards
109. Management is reasonably assured of The Company's
ability to use its tax benefits in the future. As of
December 31, 1998, the Company had a deferred tax assets in
the amount of $21,960 that is derived from a net operating
tax loss carry forward that will expire during the fiscal
year ending October 31, 2018. The Company has a deferred
tax liability in the amount of $1,140 derived from taking an
accelerated depreciation amount of certain assets in
accordance with the Internal Revenue Tax Code in excess of
that taken for financial statement purposes. The Company's
current tax assets and liabilities are considered current by
the Company's management.
ROANOKE TECHNOLOGY CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
-----------------------------------
(See Audit Report)
13. Required Cash Flow Disclosure for Interest and Taxes
Paid:
- -----------------------------------------------------------
The Company did pay interest in the amount of $617.00
during the six months ending December 31, 1998. The Company
at December 31, 1998 has no income tax payments due and did
not pay any income tax amounts during the period ending
December 31, 1998.
14. Subsequent events:
- -----------------------------
At November 1, 1998 the Company's management approved the
issuance of 750,000 shares of restricted common shares of
the Company to the former owner of Top-10 Promotions for
attaining gross revenues in excess $200,000.00 or more in
sales for the first three month period of 1999. The shares
have been issued and management values the compensation at
$150,000 in accordance with FAS NO. 123. The Company's
management has elected the treatment of stock compensation
under FAS NO. 123 rather than disclosing pro-forma results
of this transaction and accounting for the transaction under
APB-25 as required by public companies.
On October 15, 1998, the majority shareholders of the
Company undertook a Regulation- D, Rule 504, offering
whereby it sold 2,000,000 shares of common stock, $.0001 par
value per share or an aggregate of $200,000. In addition,
each investor in the offering received an option to
purchase, for a twelve month period commencing on the date
of this offering, an additional one shares of the Company at
$1.00 per share for each eight (8) shares purchased in the
original offering (or$250,000). In addition, each investor
received an option to purchase for an eighteen month period
commencing on the date of this offering an additional one
(1) share of the Company for each 8.888 shares previously
purchased at $2.00 per share or an aggregate of 225,000
shares (or $450,000).
The Company also approved of the investment by Arthur
Harrison & Associates in the offering provided that such
investment in the Company was in lieu of monies owed to
Arthur Harrison & Associates by the Company for two (2)
promissory notes dated September 22,1 998 and October 10,
1998. Furthermore, Arthur Harrison & Associates agreed to
waive its right to any interest on promissory notes.
At October 31, 1998 the Company had 3,825,000 shares issued
and outstanding. At January 31, 1999 the Company had
7,880,000 issued and outstanding.
15. Earnings Per Share
- -----------------------
Basic earnings per share ("EPS") is computed by dividing
available to common shareholders by the weighted-average
number of common shares outstanding for a period as required
by the Financial Accounting Standards Board (FASB) under
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Shares". Diluted EPS reflects the potential
dilution of securities that could share in the earnings.
Basic Earnings per Share for the period was la loss of $.04
per share.
TOP-10 PROMOTIONS, INC.
Financial Statements
(Unaudited)
As of MAY 28, 1998
TOP-10 PROMOTIONS, INC.
STATEMENT OF ASSETS, LIABILITIES AND EQUITY
As of MAY 28, 1998
ASSETS
------
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,185
PROPERTY AND EQUIPMENT
Equipment 5,843
Less: accumulated depreciation (894)
------------
Total Equipment 4,949 4,949
TOTAL ASSETS $ 6,134
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Stockholder loan $ 7,800
STOCKHOLDER'S EQUITY
Capital stock - no par value; 100,000 shares
authorized; 100 issued and outstanding 100
Retained earnings (1,766)
----------
Total stockholders' equity (1,666) (1,666)
TOTAL LIABILITIES AND EQUITY $ 6,134
---------------
---------------
</TABLE>
UNAUDITED
TOP-10 PROMOTIONS, INC.
STATEMENT OF REVENUES AND EXPENDITURES
From January 1, 1998 Through May 28, 1998
<TABLE>
<S> <C> <C>
REVENUE
Sales $ 168,836
Cost of sales 58,562
GROSS PROFIT 160,229 $ 160,229
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising 151
Bank charges 142
Communication costs 1,007
Contract labor 31,875
Credit card discount fees 4,786
Depreciation 894
Dues and subscriptions 536
Insurance 335
Legal and accounting 500
Maintenance 181
Meals and entertainment 949
Office supplies 2,246
Postage 550
Printing 340
Rent 6,900
Salaries - officer 50,673
Supplies 713
Telephone 5,325
Travel 914
Utilities 3,024
-------
Total general and administrative expenses 112,041 112,041
INCOME (LOSS) FROM OPERATION $ (1,766)
-----------
-----------
</TABLE>
UNAUDITED
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
Management Discussion and Analysis:
- -----------------------------------
The Company and Industry
TOP-10 Promotions, Inc., a Company incorporated in the
state of Virginia during December of 1997, is in the
business of servicing internet web sites with new
technology. David Smith, president and the soul shareholder
of the Company, has developed a technology whereby a web
site can increase its visibility on the internet through key
search terms. The Company market the service by offering a
free downlodable program that allows a web site to obtain a
visibility report. The Company follows up with a phone call
to the prospective customer to find out if they are
interested in improving their visibility through the
services that the Company offers.
Results of operations and Ongoing Entity
- ----------------------------------------
The Company is considered to be an ongoing entity. The
stockholder of the Company funds any shortfalls in the
Company's cash flow on a day to day basis. The president of
the Company considers the Company to have significant
revenues so as to consider it to be out of its development
stage. These revenues are, at this time, considered enough
to meet general expense requirements. The current level of
revenues is not enough to generate a plan of rapid
expansion. The Company's revenues are limited by the lack
of sales persons, phone equipment and computer equipment.
In order for the Company to expand as planned, it needs
additional capital.
Liquidity and Capital Resources
- --------------------------------
In addition to the stockholder loan, the Company has
interested investors that intend to fund the Company's
growth. As the Company intends for rapid expansion using
the funds from investors and little debt, the Company
expects certain expansion costs to be in excess of the
revenues during the expansion period. After the initial
expansion period additional costs are considered to rise in
proportion to the rise in sales; the cost most relevant are
sales costs.
Depreciable Assets
- ------------------
The Company has computer equipment and software that is
depreciated using accelerated methods over a three to five
year period. Additional equipment is expected to be
included in the Company's expansion.
TOP-10 PROMOTIONS, INC.
As of May 28, 1998
Management Discussion and Analysis Continued:
- -----------------------------------------------
Potential Change of Control
- ----------------------------
With the current consideration of additional investors,
the majority share of ownership is subject to change. Given
the amount of capital that may be needed, additional equity
investors are needed.
Basis of Accounting
- --------------------
The Company is using the modified cash basis of
accounting. This method accounts for the Company's receipts
and disbursements as they receive or disburse cash funds.
Certain long lived assets and long lived liabilities are
capitalized.
EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------
3.1 Articles of Incorporation of Roanoke
Technology Corp. (formerly known as
Suffield Technologies Corp.) And
Articles of Amendment *
3.2 By-Laws of Roanoke Technology Corp. *
10.1 March 30, 1999 Asset Purchase Agreement
And Share Exchange with Offshore
Software Development Ltd. *
10.2 May 28, 1998 Stock Purchase Agreement
And Share Exchange with Top-10
Promotions, Inc. *
10.3 Articles of Merger and Plan of Merger
of Top-10 Promotions, Inc. and
Roanoke Technology Corp. *
27.1 Financial Data Schedule
* Filed with the initial filing of Form 10 on July 15, 1999.
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
- -----------------------------------
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AS OF JULY 31, 1999
AND THE STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-END] JUL-31-1999
[CASH] 160,317
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
<EMPLOYEE ADVANCES> 500
<DEFERRED TAX ASSET> 62,418
[CURRENT-ASSETS] 223,235
[PP&E] 137,751
[DEPRECIATION] 12,494
<NET INTANGIBLES> 598,454
[DEPOSITS] 1,500
<STOCKHOLDER LOAN> 62,324
[TOTAL-ASSETS] 1,010,770
[CURRENT-LIABILITIES] 55,003
<LONG TERM LIABILITIES> 15,085
[COMMON] 907
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 939,775
[TOTAL-LIABILITY-AND-EQUITY] 1,010,770
[SALES] 873,772
[TOTAL-REVENUES] 873,772
[CGS] 557,436
[TOTAL-COSTS] 557,436
<GENERAL EXPENSES> 580,184
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 2,270
[INCOME-PRETAX] <263,848>
<INCOME-TAX BENEFIT> 41,598
[INCOME-CONTINUING] <224,520>
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] <224,520>
[EPS-BASIC] (.038)
[EPS-DILUTED] 0
</TABLE>
